The Supreme Court examined the legality of income tax demands raised after the approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC). The appeal arose from a judgment of the National Company Law Appellate Tribunal affirming the dismissal of an application challenging post-resolution tax demands raised by the Income Tax Department for assessment years not covered under the approved resolution plan.

The Corporate Insolvency Resolution Process had culminated in the approval of a resolution plan, which expressly dealt with statutory liabilities as appearing on the CIRP commencement date and provided that, upon payment, all such liabilities would stand fully satisfied, settled, and extinguished. While the resolution plan disclosed a contingent income tax liability for one assessment year, no claims were submitted by the Income Tax Department in respect of certain prior assessment years. Despite this, tax demands for those years were raised after the approval of the resolution plan.

The Revenue contended that statutory dues stood outside the scope of the resolution plan and relied upon certain observations made by the adjudicating authority at the time of approval. The Supreme Court rejected this contention, holding that such observations were confined only to contingent liabilities expressly dealt with under the resolution plan and had no application to undisclosed or unclaimed dues.

Interpreting Section 31(1) of the IBC and relying on the authoritative pronouncements in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. and Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, the Court reiterated that once a resolution plan is approved, all claims not forming part of the plan, including statutory dues owed to the Central or State Government, stand extinguished. No proceedings for recovery of such dues can be initiated or continued thereafter.

The Supreme Court held that permitting belated statutory claims would undermine the “clean slate” principle underlying the IBC and frustrate the effective implementation of resolution plans. Accordingly, the post-approval income tax demands were declared invalid and unenforceable, and the orders of the NCLT and NCLAT were set aside.

 Source Link - https://api.sci.gov.in/supremecourt/2021/30897/30897_2021_4_1502_60246_Judgement_20-Mar-2025.pdf

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