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Quashes Income Tax Proceedings Against UltraTech Cement for Pre-IBC Period
In a significant ruling reinforcing the under the , the has quashed income tax notices, orders, and proceedings initiated against UltraTech Cement Limited for the period prior to its takeover of Binani Cement. The court held that claims not forming part of the cannot survive after its approval, and directed the to refund amounts adjusted against pre-transfer tax demands, along with applicable interest.
Justice Smita Das De, presiding over a writ petition filed by UltraTech Cement and its wholly owned subsidiary, found that the tax authorities had acted arbitrarily by adjusting refunds and initiating for assessment years predating the effective transfer date. The decision underscores the primacy of the IBC over other statutes, including tax laws, and clarifies that even are extinguished if not included in a .
Background of the Insolvency Resolution
The of Binani Cement Limited commenced on , following the admission of a petition filed by under . The Resolution Professional issued a public announcement inviting claims from creditors. UltraTech Cement emerged as the successful resolution applicant, and its plan was unanimously approved by the . The gave its nod on , with the affirming that order on . The effective date for the takeover of management was .
Under the , the assets of Binani Cement were to be free from all claims and encumbrances, and litigation arising before the transfer date was to stand withdrawn and extinguished. However, in December 2019 and January 2020, the issued various notices and orders, and adjusted refunds due to UltraTech against outstanding demands for assessment years prior to the transfer date. The amounts adjusted included ₹1.43 crore, ₹67.69 lakh, and ₹1.12 crore—refunds for Assessment Year (AY) 2019-20 that were against a demand for AY 2011-12, covering the period from AY 2007-08 to AY 2015-16.
Legal Challenge and Arguments
UltraTech Cement challenged these actions, arguing that they were contrary to the and the . The petitioners relied heavily on the ’s judgment in , which held that once a is approved under , all claims provided in the plan become binding on all stakeholders, including the Central and State Governments. Claims not forming part of the plan stand extinguished.
Additionally, the petitioners cited , where the held that continuation of proceedings by authorities in respect of is illegal. It was also pointed out that the itself had submitted a claim of ₹24.06 crore before the Resolution Professional, which was rejected after collation.
The Income Tax authorities defended their actions under , arguing that the had issued an intimation and adjusted the refund against the outstanding demand. They maintained that the adjustment was lawful under tax law provisions.
Court’s Findings and Reasoning
Justice Smita Das De, after considering the submissions and records, found that the petitioners had made out a clear case for interference. The court relied on Ghanashyam Mishra , , and , holding that the Income Tax authorities had no right to adjust refunds against claims relating to a period that had frozen upon approval of the .
“When the was approved by the NCLAT on , all claims stood frozen and any claim which did not form part of the could not survive,” the court observed. It further held that the tax authorities could not initiate in respect of demands raised prior to the transfer date.
The court also referred to , which gives the Code over anything inconsistent contained in any other law. In a notable observation, the court stated: “Income tax dues being ' ', have no priority over secured creditors and are extinguished upon approval of the if not included therein.”
Consequently, the court quashed and set aside the notices proposing , along with consequential orders and proceedings pertaining to the period prior to the transfer date, describing them as arbitrary, illegal, and unsustainable in law. The was directed to allow UltraTech to carry forward and as reflected in returns filed prior to the transfer date, and to utilise them to future tax obligations. The department was also restrained from initiating or any other proceedings under the Income Tax Act for that period.
Refund Direction and Observations
The court directed the to refund, without adjustment, amounts due to the petitioners that had not been granted or had been wrongfully recovered by adjusting them against demands pertaining to the , along with applicable interest. Specifically, the department was ordered to refund amounts already adjusted against such demands within six weeks, with interest in accordance with law.
Justice Das De further observed that income tax authorities ought to be “more circumspect, prudent and vigilant” after approval of a under the IBC. “They should forthwith withdraw demands pertaining to the instead of persisting with proceedings that unnecessarily burden the courts,” the judgment noted.
Implications for Legal Practice
This ruling reinforces the supremacy of the IBC resolution process and provides clear guidance to tax authorities and other government departments. It confirms that once a is approved, all pre-resolution claims—whether statutory or contractual—are extinguished if not included. The decision also clarifies that the IBC’s under Section 238 prevails over the Income Tax Act, and that do not enjoy any special priority in the resolution process.
For corporate law practitioners and insolvency professionals, the judgment serves as a reminder to ensure that all potential claims, including those from government authorities, are comprehensively addressed in resolution plans. It also highlights the need for authorities to promptly withdraw demands post-approval, lest they face judicial rebuke and orders for refunds with interest.
The ’s decision aligns with the growing body of case law that seeks to preserve the integrity and under the IBC, thereby promoting the Code’s objective of maximizing asset value and facilitating a of distressed companies.
Conclusion
The ’s ruling in favour of UltraTech Cement marks another milestone in the jurisprudence surrounding the IBC. By quashing the income tax proceedings and ordering refunds, the court has reaffirmed that approved resolution plans are binding on all stakeholders, including the state, and that cannot be resurrected through administrative actions. The decision is likely to have a calming effect on corporate debtors and resolution applicants, who can now rely on the finality of the plan without fear of subsequent claims by tax or other authorities.
The writ petition and all connected applications were disposed of accordingly, with the court emphasizing that the must act with greater circumspection in the future.
