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) in relation to tax liability of Monnet Ispat & Energy Ltd.

During the pendency of these appeals, proceedings under the Insolvency and Bankruptcy Code, 2016 were initiated against the assessee company by the State Bank of India under Section 7 of the Code. The National Company Law Tribunal (NCLT) admitted the insolvency petition and declared moratorium under Section 14 of the Code.

The principal issue before the High Court was whether the Income Tax Department’s pending appeals could continue despite the moratorium order passed by NCLT.

 Issues Involved

  1. Whether Income Tax Appeals pending before the High Court are covered under the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016?
  2. Whether the Insolvency and Bankruptcy Code overrides the provisions of the Income Tax Act in case of inconsistency?
  3. Whether the Revenue Department can continue tax litigation during the subsistence of CIRP?

 Petitioner’s Arguments (Revenue Department)

The appellant-Revenue contended that unlike earlier insolvency statutes, the Insolvency and Bankruptcy Code does not specifically provide a mechanism for obtaining permission from NCLT for continuation of pending proceedings before other judicial forums.

It was argued that tax appeals involve adjudication of statutory tax liability and therefore should not automatically come to a halt merely because insolvency proceedings have commenced.

 Respondent’s Arguments (Assessee Company)

The respondent-company submitted that once NCLT admitted the insolvency petition and imposed moratorium under Section 14, all legal proceedings, including tax proceedings and appeals, must remain stayed.

It was further argued that Section 238 of the Code gives overriding effect to the Insolvency and Bankruptcy Code over any inconsistent provisions contained in any other law.

 Court Findings / Observations

The Delhi High Court examined Sections 14 and 238 of the Insolvency and Bankruptcy Code and held that the statutory language is clear and unambiguous.

The Court observed that Section 14(1)(a) expressly prohibits institution or continuation of pending suits or proceedings against the corporate debtor after commencement of insolvency proceedings.

The Court further held that Section 238 gives overriding effect to the Code over all inconsistent laws, including tax statutes.

Reliance was also placed on the Supreme Court’s decision in Innoventive Industries Ltd. v. ICICI Bank which clarified the overriding nature of the Insolvency and Bankruptcy Code.

 Court Order / Final Decision

The Delhi High Court disposed of the Income Tax Appeals in view of the moratorium operating under Section 14 of the Insolvency and Bankruptcy Code.

However, liberty was granted to the Income Tax Department to revive the appeals subject to further orders of the National Company Law Tribunal after completion of the insolvency process.

 Important Clarification

  • Income Tax proceedings and appeals are covered within the scope of “proceedings” under Section 14 of the IBC.
  • Moratorium under Section 14 extends to tax litigation against the corporate debtor.
  • Section 238 of IBC has overriding effect over the Income Tax Act where inconsistency exists.
  • Tax authorities cannot continue recovery or litigation proceedings during CIRP without conclusion of insolvency proceedings.
  • Proceedings may be revived after the moratorium period ends, subject to NCLT orders.

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

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