Resolving the Tax Refund Dispute: CLC & Sons Pvt. Ltd. vs. IT Department

Introduction:

In the ongoing tax refund dispute between CLC & Sons Pvt. Ltd. and the IT Department, several crucial factors have come to light. This article explores the details of this dispute and the legal proceedings surrounding it, shedding light on the rightful claimant.

Background:

Chiranjee Lal & Sons, a partnership firm, was taken over by CLC & Sons Pvt. Ltd. (CLCS) on April 1, 2000. A scheme of arrangement, approved by the Delhi High Court, led to the de-merger of CLCS’s Textiles Division, creating M/s Apro Biochem & Engineering Ltd. (Apro) with an appointed date of April 1, 2001.

Subsequently, Apro changed its name to CLC Global Ltd. (CLCG) on July 18, 2002, and later merged with M/s Spentex Industries Ltd., which, on July 19, 2018, changed its name to CLC Industries Ltd. (CLCI).

The Tax Refund Issue:

The dispute centers around the tax refund for the 2001-2002 Assessment Year (AY). The Income Tax Department (IT Dept) raised a demand for this AY, leading to an appeal filed by CLCS before the Income Tax Appellate Tribunal (ITAT). Ultimately, the ITAT allowed a refund on May 28, 2019.

CLCI-Corporate Debtor claimed this income tax refund, prompting multiple communications to the IT Dept to remit it to their bank account. However, CLCS contended that the refund belonged to them, not CLCI.

Legal Proceedings:

CLCI was admitted to insolvency proceedings on January 3, 2020, and a Resolution Professional (RP) was appointed. CLCS communicated with the IT Dept on April 3, 2020, reiterating that the income tax refund should be remitted to them and not CLCI.

On June 2, 2020, CLCS filed an application under the Vivad Se Vishwas Scheme (VSV) and sent reminders to the IT Dept for releasing the income tax refund to them.

The IT Dept remitted the tax refund to CLCI on September 15, 2020, into their bank account with RBL Bank Ltd. Since the IT Dept did not remit the income tax refund to CLCS, they filed a Writ Petition No. 3764/2021 before the Delhi High Court for the refund amount, along with interest.

On May 10, 2021, the Delhi High Court dismissed WP No. 3764/2021 but allowed CLCS to approach the Adjudicating Authority.

Adjudicating Authority’s Decision:

On August 31, 2022, CLCS filed IA No. 2344/2021 in CP(IB) No. 933(PB)/2019 before the Adjudicating Authority, which was dismissed on February 3, 2023.

The Appellant’s Argument:

The Appellant, CLCS, contended that the Adjudicating Authority should have declared them as the rightful claimant of the tax refund since they were the ones who had pursued the matter before the ITAT. They argued that the assessment order was in the name of CLCS, the refunds arose from tax challans in their name, and they had challenged the assessment order, not CLCI.

The Respondent’s Counter-Argument:

The Respondent No. 4 (RP-CLCI) argued that they had consistently pursued the tax refund with the IT Dept even before the CIRP commenced. They claimed that the refund was generated due to depreciation on goodwill arising from restructuring and was therefore an asset of CLCI. They emphasized that the benefit of indirect/direct taxes of CLCS’s textile business was to accrue to CLCI as per the Scheme of Arrangement.

The IT Dept’s Role:

The IT Dept’s letter dated January 21, 2021, acknowledged that the refund wrongly credited to CLCI’s account actually belonged to CLCS. However, they later withdrew this letter, supporting CLCI’s claim to the refund.

The High Court’s Dismissal:

The High Court dismissed the WP No. 3764/2021 as withdrawn, granting CLCS the liberty to approach the Adjudicating Authority.

Adjudicating Authority’s Jurisdiction:

The Adjudicating Authority declined jurisdiction to consider prayer items (b) and (c), involving interest on the tax refund and extension of time for tax deposit, but considered item (a) regarding the rightful claimant of the refund.

Conclusion:

In conclusion, the Adjudicating Authority’s decision affirmed the IT Department’s stance, stating that there was no wrongful refund in favor of CLCI-Corporate Debtor. Despite conflicting claims, the Authority determined that the refund rightfully belonged to CLCI. This decision, along with the High Court’s dismissal, has significant implications

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