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TMI Blog2020 (11) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of assets of the corporate debtor and is to be included in the liquidation cost or to be distributed as per waterfall mechanism under Sec 53 of IBC. 2. As per the averment made in the application, various auctions were held and a sum of Rs. 113,88,40,170/- has been realised so far and the applicant has already distributed majority of the amount realised and further he has to proceed with the distribution of the pending amounts in accordance with the waterfall mechanism prescribed under Sec 53 of the Insolvency and Bankruptcy Code, 2016. However, he is faced with the issue as to whether the capital gains tax would be attracted on sales of such assets as part of liquidation estate to be included as liquidation costs, if so, he would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x is treated as liquidation costs, to be defrayed at the first instance on such transactions, the secured creditors would not relinquish their security to the liquidators. Further stated that none of the provisions of the Income Tax Act, 1961 as referred by the respondent provide for distribution at all and is provided only in the waterfall mechanism provided in Sec 53 of the IBC which is as quoted 53. (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely:-- (a) The inso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction. 6. It is further contended that from the perusal of above hierarchy of the waterfall mechanism it is clear that the debts owed to a secured creditor and workmen are on higher hierarchy rather than the liability towards government dues and no provision has been pointed out nor any claim has been laid by the respondent by which sate dues would get precedence over the distribution proposed to be made to the secured, unsecured financial creditor and workmen. 7. Further referring to Sec 238 of IBC and Sec 178(6) of the Income Tax Act whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing payment and the sum so deducted must have been paid to the credit of the Central government. Further the counsel has refer to Sec 45 and Sec 46 of The Income Tax Act which is related to the capital gains on distribution off assets by the companies in Liquidation and how such money or assets will be chargeable to income Tax under the head Capital gain. 10. Further it was contented on behalf of Income Tax Department that the bare reading of provisions of Sec 238 of IBC it is seen that the provisions of the Code override the provisions of the Act to the extent the provisions of the Act are inconsistent with the provisions of the Code and in the present case there is no inconsistency with respect chargeability of tax on capital gains betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the provisions of different enactments. And as for liquidation under IBC, Sec 178 of IT Act stands excluded by virtue of amendment of Section 178(6) with effect from 01.11.2016, in accordance with the provision of Sec 247 of the IBC read with Third Schedule appended there to, therefore, as the corporate debtor is in liquidation under the Code, the Income Tax Department can no longer claim a priority in respect of clearance of tax dues as provided Under Sec 178(2) and (3) of the Income Tax Act, 1961 as also held in case of Leo Edibles & Fats Ltd. v. Income Tax Department. 14. Further as per Sec 238 of the Code, the provision of the Code shall have an overriding effect on any other enactment and Sec 53 of the Code provides the waterf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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