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2021 (2) TMI 364 - AT - Insolvency and BankruptcyTDS liability during the pendency of CIRP proceedings - Interpretation of statute - Whether the provisions of u/s 194-IA of the Income Tax Act, 1961 are inconsistent with Section 53 (1) (e) of the Insolvency and Bankruptcy Code, 2016? - HELD THAT:- Hon’ble Supreme Court in the case of Imperial Chit funds (P) Ltd. Vs. Income Tax Officer [1996 (3) TMI 397 - SUPREME COURT] considered Section 178 of the IT Act, in relation to the preferential payments covered by Section 530 of the Companies Act, 1956. The Supreme Court took the view that the Income Tax Department is to be treated as a secured creditor in the light of the words occurring in Sections 178 (3) and (4) of the IT Act to the effect that the liquidator shall set aside the amount notified by the Income Tax Officer and if it is not so done, the liquidator is personally liable to pay the amount of Tax. With this proposition, the Income Tax Department is to be treated as a secured creditor and in liquidation proceedings such dues shall get priority. Whereas, as per Section 53 (1) (e) of the Code, the legislature assigned the 5th position in the order of priority to government dues (including Income Tax Dues). Thus, in Section 53(1) (e) of the Code and in Section 178 of the IT Act for Government dues priority is different. Section 178 (6) of the IT Act and Section 53 of the Code both Sections start with non-obstante clause, therefore, legislature in its wisdom to give effect to the scheme of the Code amended Section 178(6) of the IT Act. By virtue of the amendment the whole of Section 178 has no application to the liquidation proceedings initiated under the Code. With the aforesaid, it was necessary to amend Section 178(6) of the IT Act - Section 194 IA of the IT Act provides that where the consideration for transfer of the immovable property is more than 50 Lakhs, then the transferee is responsible to deduct the amount which is 1% of the consideration as Income Tax. As per Section 194 IA of the IT Act 1% TDS is recovered on priority to other creditors of the transferor, which is partial capital gain tax, whereas, Section 53(1)(e) of the Code in waterfall mechanism provides that the Government dues comes fifth in order of priority. Thus, in regard to recovery of the Government dues (Including Income Tax) from the Company in Liquidation under the Code, there is inconsistency between Section 194IA of the IT Act and Section 53(1) (e) of the Code therefore, by virtue of Section 238 of the Code, Section 53 (1) (e) of the Code shall have overriding effect on the provisions of the Section 194 IA of the IT Act. Otherwise also Section 53 starts with a non-obstante clause, whereas Section 194 IA of the IT Act, does not start with a non-obstante clause, and it would necessarily be subject to overriding effect of the Code and therefore, there was no requirement to amend the Section 194 IA of the IT Act. Thus, it is clear that when the Company is wound up under the orders of Court or otherwise the return shall be verified by the Liquidator referred to in Sub-Section 1 of Section 178 of the IT Act, during corporate insolvency resolution process under Section 7, 9 or 10 of the Code, the return shall be verified by the Insolvency Professional appointed by the Adjudicating Authority. However, there is no such provision in the IT Act, Code or IBBI (Liquidation Process Regulation, 2016) that the Liquidator of the Company in Liquidation under the Code is required to file Income Tax Return. For filing of return, the financial statements are required to be annexed but the Code/IBBI (Liquidation Process Regulation 2016) does not assign a duty on the Liquidator to prepare financial statements - the Liquidator of a Company in liquidation under the Code is not required to file Income Tax Return, then there is no question of claiming refund of TDS deducted under Section 194 IA of the IT Act. Ld. Adjudicating Authority has erroneously held that the deduction of Tax at source does not mean raising demand for collection of tax by the Department. Actually TDS under Section 194 IA, is an advance capital gain tax, recovered through transferee on priority with other creditors of the company. Hence, inconsistent with the provision of Section 53 (1) (e) of the Code and by virtue of Section 238 of the Code, the provision of Section 53(1) (e)shall have overriding effect. Thus, the impugned order is not sustainable in law - Respondent No.1 is directed to refund the amount of TDS to the Appellant which is deposited by the Respondent No. 2 with the department - Appeal allowed.
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