Facts of the Case

The present batch of Income Tax Appeals was filed by the Revenue before the Delhi High Court against the order passed by the Income Tax Appellate Tribunal (ITAT) concerning the tax liability of Monnet Ispat & Energy Ltd. During the pendency of these appeals, insolvency proceedings were initiated against the assessee-company under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), and the National Company Law Tribunal (NCLT), acting as the Adjudicating Authority, admitted the insolvency petition and declared moratorium under Section 14 of the Code.

The principal question before the High Court was whether the Income Tax Department could continue prosecuting the pending appeals during the subsistence of the moratorium period declared under the IBC.

 Issues Involved

  1. Whether pending Income Tax Appeals against a corporate debtor can continue during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016?
  2. Whether the overriding effect under Section 238 of the IBC prevails over proceedings under the Income Tax Act?
  3. Whether tax proceedings pending before the High Court are covered within the ambit of “proceedings” under Section 14(1)(a) of the IBC?

 Petitioner’s Arguments (Revenue Department)

The Revenue contended that unlike previous insolvency statutes, the Insolvency and Bankruptcy Code, 2016 does not contain any provision requiring permission from the NCLT for continuation of pending proceedings in other judicial forums. It was argued that the Income Tax Appeals pertained to adjudication of tax liability and should not automatically be barred by the moratorium order.

 Respondent’s Arguments (Assessee Company)

The Respondent-assessee relied upon the moratorium order passed by the NCLT under Section 14 of the IBC and submitted that all legal proceedings, including tax appeals, stood prohibited during the corporate insolvency resolution process. It was further argued that Section 238 of the IBC grants overriding effect over all inconsistent laws, including tax laws.

 Court Findings / Court Order

The Delhi High Court examined Sections 14 and 238 of the Insolvency and Bankruptcy Code, 2016 and observed that the legislative intent of Section 14 is to impose a complete moratorium on institution or continuation of proceedings against the corporate debtor.

The Court held that:

  • Section 14(1)(a) expressly prohibits continuation of pending suits or proceedings against the corporate debtor.
  • Income Tax Appeals filed by the Revenue against the assessee-company fall within the scope of such “proceedings.”
  • Section 238 of the IBC gives overriding effect to the Code over all inconsistent laws.
  • The Supreme Court’s ruling in Innoventive Industries Ltd. vs ICICI Bank was relied upon to affirm the overriding nature of the IBC.

Accordingly, the High Court disposed of the appeals with liberty to the Revenue Department to revive the same subject to further orders of the NCLT upon conclusion of the insolvency process.

 Important Clarification

This judgment clarifies that:

  • Tax litigation pending against a corporate debtor is hit by the moratorium under Section 14 of the IBC.
  • The moratorium applies not only to civil suits but also appellate tax proceedings.
  • Revenue authorities cannot proceed independently during CIRP unless the insolvency process concludes or appropriate orders are passed by NCLT.
  • The IBC has overriding supremacy over conflicting statutory proceedings, including tax statutes.

 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 IBC

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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