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No TDS on shopping for property underneath Liquidation: NCLAT

Recently, In the case S Kumars v. Chief Commissioner of Income Tax, the National Company Law Appellate Tribunal (NCLAT) held that the Liquidator is not required to prepare a balance sheet and profit &Loss account and get it audited during the liquidation process.

Due to this decision, the Liquidation of the companies will become easier. The NCLAT is in the view that the liquidator of a company in liquidation under the Code is not required to file an income tax return, then there is no question of claiming a refund of TDS deducted.

Further, the Tribunal stated that any buyer of property from a liquidator under Insolvency and Bankruptcy Code, 2016 shall not be required to deduct and pay 1% TDS from the sale consideration under Section 194-IA of the Income Tax Act, 1961.

It was also observed that the TDS once deducted could not be claimed as refund during the liquidation process without filing of return of income of the company under liquidation.

The Tax deducted at Source was detrimental to the interest of creditors, adversely impacting the recovery from the liquidation process. Thus, the order has helped in getting rid of this problem completely.

The court also said that the Income Tax authority should not deduct 1% TDS from the sale consideration of Rs 43 Crore on the premise that income tax dues can be recovered by the department as per the waterfall mechanism set out under IBC.

The Provision of deduction of TDS is inconsistent, said the court, citing the “over-riding” effect of a different legal provisions.

The scheme of IBC and regulations does not require a liquidator to prepare an audited financial statement during the liquidation process and filing of income tax return is not possible under the Income Tax law without preparing an audited annual financial statement and other documents.

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