Income Tax Dues Are Operational Debts Under IBC

The Center has set up National Company Law Tribunal (NCLT) on June 1, 2016 to look in to cases relating to insolvency and bankruptcy of companies, especially those that have a huge bank debt.

- Pritam Sangwan

It works like the courts of law in the country and determines the facts of each case and decides in accordance with principles of natural justice.

There were multiple petitions filed with NCLT benches by Tax departments pertaining to treatment of their dues during the Corporate Insolvency Resolution Process (CRIP) under Insolvency and Bankruptcy Code (IBC), 2016.

Why taxman is running to NCLT for relief?

· Adjudicating Authority has granted huge Income Tax benefits in the resolution plan. Respondent- 'Synergies Castings Ltd.' without impleading the Appellant department as a Respondent to the said proceedings. (CA. No. 205 of 2017 - Synergies Dooray Automotive Ltd. & Ors.)

· The grievance of the tax department is that the Income Tax liability/ demand in respect of the 'Corporate Debtor' was settled for 1% of the 'crystallized demand' against the mandate of the Income Tax Act, 1961. (CA. No.671 of 2018-. Raj Oils Mills Ltd. & Ors)

· Resolution Professional had not intimated during the CIRP to attend the meeting of the 'Committee of Creditors' (CoC) and plan has been approved prejudicial to the rights of the Tax departments, Further, the 'Sales Tax' and 'Value Added Tax' (VAT) do not come within the meaning of 'Operational Debt' and thereby, 'Sales Tax Department, State of Maharashtra' cannot be treated to be an 'Operational Creditor'.(CA. No. 309 of 2018- Sales Tax Department Vs M/s. Raj Oil Mills Limited & Vs Parte Casters Pvt. Ltd. & Ors )

· Reduction of VAT to 1% is against the existing VAT law which say's 'liability under the Act to be the first charge' (559 of 2018- Sales Tax Department, State of Maharashtra vs Phoenix Erectors Pvt. Ltd. & Ors)