The IBBI specifies that a “no objection” from the income tax service is not required in the event of voluntary liquidation – Taxation
India: The IBBI specifies that no objection from the income tax service is required in the event of voluntary liquidation
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The Insolvency and Bankruptcy Board of India (IBBI) issued a circular on November 15, 2021. This circular clarified that it is not necessary to obtain a âno objectionâ or âno contributionâ certificate of the income tax service during the voluntary liquidation process under the Insolvency and Bankruptcy Code, 2016 (the Code) and the regulations made thereunder.
It states that Regulation 14 of the IBBI Voluntary Liquidation Process Regulations 2017 (the Regulations) require the insolvency practitioner to make a public announcement within five days of their appointment, calling for the submission of claims. by stakeholders within 30 days of the start date of liquidation. Therefore, the Regulations oblige all financial creditors, operational creditors (including government), and other stakeholders to submit their requests within the specified time frame. If the claims are not submitted on time, the legal person may be dissolved without dealing with these claims, and the claims will be extinguished.
The IBBI noticed that the liquidators were seeking a âno objectionâ or âno assessmentâ from the income tax department, even after being given the opportunity to file claims. On the other hand, the Code does not contemplate the same thing.
In this regard, the IBBI has drawn attention to Article 178 of the Income Tax Law, which requires liquidators to meet certain tax requirements, and explicitly states that the provisions of the Code shall prevail over the effects of article 178 in the event of incompatibility between them.
Therefore, the IBBI clarified that it was not necessary to obtain a âno objectionâ or âno contributionâ from the income tax service as part of the voluntary liquidation processâ¦.
The IBBI has correctly clarified that the Code and Regulations do not contemplate obtaining a âno objectionâ or âno assessmentâ certificate from the income tax service as part of the voluntary liquidation process. . What the Code expressly expects from creditors is that they submit their claim within a specified time frame. If the complaint is not presented, it is extinguished.
We believe that the essence of the Code is a time bound process and the maximization of the value of the assets of the persons concerned. With this intention in mind, the provisions of the Code establish an explicit process for dealing with the liquidation of a corporation. We have witnessed that the process of applying for and obtaining a âno objectionâ or âno assessmentâ certificate from the Income Tax Service takes a long time. This process defeats the goal of time-bound completion under the Code.
Nexdigm communicated this concern to IBBI through liquidators / professional insolvency agencies. We have argued this before the Honorable NCLT in various voluntary liquidation cases, and in many cases the Honorable NCLT was happy to agree to this submission.
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