Delhi High Court Quashes Income Tax Demand Of Rs. 257 Crores Against Tata Steel Ltd.

The Delhi High Court has quashed the income tax demand of Rs. 257 crore against Tata Steel Ltd. (TSL).

The bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed that a successful applicant is, in law, provided with a “clean slate”; therefore, dues for the period prior to the date when the RP was approved cannot be recovered. The courts have recognized this principle in more than one case.

The assessee/appellant, TSL, has approached this Court by way of an instant writ petition, questioning the very jurisdiction of the revenue to enforce the demand for tax and penalty. The broad ground on which TSL seeks to assail the demand raised by the revenue is that it concerns periods that precede the date of approval of the Resolution Plan (RP) by the concerned bench of the National Company Law Tribunal (NCLT) and, therefore, fall within the ambit of the “clean slate” principle.

The assessee submitted that once the RP is approved, all stakeholders, i.e., secured creditors, unsecured creditors, shareholders, workers, and employees, are bound by the terms. The department is not any different from the other creditors.

The department contended that the IBC 2016 prohibits recovery of outstanding demands, albeit on the relevant date. Section 248 of the 2016 Code does not prohibit the revenue from taking recourse to the provisions of the Income Tax Act, 1961 Act and the rules framed thereunder continuously. Hence, the impugned demand is valid in the eyes of the law.

The court held that a successful applicant whose RP has been approved should not be put in a position where it is called upon to liquidate the dues of creditors, including statutory creditors, which were not embedded in the RP.

Counsel For Petitioner: Abhishek M. Singhvi

Counsel For Respondent: Zoheb Hossain

Case Title: Tata Steel Limited Versus DCIT

Citation: 2023 LiveLaw (Del) 1096

Case No.: W.P.(C) 13188/2018

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