Om Prakash Agarwal Vs. Tax Recovery Officers - Attachment of bank accounts by Tax Recovery Officer (Income Tax) in Liquidation.

NCLT (PB) New Delhi (15.06.2020) Om Prakash Agarwal Vs. Tax Recovery Officers (4) & another [ITEM No. 301 IA-992/2020 in  CP/294/2018] held that ; Section 178 of Income Tax Act, has been amended incorporating a clause in the section stating that IBC will have overriding effect over the mandate of Section 178, and directed the Bank to de-freeze the accounts and release the amounts of the corporate debtor lying with the respective bank accounts  to the Liquidator.

Excerpts of the order;

It is an application filed by the liquidator for defreeze of the Accounts of the Corporate Debtor lying with Indian Bank at Prabhadevi Branch and at Barur Branch, Mumbai because the Respondent/Tax Recovery Officer (4) Mumbai attached the Accounts aforementioned by an attachment notice dated 21.03.2017 stating that the Corporate Debtor-company failed to pay the arrears payable by the Corporate Debtor, therefore ordered attachment. 

The applicant/liquidator counsel submits that more than one crore is lying in the accounts of the Corporate Debtor attached by the Respondent, if this attachment is not raised, the liquidator will not be in a position to distribute the same to the stakeholders falling u/s 53 of the Code. 

As against this, the respondent-counsel submits that it is an attachment made against the monies of the Corporate Debtor lying with the Bank in the year 2017, it is not an attachment of immovable property of the Corporate Debtor entailing the Respondent to initiate further proceedings against the Debtor Company, therefore, since Income Tax Act proceedings have overriding effect against other enactments and the monies attached by the Respondent shall no more be treated as an asset of the corporate debtor, the monies attached shall not be treated on par with an attachment order against either immovable property or movable property (other than monies) lying at the disposal of the Corporate Debtor. 

Re-joining to the same, the Applicant-Counsel submits that the Respondent has already submitted its claim against the debtor and the same has been included in the claims against the company, moreover for tax dues being considered as operational creditor claim, it is entitled to claim distribution as envisaged u/s 53 of the Code, but not to appropriate its monies lying in its Accounts by showing attachment order, because as long as the property of the Debtor Company, either in the form of money or not, is at the disposal of it as per law, the liquidator is under duty to comprise it in the liquidation estate and proceeds shall be distributed to the stakeholders of the Debtor company. 

On hearing the submission from either side, it is evident in the Code that monies of the corporate debtor lying in the Bank Accounts shall be construed as an asset of the corporate debtor, even if attachment order is taken against that money, as long as that money lying in the account of the corporate debtor, it has to be treated as an asset of the corporate debtor. It does not make any difference as to whether it is cash or kind. 

As to Section 178 of Income Tax Act, it has been amended incorporating a clause in the section stating that IBC will have overriding effect over the mandate of Section 178, therefore I hereby agree with the contention of the liquidator counsel and allow this application with a direction to the Bank to de-freeze the accounts and release the amounts of the corporate debtor lying with the respective bank accounts within 30 days hereof. 

Accordingly, this application is allowed. 

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