Income tax cannot raise fresh claims after resolution plan approved under IBC: Bombay High Court

The tax department had issued fresh notices to the corporate debtor after a resolution plan was approved. There is still ambiguity over what would happen to pending tax demand for the company under IBC. And what would happen if the company were to get a refund from the tax department after the new buyers take over, say industry trackers.

“Though the recent ruling deals with the demands raised by the income-tax authorities from the assessments for the financial years prior to the IBC order, an open issue arises in the case where the corporate debtor gets such assessments in their favour and there is a claim of refund or loss carry forward. Technically, the income tax laws are silent on this aspect and since IBC does not per se deal in relation to tax matters, it could be said that there is no conflict between the IBC and tax laws,” said Yashesh Ashar, partner at tax advisory firm Bhuta Shah & Co.

The Bombay HC (Nagpur Bench), ruling in case of Murli Industries, quashed a notice issued to the company for reassessment of tax dues.

The court ruled that once the public announcement is made under the IBC by the resolution professional, calling upon all concerned, including the statutory bodies, to raise the claim.

“The income tax authorities…ought to have been diligent to verify the previous years’ assessment of the corporate debtor as permissible under the law and to raise the claim in the prescribed form within time before the resolution professional. In the present case, the income tax authorities failed to do so and therefore, the claim stood extinguished,” the court ruled.

“Considering the ambiguity, it is recommended that the rights of the corporate debtor to such a claim are explicitly covered under the resolution plan approved by the NCLT,” said Ashar.