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 concerning the tax liabilities of Monnet Ispat & Energy Ltd. During the pendency of these appeals, the National Company Law Tribunal (NCLT) admitted an insolvency petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, initiated by State Bank of India against the respondent company. Consequently, a moratorium under Section 14 of the IBC was declared against the corporate debtor.

 Issues Involved

  1. Whether income tax appellate proceedings can continue against a corporate debtor after declaration of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016?
  2. Whether the provisions of the IBC override proceedings under the Income Tax Act by virtue of Section 238 of the Code?

 Petitioner’s Arguments (Revenue Department)

The Revenue argued that unlike earlier insolvency legislations, the Insolvency and Bankruptcy Code does not provide any specific mechanism for seeking permission from the NCLT to continue pending proceedings before other judicial or quasi-judicial forums. Therefore, the Department sought clarity regarding continuation of tax appeals against the assessee company.

 Respondent’s Arguments (Assessee Company)

The respondent relied upon the moratorium order passed by the NCLT and submitted that Section 14 expressly prohibits institution or continuation of any proceedings against the corporate debtor during the Corporate Insolvency Resolution Process (CIRP), which would necessarily include tax proceedings.

 Court Findings / Observations

The Delhi High Court observed that Section 238 of the Insolvency and Bankruptcy Code gives overriding effect to the Code over any inconsistent law in force. The Court held that once the insolvency commencement date is triggered and moratorium is imposed under Section 14(1)(a), continuation of pending proceedings against the corporate debtor is prohibited.

The Court further relied upon the Supreme Court’s decision in Innoventive Industries Ltd. v. ICICI Bank, affirming that the IBC prevails over inconsistent statutes. Therefore, the pending tax appeals filed by the Revenue could not proceed during the moratorium period.

 Court Order

The Delhi High Court disposed of the Revenue’s appeals with liberty to revive the same subject to further orders of the National Company Law Tribunal upon conclusion of the insolvency resolution process or liquidation proceedings, as applicable.

 Important Clarification

This judgment clarifies that:

  • Tax proceedings, including appellate proceedings, fall within the ambit of “proceedings” under Section 14 of the IBC.
  • Moratorium under IBC bars continuation of tax litigation against the corporate debtor.
  • Section 238 gives IBC supremacy over tax laws where inconsistency exists.
  • Revenue authorities must await the outcome of CIRP before reviving proceedings.

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

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