NCLT Kolkata: CIRP Petition U/S 10 Avoiding Income Tax Liability Not Maintainable Under The IBC
Sachika Vij
4 Dec 2023 7:00 AM GMT
The National Company Law Tribunal (NCLT), Kolkata Bench, comprising of Smt. Bidisha Banerjee (Judicial Member) and Shri Arvind Devanathan (Technical Member) has held that a Corporate Insolvency Resolution Process (CIRP) petition filed under Section 10 of Insolvency and Bankruptcy Code, 2016 (IBC) to avoid Income Tax liability is not maintainable. Background Facts On 25.03.2023,...
The National Company Law Tribunal (NCLT), Kolkata Bench, comprising of Smt. Bidisha Banerjee (Judicial Member) and Shri Arvind Devanathan (Technical Member) has held that a Corporate Insolvency Resolution Process (CIRP) petition filed under Section 10 of Insolvency and Bankruptcy Code, 2016 (IBC) to avoid Income Tax liability is not maintainable.
Background Facts
On 25.03.2023, Jayam Vyapaar Pvt. Ltd. (Corporate Applicant) filed a petition under Section 10 of IBC for initiation of the CIRP.
It had been assessed for Income Tax for the assessment year 2012-13 on 25.03.2015, with a tax demand of Rs. 2.86 crores including applicable interest and penalties, as per the assessment order by the Income Tax Officer, Ward 1(2) Kolkata.
Further, an appeal was made to the Commissioner of Income Tax (Appeals) Kolkata, who, on 18.12.2018 dismissed the appeal. The Appellate Authority upheld the income tax demand and noted that income had escaped taxation due to money laundering. No challenge was made before the Income Tax Appellate Tribunal (ITAT) resulting in the finality of the Appellate Authority's order. The default date for Income Tax payment would be 18.12.2018 consequently, if not the date of the assessment order, which is 25.03.2015.
Despite this, the outstanding tax liability is still reflected in the company's books as of 31.03.2022.
NCLT Verdict:
The NCLT Kolkata dismissed the CIRP petition to be not maintainable and held that a CIRP petition filed under Section 10 of the Insolvency and Bankruptcy Code, 2016 (IBC) to avoid Income Tax liability is not maintainable.
The Tribunal observed that the CIRP petition filed by the Applicant appears to be filed to avoid Income Tax liability especially, when a finding exists that the Income has escaped tax due to money laundering which could lead to recovery from the Directors of the company in terms of Section 179 of the Income Tax Act.
The Tribunal pointed out that the Applicant's application is not for the resolution of its insolvency but rather is to scuttle the efforts of the Income tax department for recovery of its dues. It is also a settled position of law that NCLT is not a recovery Tribunal. Moreover, the Applicant has filed the Section 10 petition with a fraudulent and malicious intention.
It placed reliance on Monotrone Leasing Private Limited vs. PM Cold Storage Private Limited wherein it was observed that Section 65 of the IBC provides for penal action for initiating an Insolvency Resolution Process with a fraudulent or malicious intent or for any purpose other than the resolution and thus, the Tribunal observed that the instant application is fit to invoke Section 65 of IBC.
In conclusion, the Tribunal imposed a penalty of Rs. 1 Lakh on the Corporate Applicant directing it to be deposited to the “Prime Minister's National Relief Fund” (PMNRF) within 10 days.
Case Title: M/s Jayam Vyapaar Private Limited
Case No.: Company Petition (IB) No. 72/KB/2023
Counsel for the Corporate Applicant: Ms. A. Rao, Adv. and Mr. S. Tibrewal, Adv.
