NCLT Kochi: No Provision For Liquidator To File Income Return Of Corporate Debtor

The Tribunal held that there is no such provision in the IT Act, IBC, or IBBI (Liquidation Process) Regulation, 2016 that the Liquidator of the Company in Liquidation under the IBC is required to file an Income Tax Return.

Background Facts:

The Corporate Debtor is a wholly owned subsidiary of Albanna Engineering LLC. Since no Resolution Plan was received, on 02.12.2021 NCLT moved the Corporate Debtor into Liquidation.

The Liquidator filed an application directing BPCL to transfer Rs. 25.13 crores via fixed deposit and interest accrued thereon till date and Rs. 5.46 Crores to the Liquidator. NCLT via order dated 18.05.2022 directed BPCL to liquidate the fixed deposit and transfer the said amount along with Rs. 5.46 Crores retained by it to the direction of NCLT to Liquidator which will further be used for the distribution of assets in accordance with Section 53 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’).

BPCL intimated that Income Tax (‘IT’) and GST TDS will be deducted on the final invoice raised opposed by the Liquidator on the ground that NCLT has held that the final invoice amount is the asset of the Corporate Debtor and as per NCLAT no TDS should be deducted for the company under liquidation. BPCL insisted upon the deduction of TDS at the rate of 43.68% (applicable to foreign companies) even though payment is being to an Indian company in Liquidation.

NCLT Verdict:

The NCLT Kochi held that there is no such provision in the IT Act, IBC, or IBBI (Liquidation Process) Regulation, 2016 that the Liquidator of the Company in Liquidation under the IBC is required to file an Income Tax Return.

The Tribunal placed reliance on the NCLAT order in Om Prakash Agrawal Liquidator Vs. Chief Commissioner of Income Tax (TDS) (2021) whereby it made directions to the Income Tax Department to refund the TDS deposited by the purchaser to the Liquidator and clarified the jurisprudence around the interplay of the provisions between the 194IA of IT Act and Section 53(1)(e) of IBC relating to deduction of TDS.

The NCLT emphasized that while making the observation of apparent inconsistency in the order of priority of payment of TDS under the two sections; the NCLAT by virtue of the overriding effect of Section 238 of the Code has rightly held that the TDS, being an advance capital gain tax will be recovered in priority of creditors as stipulated under the waterfall mechanism of the Code wherein the government dues are ranked fifth in priority of creditors.

The Tribunal observed that for filing of the return, the financial statements are required to be annexed but the IBC and IBBI (Liquidation Process) Regulation, 2016 does not assign a duty on the Liquidator to prepare financial statements. Therefore, the deduction of TDS made by BPCL is arbitrary and illegal.

In conclusion, the NCLT directed BPCL to make a payment of Rs. 9.01 Crores to the Liquidator within 30 days from the date of receipt of this order.

Case Title: Mr. Vinod Balachandran, Liquidator of Albanna Engineering (India) Pvt. Ltd. Vs. Bharat Petroleum Corporation Ltd. & Anr.

Case No.: IA(IBC)/84/KOB/2023 IN IBA/38/KOB/2019

Counsel for Liquidator: Mr. Dharam Suresh and Mr. K.B. Arun Kumar, Advocates.

Counsel for Respondent: Mr. Raja Kannan and Mr. Pranoy Harilal, Advocates.

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