Tata Steel's 'Clean-Slate' Triumph: Court Strikes Down Rs 257-Crore Tax Demand
The decision essentially means that Tata Steel won't be held accountable for tax liabilities prior to takeover of Bhushan Steel.
The Delhi High Court has annulled a tax demand of Rs 257 crore against Tata Steel Ltd. and endorsed the concept of a "clean slate" in the context of its acquisition of Bhushan Steel Ltd.
The decision by a division bench on Oct. 31 essentially means that Tata Steel will not be held accountable for tax liabilities prior to its takeover of Bhushan Steel.
A notice was sent to Tata Steel under the provisions of the Income Tax Act for payment of Rs 257.8 crore in taxes for 2001–02, 2009–10, 2010–11, and 2013–14. The tax authority demanded an explanation from Tata Steel regarding why a penalty should not be imposed.
Tata Steel had approached the high court, arguing that the demands were related to periods before the approval of the resolution plan by the National Company Law Tribunal.
According to the clean-slate principle, once the resolution plan is approved, all stakeholders are bound by its terms. Therefore, Tata Steel contended that the tax department should be treated like other creditors.
The tax authorities argued that the Insolvency and Bankruptcy Code did not restrict its authority to pursue assessment proceedings even though the dues were not outstanding on the date of approval of the resolution plan.
The court observed that the sequence of events shows that the insolvency proceedings were initiated after the assessment orders were passed, suggesting that the tax demands were in place before the proceedings. Therefore, the department's claim may be overly technical given the timeline of events.
The bench observed that the IBC was made to reorganise and resolve the money problems of businesses at a certain time. It wanted to make the most of the business's value, encourage new businesses and balance everyone's interests, including how much people owe to the government.
The court highlighted that Section 238 of the IBC said its rules would happen even if other laws don't agree. That means if the IBC doesn't agree with the Income Tax Act, it would take precedence. This is needed to do what the IBC was made for, the bench said.
