Facts of the Case

The Revenue Department filed multiple appeals before the Delhi High Court challenging the order of the Income Tax Appellate Tribunal (ITAT) concerning tax liability of Monnet Ispat & Energy Ltd. During the pendency of these appeals, the National Company Law Tribunal admitted an application under Section 7 of the Insolvency and Bankruptcy Code filed by State Bank of India against the respondent company and declared moratorium under Section 14 of the Code.

The moratorium specifically prohibited institution or continuation of suits or proceedings against the corporate debtor. In view of this development, the question arose whether the tax appeals filed by the Income Tax Department could continue during the subsistence of the moratorium.

Issues Involved

  1. Whether pending income tax appeals against a corporate debtor can continue during the moratorium period under Section 14 of the IBC?
  2. Whether the provisions of the IBC override proceedings under tax laws?
  3. Whether the Income Tax Department can seek continuation of pending proceedings before another forum during CIRP?

Petitioner’s Arguments (Revenue Department)

The Revenue argued that the Income Tax Department’s appeals pertained to determination of tax liability and should not automatically come to a halt merely because insolvency proceedings had commenced.

It was further contended that unlike earlier insolvency statutes, the Insolvency and Bankruptcy Code does not specifically provide a mechanism for seeking permission from NCLT for continuation of proceedings in other forums.

Accordingly, the Revenue sought consideration of the pending appeals despite the moratorium order.

Respondent’s Arguments (Assessee Company)

The respondent relied upon the NCLT order admitting insolvency proceedings and emphasized that Section 14 expressly bars continuation of pending proceedings against the corporate debtor.

It was argued that the Income Tax Department’s appeals squarely fall within the scope of “proceedings” prohibited by the moratorium.

Further, by virtue of Section 238 of the IBC, the Code overrides all inconsistent laws, including tax statutes.

 

Court Findings / Observations

The Delhi High Court examined Section 14 and Section 238 of the Insolvency and Bankruptcy Code and held that the statutory moratorium prohibits continuation of all pending proceedings against the corporate debtor.

The Court noted that Section 238 gives overriding effect to the Code over any inconsistent law in force. Therefore, income tax proceedings cannot continue once the moratorium becomes operational.

The Court relied upon the Supreme Court’s ruling in Innoventive Industries Ltd. v. ICICI Bank, which clarified that the Insolvency Code prevails over conflicting statutes.

The Court specifically held that the pending appeals filed by the Revenue before the High Court would also be covered within the moratorium.

Court Order / Final Decision

The Delhi High Court disposed of the Revenue’s appeals and granted liberty 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 or other relevant orders under the Code.

Important Clarification

This judgment clarifies that:

  • Income tax proceedings are covered within the expression “proceedings” under Section 14 IBC.
  • Moratorium applies even to tax litigation pending before High Courts.
  • IBC overrides Income Tax Act proceedings due to Section 238.
  • Revenue authorities cannot continue recovery or adjudication proceedings during CIRP unless permitted under law.

Sections Involved

  • Section 14(1)(a), Insolvency and Bankruptcy Code, 2016 – Moratorium on institution or continuation of proceedings
  • Section 238, Insolvency and Bankruptcy Code, 2016 – Overriding effect of IBC over inconsistent laws
  • Section 7, Insolvency and Bankruptcy Code, 2016 – Initiation of Corporate Insolvency Resolution Process by financial creditor
  • Section 31, Insolvency and Bankruptcy Code, 2016 – Approval of Resolution Plan
  • Section 33, Insolvency and Bankruptcy Code, 2016 – Liquidation of Corporate Debtor

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

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