No TDS to purchase actual property underneath liquidation: NCLAT – LexForti Authorized

Recently in the case S Kumars v Chief Commissioner of Income TaxThe National Company Law Appellate Tribunal (NCLAT) ruled that the liquidator is not required to prepare a balance sheet and profit and loss account and have them audited during the liquidation process.

This decision will make it easier for companies to liquidate. NCLAT believes that the liquidator of a company in liquidation under the Code is not required to file an income tax return, and there is no question of seeking a refund of the deducted TDS.

The Tribunal also found that under the Bankruptcy and Bankruptcy Act 2016, any purchaser of real estate from a liquidator is not required to deduct and pay 1% TDS from sales compensation under Section 194-IA of the Income Tax Act 1961.

It was also determined that the TDS, once withdrawn, could not be claimed as a refund during the liquidation process without filing the income refund of the company in liquidation.

The tax deducted at source was detrimental to creditors’ interests and adversely affected recovery from the liquidation process. Thus, the order has helped to completely eliminate this problem.

The court also said that the income tax authority should not deduct 1% TDS from the sales compensation of Rs 43 crore, provided that income tax levies can be reimbursed by the department in accordance with the waterfall mechanism established under IBC.

The determination of the TDS deduction is inconsistent, the court said, citing the “overarching” effect of other legal provisions.

The IBC system and regulations do not require a liquidator to prepare audited financial statements during the liquidation process. According to the Income Tax Act, it is not possible to submit an income tax return without preparing audited annual financial statements and other documents.

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