NCLAT Chennai: IBC Tribunals Cannot Order TDS Refund; Jurisdiction Lies with Income Tax Authorities

April 2, 2026 : The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, has held that tribunals constituted under the Insolvency and Bankruptcy Code, 2016 (IBC) do not have the jurisdiction to direct refund of Tax Deducted at Source (TDS), clarifying that such matters fall exclusively within the domain of income tax authorities.

The ruling came in an appeal filed by the liquidator of Servalakshmi Paper Limited, challenging the deduction of TDS on interest earned from fixed deposits created out of liquidation proceeds.

The Bench comprising Justice Sharad Kumar Sharma and Jatindranath Swain dismissed the appeal, holding it to be premature and devoid of merit.

The case arose after the corporate debtor’s assets were sold as a going concern through an e-auction for ₹105 crore. Pending distribution, the proceeds were placed in fixed deposits with State Bank of India, which accrued interest. The bank deducted TDS on the interest before remitting the amount to the liquidation account.

The liquidator, S. Dhanapal, contended that such deduction was unlawful and sought refund of approximately ₹1.57 crore along with interest, and also requested that no further TDS be deducted. However, the Income Tax Department required the liquidator to file income tax returns to process any refund claim.

Earlier, the National Company Law Tribunal (NCLT), Chennai, had directed the liquidator to submit a statement of income and expenditure for the liquidation period to enable the Income Tax authorities to examine the refund claim, without granting any direct relief.

Upholding this approach, the Appellate Tribunal observed that the NCLT had not issued any positive direction for refund but merely facilitated the process by requiring submission of relevant financial details. It emphasized that issues relating to TDS deduction, refund entitlement, and interpretation of provisions under the Income Tax Act fall squarely within the jurisdiction of tax authorities.

The Tribunal categorically held that the IBC does not confer any power on the Adjudicating Authority to order refund of TDS deducted on interest income. It noted that such determinations involve examination of tax law provisions and must be decided by the competent authorities under the Income Tax framework.

On the liquidator’s reliance on Section 140 of the Income Tax Act to claim exemption from filing returns, the Tribunal declined to adjudicate the issue, stating that such questions must first be considered by the Income Tax Department.

Rejecting the argument that Section 238 of the IBC would override tax laws, the Tribunal clarified that any question of inconsistency would arise only after a concrete decision is taken by the tax authorities.

The Appellate Tribunal further noted that the appeal was filed in anticipation of a potential adverse outcome from the Income Tax Department and that no cause of action had yet arisen. It held that the liquidator must first comply with the NCLT’s direction and approach the tax authorities with the necessary financial statements.

Accordingly, the appeal was dismissed, reaffirming that refund of TDS is a matter to be determined strictly under the Income Tax regime and not by insolvency tribunals.

Case Details:
Case Title: Mr. S. Dhanapal, Liquidator of Servalakshmi Paper Ltd. v. Income Tax Officer & Anr.
Case No: Company Appeal (AT) (CH) (Ins) No. 644/2025