Facts of the Case

The petitioner, Tata Steel Limited (TSL), challenged a notice dated 28.08.2018 and order dated 17.10.2018 issued by the Income Tax Department under Section 221(1) of the Income Tax Act demanding tax and proposing penalty for multiple assessment years (2001–02, 2009–10, 2010–11, 2013–14) aggregating to ₹257.80 crores.

The demands related to Bhushan Steel Ltd. (BSL), which underwent Corporate Insolvency Resolution Process (CIRP) under the IBC. The Resolution Plan submitted by Tata Steel was approved by the NCLT on 15.05.2018.

The Revenue had filed claims during CIRP for certain assessment years but failed to include:

  • Demand for AY 2001–02
  • Penalty claims for all relevant years

Subsequently, after approval of the Resolution Plan, the Revenue issued recovery notices including additional claims.

Issues Involved

  1. Whether the Income Tax Department can recover tax dues and penalties for periods prior to approval of the Resolution Plan under IBC.
  2. Whether claims not included in the approved Resolution Plan stand extinguished.
  3. Whether the provisions of the IBC override the Income Tax Act in case of inconsistency.

Petitioner’s Arguments (Tata Steel Limited)

  • The Revenue is an operational creditor under IBC and tax dues constitute operational debt.
  • Once the Resolution Plan is approved, all claims not included in it stand extinguished.
  • The “clean slate principle” ensures that the successful resolution applicant is not burdened with past liabilities.
  • The IBC overrides the Income Tax Act under Section 238.
  • Penalty claims were never filed during CIRP and hence cannot be enforced later.

Respondent’s Arguments (Income Tax Department)

  • The IBC does not prohibit assessment or reassessment proceedings.
  • Tax demands were validly raised under the Income Tax Act.
  • Some demands crystallized after approval of the Resolution Plan.
  • The petitioner should have availed alternative remedies under the Income Tax Act.

Court’s Findings / Analysis

  • The Court held that the Revenue had knowledge of CIRP and had filed claims for certain years, proving awareness.
  • Failure to file claims (including penalties and AY 2001–02) within the CIRP timeline cannot give the Revenue an advantage.
  • Once the Resolution Plan is approved, all claims not included stand extinguished.
  • The “clean slate” principle ensures that the successful resolution applicant is free from past liabilities.
  • Section 238 of IBC gives overriding effect over inconsistent laws, including the Income Tax Act.
  • Allowing recovery would defeat the purpose of insolvency resolution and discourage resolution applicants.

Court Order / Decision

  • The impugned notice dated 28.08.2018 and order dated 17.10.2018 were quashed and held unsustainable in law.
  • Recovery of pre-resolution tax dues not included in the Resolution Plan is not permissible.
  • Exception: Demand for AY 2001–02 is subject to the final outcome of pending Supreme Court proceedings.

Important Clarification by Court

  • All statutory dues (including taxes) not part of the Resolution Plan are extinguished.
  • Government authorities are bound by the approved Resolution Plan.
  • A successful resolution applicant cannot be saddled with undecided or future claims.
  • Alternative remedy does not bar writ jurisdiction where action is without jurisdiction.

Link to download the order -   https://delhihighcourt.nic.in/app/showFileJudgment/RAS31102023CW131882018_114107.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.