Unclaimed Pre-Approval Income Tax Demands Extinguish Upon NCLT Approval of Resolution Plan Under IBC

Issue

Facts

• Resolution Plan Approval: The petitioner’s resolution plan was duly approved by the National Company Law Tribunal (NCLT) under Sections 30 and 31 of the Insolvency and Bankruptcy Code, 2016 (IBC).
• Tax Demands Issued: The Income Tax Department issued notice(s) of demand under Section 156 of the Income-tax Act, 1961 for tax claims against the petitioner.
• Non-Inclusion of Claims: The tax claims forming the basis of the impugned demand notices were not part of the resolution plan approved by the Adjudicating Authority (NCLT).
• Challenge by Assessee: The petitioner challenged the sustainability of the impugned demand notices, contending that all claims not included in the approved resolution plan stood extinguished under Section 31 of the IBC.

Decision

• Held in favor of the assessee.
• On the date of approval of a resolution plan by the Adjudicating Authority, all claims that do not form part of the resolution plan stand permanently extinguished.
• No person or authority is entitled to initiate or continue any legal proceedings in respect of claims not included in the approved resolution plan.
• The impugned demand notices issued under Section 156 were held unsustainable in law and were quashed and set aside.

Key Takeaways

1. Clean Slate Principle: Upon NCLT approval of a resolution plan under Section 31 of the IBC, the successful resolution applicant takes over the corporate debtor on a clean slate.
2. Extinguishment of Unclaimed Tax Dues: Any past statutory claims or tax demands—including income tax liabilities—that were not incorporated into the approved resolution plan stand completely extinguished.
3. Bar on Subsequent Proceedings: The Income Tax Department cannot issue demand notices under Section 156 or initiate/continue recovery proceedings for pre-approval dues omitted from the resolution plan.