Facts of the Case

The Revenue Department had filed multiple income tax appeals before the Delhi High Court challenging orders passed by the Income Tax Appellate Tribunal in relation to the tax liabilities of Monnet Ispat & Energy Ltd. During the pendency of these appeals, the National Company Law Tribunal admitted an insolvency petition under Section 7 of the Insolvency and Bankruptcy Code filed by State Bank of India against the respondent company.

Upon admission of the insolvency petition, the NCLT declared a moratorium under Section 14 of the Code prohibiting institution or continuation of pending proceedings against the corporate debtor. The question arose whether the tax appeals filed by the Revenue could continue despite such moratorium.

Issues Involved

  1. Whether income tax appeals pending before the High Court fall within the scope of moratorium under Section 14 of the IBC?
  2. Whether proceedings initiated by the Income Tax Department can continue during Corporate Insolvency Resolution Process?
  3. Whether the Insolvency and Bankruptcy Code overrides proceedings under the Income Tax Act by virtue of Section 238?

Petitioner’s Arguments (Revenue Department)

The Revenue argued that the Income Tax Department’s appeals were related to determination of tax liability and should not automatically be halted merely because insolvency proceedings had commenced.

It was also contended that unlike earlier insolvency laws, the Insolvency and Bankruptcy Code does not provide any mechanism for obtaining permission from NCLT for continuation of pending proceedings before other judicial forums. Therefore, the Department sought continuation of the present appeals.

 Respondent’s Arguments (Assessee Company)

The respondent relied upon the moratorium order passed by NCLT under Section 14 of the IBC and argued that all proceedings against the corporate debtor, including tax appeals, are prohibited during the insolvency resolution process.

It was submitted that Section 238 of the Code gives overriding effect to the IBC over all inconsistent laws, including the Income Tax Act.

 Court Findings / Observations

The Delhi High Court held that Section 14(1)(a) clearly prohibits continuation of pending suits or proceedings against the corporate debtor after commencement of insolvency proceedings.

The Court emphasized that the language of Section 238 is categorical and gives overriding effect to the Insolvency and Bankruptcy Code over any inconsistent law.

The Court relied upon the Supreme Court decision in Innoventive Industries Ltd. v. ICICI Bank, where the overriding nature of the IBC was judicially recognized.

The Court observed that the pending tax appeals filed by the Revenue are proceedings against the corporate debtor and therefore cannot continue during the moratorium period.

 Court Order / Final Decision

The Delhi High Court disposed of the income tax appeals in view of the moratorium imposed by the NCLT. However, liberty was granted to the Revenue Department to revive the appeals subject to further orders of the NCLT after completion of the corporate insolvency resolution process or subsequent developments under the Code.

 Important Clarification

  1. Income tax appellate proceedings are covered within the ambit of “proceedings” under Section 14 of IBC.
  2. Once moratorium is declared, even tax proceedings cannot continue against the corporate debtor.
  3. Section 238 gives IBC overriding effect over the Income Tax Act where inconsistency exists.
  4. Revenue authorities must await the outcome of insolvency proceedings before pursuing pending appeals.
  5. Pending tax litigation may be revived after conclusion of insolvency proceedings subject to NCLT directions.

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

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