Facts of the Case

The Revenue Department filed multiple Income Tax Appeals before the Delhi High Court challenging the order passed by the Income Tax Appellate Tribunal (ITAT) relating to the tax liability of Monnet Ispat & Energy Ltd. During the pendency of these appeals, the National Company Law Tribunal admitted an insolvency petition under Section 7 of the Insolvency and Bankruptcy Code against the respondent company and declared a moratorium under Section 14 of the Code. The issue arose as to whether the pending tax appeals could proceed despite such moratorium.

 Issues Involved

  1. Whether pending income tax appeals fall within the scope of “proceedings” prohibited under Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016?
  2. Whether the Income Tax Department can continue appellate proceedings against a corporate debtor after commencement of CIRP?
  3. Whether the Insolvency and Bankruptcy Code overrides the provisions of the Income Tax Act in case of inconsistency?

 Petitioner’s Arguments (Revenue Department)

  • The Revenue contended that the tax appeals were filed for adjudication of tax liability and should not be treated at par with ordinary civil suits.
  • It was argued that unlike earlier insolvency laws, the Insolvency and Bankruptcy Code does not provide any mechanism for obtaining permission from the NCLT for continuation of pending proceedings in other forums.
  • The Department sought preservation of its right to continue the appeals at an appropriate stage.

 Respondent’s Arguments (Assessee/Corporate Debtor)

  • The respondent relied upon the moratorium order passed by the NCLT under Section 14 of the Insolvency and Bankruptcy Code.
  • It was submitted that once CIRP commences, all pending proceedings against the corporate debtor are prohibited.
  • The respondent emphasized that Section 238 of the IBC gives overriding effect to the Code over all inconsistent laws, including tax statutes.

 Court Findings / Observations

The Delhi High Court observed that:

  • Section 14(1)(a) clearly prohibits institution or continuation of pending suits or proceedings against the corporate debtor after insolvency commencement.
  • The term “proceedings” is broad enough to include income tax appellate proceedings.
  • Section 238 of the Insolvency and Bankruptcy Code gives the Code overriding effect over inconsistent provisions contained in any other law.
  • Reliance was placed upon the Supreme Court judgment in Innoventive Industries Ltd. vs ICICI Bank, wherein the overriding nature of IBC was clarified.
  • Since the NCLT had already admitted the insolvency petition and declared moratorium, continuation of tax appeals would be impermissible during the moratorium period.

 Court Order / Final Decision

The Delhi High Court disposed of the income tax appeals with liberty to the Income Tax Department to revive the appeals subject to further orders passed by the National Company Law Tribunal. Thus, the proceedings were not adjudicated on merits but were kept in abeyance due to the statutory moratorium under the Insolvency and Bankruptcy Code.

 Important Clarification

  • Income tax proceedings are covered within the ambit of “proceedings” under Section 14 IBC when initiated or continued against the corporate debtor.
  • The moratorium under IBC has overriding effect even over tax proceedings.
  • Revenue authorities must await the outcome of CIRP or further NCLT directions before reviving appeals.
  • This judgment strengthens the legislative intent behind IBC to preserve the corporate debtor during insolvency resolution.

 Sections Involved

Insolvency and Bankruptcy Code, 2016

  • Section 7 – Initiation of Corporate Insolvency Resolution Process by Financial Creditor
  • Section 14 – Moratorium
  • Section 31 – Approval of Resolution Plan
  • Section 33 – Liquidation
  • Section 238 – Overriding Effect of the Code

Income Tax Act, 1961

  • Appellate provisions relating to Revenue Appeals before High Court

 Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2017:DHC:8936-DB/SMD04092017ITA5332017_162641.pdf

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