Facts of the Case

The Income Tax Department filed multiple appeals before the Delhi High Court against the order of the Income Tax Appellate Tribunal concerning the tax liability 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, 2016 against the assessee company and declared a moratorium under Section 14 of the Code.

The principal issue before the Court was whether the pending income tax appeals could continue despite the statutory moratorium imposed under the IBC.

Issues Involved

  1. Whether an income tax appeal constitutes a “proceeding” within the meaning of Section 14 of the Insolvency and Bankruptcy Code, 2016?
  2. Whether the moratorium under Section 14 IBC bars continuation of tax litigation against the corporate debtor?
  3. Whether the overriding effect of Section 238 IBC prevails over the Income Tax Act and pending tax proceedings?

Petitioner’s Arguments (Income Tax Department)

  • The Revenue argued that its appeals pertained to determination of tax liability and should not be barred merely because insolvency proceedings had commenced.
  • It was submitted that unlike earlier insolvency statutes, the IBC does not provide for obtaining permission from NCLT for continuation of pending proceedings in other forums.
  • The Department sought continuation of the tax appeals on merits.

Respondent’s Arguments (Monnet Ispat & Energy Ltd.)

  • The respondent relied upon the NCLT order admitting insolvency proceedings and imposing moratorium under Section 14 IBC.
  • It was argued that the statutory moratorium expressly prohibits continuation of any pending proceedings against the corporate debtor.
  • Since tax appeals directly impact the corporate debtor’s liabilities, they fall within the prohibition under Section 14.

Court Findings / Order

The Delhi High Court held that Section 14(1)(a) of the Insolvency and Bankruptcy Code clearly prohibits continuation of pending proceedings against the corporate debtor. The Court observed that the wording of the provision is wide enough to cover tax appeals filed by the Income Tax Department.

The Court further emphasized that Section 238 of the IBC gives overriding effect to the Code over any inconsistent provisions contained in other laws. Therefore, even tax proceedings under the Income Tax Act must remain subject to the moratorium.

Accordingly, the Court disposed of the appeals with liberty to the Revenue Department to revive the appeals subject to further orders of the NCLT.

Important Clarification

The judgment clarifies that:

  • Income tax appeals are covered within the scope of “proceedings” under Section 14 IBC.
  • Once CIRP is initiated and moratorium is declared, all proceedings against the corporate debtor, including tax litigation, remain stayed.
  • Revenue authorities cannot continue adjudicatory proceedings during the moratorium period.
  • Proceedings may be revived only after appropriate orders from the NCLT or completion of CIRP. 

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

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