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NCLAT : No TDS on purchasing property during liquidation

Immediate Effects of Liquidation Order by NCLT.

No TDS on purchasing property during liquidation : NCLAT 

Companies Liquidation is set to get easier with the National Company Law Appellate Tribunal throwing out taxman’s claims that the Companies Liquidation has to get TDS while bankrupt company during liquidation under Insolvency and Bankruptcy Code, 2016. .

The National Company Law Appellate Tribunal ruled the liquidator is not needed to make a P & loss a/c & balance sheet along with audit during the liquidation or bankrupt company during liquidation process. (In the matter S Kumars Nationwide vs Chief CIT)

Two judge benches of Jarat Kumar Jain & Ashok Kumar Mishra said in National Company Law Appellate Tribunal order that, We are of the view that the Companies Liquidator in liquidation under the Insolvency and Bankruptcy Code, 2016 is not needed to submit ITR return, then there is no question mark of claiming income Tax refund,”

National Company Law Appellate Tribunal order

Two judge benches of National Company Law Appellate Tribunal order was passed on Monday stating that any buyer of property from a Companies liquidator during Insolvency and Bankruptcy Code, 2016  shall not be required to deduct and pay one percentage Tax deducted at source from the sale consideration u/s 194-IA of the Income-tax Act, 1961.

The bench also observed that one percentage Tax deducted at source once deducted could not be claimed as refund during liquidation process without filing of return of income of the company under liquidation.  This landmark case will set a precedent, making the liquidation process easy,

This National Company Law Appellate Tribunal order has permanently removed this difficulty, i.e. TDS was detrimental to the interest of creditors which may adversely affect recovery under liquidation process.

The Income tax authority not to deduct one percentage Tax deducted at source from sale consideration of INR 43 Cr on the premise that income tax dues can be recovered by the department as per waterfall mechanism set out under Insolvency and Bankruptcy Code, 2016.

Income tax provision of Tax deduction is inconsistent, said the National Company Law Appellate Tribunal court, citing “over-riding” effect of different legal provisions. The scheme of Insolvency and Bankruptcy Code, 2016 & its regulations does not needed a liquidator to prepare audited financial statements during liquidation process. Since it is the purchaser’s responsibility to credit TDS to the Income Tax Department against Permanent Account Number  of the CD, the deduction of TDS does not equate to payment of Govt dues in priority to other creditors because it is not a Tax demand for realisation of Tax dues. As a result, the application was denied by the Ld. Adjudicating Authority on June 11, 2020.

The National Company Law Appellate Tribunal court stated: “It is clear that when the Companies Liquidation process is wound up under the orders of National Company Law Tribunal  or National Company Law Appellate Tribunal Court or otherwise, the Income ax Return shall be ensure tax deposit and verified by the Companies Liquidator,”

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