NCLT Mumbai Directs Income Tax Authority To Refund TDS To Corporate Debtor Undergoing Liquidation

Brief Background

Asset Reconstruction Company (India) Ltd. ("Financial Creditor") had filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Precision Fasteners Ltd. ("Corporate Debtor"), which is an auto component manufacturer. The NCLT Mumbai Bench had initiated CIRP against the Corporate Debtor and subsequently an order for liquidation was passed. Mr. Divyesh Desai was appointed as the Liquidator.

The liquidator had filed an application under Section 60(5) of the IBC against Deputy Commissioner of Income Tax, Mumbai ("Respondent"), seeking a direction to the Assessing Officer/Income-tax Department to refund Tax Deduction at Source (TDS) aggregating to Rs. 93,81,464/- to the Corporate Debtor. The TDS amount was charged from the Corporate Debtor after the order of liquidation had been passed. The dues of the statutory authorities, including the Income Tax Department, are considered operational debt under IBC and are paid as per the waterfall mechanism under Section 53 of the IBC. NCLAT has previously held that a company under liquidation has no liability to fulfill income tax obligations.

When the Respondent did not enter appearance despite several opportunities, the NCLT Bench proceeded ex-parte in the application and directed the Deputy Commissioner of Income Tax, Mumbai, to remit back the TDS amount to the Corporate Debtor.

Case Title: Asset Reconstruction Company (India) Ltd. v Precision Fasteners Ltd., CP.(IB) 1339/MB/2017

Counsel For the Applicant: Mr. Pankaj Soni, Advocate

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