tds: NCLT orders IRS to return TDS to bankrupt Precision Fasteners

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The bankruptcy court ordered the tax department to return withholding tax (TDS) from Precision Fasteners after the auto component maker was sent into liquidation.

The decision is expected to set a precedent in several such cases where the Department of Revenue seeks to recover statutory assessments from companies in liquidation.

The liquidator of the company had approached the Mumbai bench of the National Company Law Tribunal (NCLT) to recover around Rs 1 crore deducted from the company as TDS even when there was a moratorium in place under the Company Law. insolvency and bankruptcy.

“We have finally heard from the plaintiff’s lawyer (liquidator),” the panel headed by Judge PN Deshmukh and technical member Shyam Babu Gautam said in its July 1 order. “This bench is satisfied and accordingly the Deputy Commissioner of Income Tax is required to immediately remit the amount to the debtor company,” he ordered.

Mumbai-based Precision Fasteners was admitted under the Corporate Insolvency Resolution Process (CIRP) in 2017, following a petition filed by Asset Reconstruction Company India. However, in the absence of any viable resolution plan, the court granted the resolution staff’s motion to admit the company into liquidation.

The liquidator contacted the court last year after the revenue department deducted TDS of over Rs 98 lakh on some transactions, despite the company being in liquidation.

Under section 53 of the IBC, statutory assessments, including those paid to the income tax department, are operational assessments and, under the cascading mechanism, liquidation costs, secured creditors and company workers have priority in receiving their contributions.

“It has been established that the Inland Revenue is an operational creditor and jumping the queue is not allowed. The order is expected to set a precedent in several other similar liquidation cases,” said Nipun Singhvi, managing partner of law firm NSA Legal.”The liquidator should not be tasked with filing the claim and then waiting for a refund. Regulation 44 requires the liquidation to be completed within one year, but such delays require the liquidator to request an extension, further delaying the amount to be paid to stakeholders,” Singhvi added.

According to the latest data from the Insolvency & Bankruptcy Board of India, 5,258 companies have been admitted for CIRP till the end of March 2022. Of these, 1,609 cases or 30.61% ended in a liquidation.

“This NCLT order will remove ambiguity as to the applicability of the moratorium under IBC Section 14 on the payment of tax debts and other statutory assessments by a company in liquidation,” said Ankita Singh, Founder of boutique law firm Sarvaank. Associates. “This decision by the NCLT will help the liquidator preserve the liquidation proceeds for an equitable distribution.”

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