Income tax claims to be treated in accordance with the provisions of the Code

By Editorial Team INSOL India Posted On : August 15, 2018

In Leo Edibles & Fats Limited and the Tax Recovery Officer (Central), Income Tax Department, Hyderabad (“Respondent 1”) and others, the High Court of Judicature at Hyderabad allowed the registration of an asset purchased from the liquidated estate of a company despite attachment of the said property by the Income Tax Department (“the Department”) pursuant to recovery proceedings initiated by it against the company.

The case essentially involves the construction and interpretation of the provisions of the Code in comparison to the Income Tax Act, 1961 (“the Act of 1961”). The court held that the Department cannot claim any priority merely because of the fact that the order of attachment was long prior to the initiation of liquidation proceedings under the Code against the company. According to Section 36(3)(b) of the Code, liquidated estate shall include assets that may or may not be in possession of the corporate debtor, including but not limited to encumbered assets. Thus, even if the order of attachment is considered as an encumbrance on the property, it would not take the said asset out of the purview of Section 36(3)(b) of the Code. The Department has to submit its claim to the liquidator for consideration as and when the distribution of the assets, in terms of Section 53(1) of the Code, is taken up.