The Madras High Court on Wednesday kept in abeyance the notices issued by the Income Tax department to Dishnet Wireless Ltd and Aircel Ltd for payment of Rs 322.4 million and Rs 75.4 billion respectively for the year 2010-11 towards non-deduction of TDS on the payment of foreign remittances.
Hearing petitions from the two Chennai-based group companies, Justice T Raja directed the I-T department to keep in abeyance the March 31 proceedings consequent to the demand notices issued on March 2 till the disposal of their applications for bankruptcy pending before the National Company Law Tribunal (NCLT) bench.
He issued the interim order after going through the affidavits filed by Aircel and Dishnet and the counter by the Assistant Commissioner of Income Tax, International Taxation.
The two companies submitted that they were involved in cellular mobile services and the I-T department served notice on them under section 201(1) and 201(A)of the Income Tax Act for alleged failure to deduct TDS (tax deducted at source) on certain foreign remittances.
Even though they sought time to comply with the notice in view of their applications for bankruptcy pending before the NCLT bench, the I-T department initiated further proceedings on March 31, the petitioners said.
Noting that they have filed the applications under Section 10 of the IBC (Insolvency and Bankruptcy Code) seeking initiation of Corporate Insolvency Resolution Process (CIRP), the two group companies said the NCLT had granted a moratorium.
Also, following the bankruptcy proceedings, their employees were leaving the companies and more time was needed to comply with the notice, they said adding this was also intimated to the I-T department.
Besides, the companies contended that the I-T department by its July 19, 2010 order had authorised them to make payments outside India without deduction of tax at source under section 195 of the Income Tax Act.
Based on this only, the remittance of foreign payments were made without TDS.
Also, the transaction between the companies and the non-resident operators was one of sales transfer and involved no element of fee for technical services or royalty. It cannot be considered an income on which tax to be deducted at source, they contended.
They claimed that the I-T department without considering these facts and without affording an opportunity of hearing had proceeded in a hasty manner, adding the demand notices were liable to be set aside.
In his order, the judge referred to judgements of the Delhi High Court and the Supreme Court and said once moratorium was granted by the NCLT, it would continue till the completion of the insolvency process or until it approves the resolution or order passed for liquidation as the case may be.
He directed the I-T authorities to keep the impugned proceedings arising out of the demand notice in abeyance till the disposal of the matter pending before NCLT.
Aircel filed for bankruptcy protection from creditors, saying high debt and mounting losses, following a price war triggered by a new entrant, have led it to troubled times.