NCLAT Chennai: NCLT Cannot Order TDS Refund; Jurisdiction Lies Exclusively with Income Tax Authorities

April 2, 2026 : The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, has ruled that the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016 (IBC) lacks jurisdiction to direct refund of Tax Deducted at Source (TDS) on interest earned from fixed deposits during liquidation proceedings.

The ruling came in S. Dhanapal v. Income Tax Officer, TDS Ward-2 & Anr., where the Appellate Tribunal dismissed a company appeal filed by the Liquidator of Servalakshmi Paper Limited as premature and not maintainable.

The case arose from liquidation proceedings initiated against the corporate debtor pursuant to earlier orders of the NCLT. The company’s assets were sold as a going concern through an e-auction conducted on 5 October 2022, realizing ₹105 crores. Pending distribution to stakeholders, the proceeds were placed in a fixed deposit with State Bank of India, which accrued interest. The bank deducted TDS on such interest before crediting it to the liquidation account.

Aggrieved by the deductions, the Liquidator sought refund of approximately ₹1.57 crores along with interest and also requested restraint on further TDS deductions. After correspondence with both the bank and the Income Tax Department yielded no relief, the Liquidator approached the NCLT seeking directions for refund and restraint.

The NCLT, Chennai Bench, disposed of the application by directing the Liquidator to submit a simplicitor account reflecting income and expenditure of the corporate debtor during the liquidation period, and allowed the Income Tax Authorities to process the request thereafter.

Challenging this order, the Liquidator argued before the NCLAT that he was exempt from filing income tax returns under Section 140 of the Income Tax Act and that TDS ought not to have been deducted.

The Appellate Tribunal, however, upheld the NCLT’s approach. It clarified that the impugned order did not grant or deny any refund but merely enabled the Income Tax Authorities to examine the claim based on relevant financial records. The Tribunal emphasized that there was “no specific direction with respect to refund of TDS” and that the order was procedural in nature.

Crucially, the NCLAT held that the power to determine entitlement to TDS refund lies solely with the Income Tax Authorities under the Income Tax Act. It observed that the IBC does not confer any jurisdiction on the Adjudicating Authority to order refund of TDS deducted on interest accrued from fixed deposits.

The Tribunal further noted that issues such as applicability of Section 140, requirement of filing returns, and entitlement to refund must first be examined by the competent tax authorities. It described the appeal as a “challenge in premonition,” since no final decision had yet been taken by the Income Tax Department.

On the argument regarding the overriding effect of Section 238 of the IBC, the Tribunal held that taxation laws operate in their own domain and any question of inconsistency would arise only after a determination is made by the Income Tax Authorities. Since the IBC is silent on TDS refunds, the overriding provision could not be invoked at this stage.

Accordingly, the NCLAT dismissed the appeal, leaving it open to the Liquidator to approach the Income Tax Authorities in accordance with law for refund of TDS.

Coram: Justice Sharad Kumar Sharma (Member Judicial), Jatindranath Swain (Member Technical)
Case No.: Company Appeal (AT) (CH) (Ins) No. 644/2025