Adjudicating Authority cannot order TDS refunds; Liquidators must seek relief from Income Tax Authorities.

The Appellant was appointed as the Liquidator of M/s. Servalakshmi Paper Limited by the NCLT Chennai in 2018

Following an e-auction in October 2022, sale proceeds of Rs. 105 Crores were deposited in a fixed deposit (FD) with the State Bank of India (Respondent No. 2)

Respondent No. 2 deducted Tax Deducted at Source (TDS) on the interest earned from the FD before remitting it to the liquidation account

The Liquidator requested a refund and a cessation of future TDS deductions, but the Income Tax Department (Respondent No. 1) requested the filing of income tax returns for the relevant assessment years to process the refund

The Liquidator filed an application (IA/74/2025) before the NCLT seeking a direction for the refund and a restraint on SBI from deducting future TDS

On 25.11.2025, the NCLT directed the Liquidator to submit a "simpliciter account" of income and expenditure to the Income Tax Authorities to facilitate their decision-making process

The Liquidator appealed this order, contending that under Section 140 of the Income Tax Act, he is not required to file returns or accounting sheets

Section 140 of the Income Tax Act, 1961, which governs the verification of tax returns, specifically sub-clause (c) regarding companies under the Corporate Insolvency Resolution Process (CIRP) and liquidation

The court further considered the overriding effect of the Insolvency and Bankruptcy Code (IBC), 2016, under Section 238, noting that while the IBC overrides inconsistent laws, it is silent on the specific procedural mechanics of TDS refunds, which remain within the domain of taxation authorities

The NCLAT observed that the NCLT’s direction was an enabling interlocutory order rather than a final adjudication of a dispute

The court reasoned that the power to grant a TDS refund is a prerogative of the Income Tax Authorities under specialized taxation laws, and the IBC does not confer jurisdiction upon the NCLT to bypass these procedural requirements

The court rejected the Appellant's interpretation of Section 140 of the Income Tax Act as providing an absolute exemption from providing accounting details, stating that even a company in liquidation must maintain a record of income and expenditure

The court found the appeal to be "in anticipation" of a problem that had not yet arisen, as the Income Tax Department had not formally denied the refund but had merely asked for documentation to process it

Regarding Section 238 of the IBC, the court held that inconsistency only arises if two laws have contradictory provisions on the same subject; since the IBC does not provide for TDS refund procedures, the relevant provisions of the Income Tax Act must be followed

The court held that the Liquidator must comply with the NCLT’s direction to submit a simpliciter account to the Income Tax Department

The court clarified that the competent authority to decide on exemptions under Section 140 of the Income Tax Act and the subsequent refund is the Income Tax Department, not the NCLT or NCLAT

A cause of action would only arise for the Liquidator if and when the Income Tax Authorities formally refuse the refund or the claimed exemption after the accounts are submitted

All pending interlocutory applications were closed