Expectation from Budget 2020 in context of IBC 2016 on Tax Front

1. Existing provisions u/s 153 of I-Tax act 1961 prescribes various limitation periods for completion of assessments under I-Tax act 1961. The IBC act 2016 stipulates as per section 60(6) that moratorium period be excluded from Limitation period. However I-Tax authorities never accept the overriding power of IBC’s as per section 238 of IBC 2016 and conclude the assessments with in prescribed time u/s 153. It act as burden and is also in contravention of sec 14 (1) (a) of the IBC 2016

1.1. The corresponding amendment may also be brought under I-Tax act in section 153 to exclude the moratorium period from Limitation period.

2. It is seen that huge I-Tax liabilities are there in case of companies going in to for liquidation either in crystallized form or contingent but chances of ultimate recoveries against all these are Nil as per waterfall mechanism u/s 53 due to non-availability of underlying assets. Further these liabilities also go on increasing due to interest burden with no chance of ultimate recovery. It results in uncalled litigation with Nil chances of recovery.

2.1. New section is brought in to I-Tax act whereas officer be empowered to  recall all litigations against CD on request by Liquidator in prescribed forms where chances of recovery are Nil.

3. Existing provisions u/s 170 of I-Tax act 1961 provides for taxation in the hands of successor of business. But generally all approved Resolution plans provides waiver of past I-tax dues after receipts u/s 53 of IBC 2016.

3.1. Suitable amendment be brought u/s 170 of I-Tax act 1961, whereas past I‑Tax dues aren’t recovered from successor of business being new Resolute Applicants.

4. Existing provisions u/s 28(iie or iv) & 41(1) of I-Tax act 1961 stipulates taxability of certain incomes. However under IBC 2016, Resolution plan generally consist of waiver of Loans alongwith interest from Financial Creditors and Operational creditors. It results in taxation in the hands of C.D. Here it is pertinent to note that various high Courts have already decided that income by writing off term loans etc aren’t taxable being capital receipts. But I-Tax authorities especially at assessment stage never consider all these and are subject matter of litigation for C.D.

4.1. The corresponding amendment may also be brought u/s 28(ii e or iv) & 41(1) whereas such incomes of Companies revived by resolution plan isn’t charged  to I-Tax.

5. Existing provisions u/s 115JB of I-Tax act 1961 provides for taxation based on book profit. In many cases artificial book profit arose under following circumstances:-

• Waiver of Loan
• Slump Sales
• Conversion of Debt in to Equity

5.2. The corresponding amendment may also be brought u/s 115JB whereas increase in book profit due to above should be excluded as already many deductions are there.

6. Existing provisions u/s 56 (2) (x) of I-Tax act 1961 provides for taxation in the hands of recipient alongwith lot of exceptions.

6.1. The corresponding amendment may also be brought u/s 56 (2) (x) wherein receipts related to Resolution Plan should not be taxable in the hands of stakeholders.

About the Author: Manoj Kumar Anand is Delhi based Chartered Accountant and Insolvency Professional and involved in around 14 assignments as IRP/RP/Liquidator/Process Advisor under IBC 2016. He has co-authored a book on Valuation also and is founder President of ‘ AIIPA’ an association of Insolvency Professional.