Section 31 of the Income Tax Act
The decision most relied on for Section 31 is Ghanashyam Mishra And Sons. v. Edelweiss Asset Reconstruction (126 Taxmann.com 132), cited in 192 of the 45 judgments on BharatTax that turn on this section.
Leading authorities on Section 31
Once a resolution plan is approved by the NCLT under Section 31(1) of the IBC, all claims, including statutory dues owed to the Central or State Government, are frozen and become binding on all stakeholders. This extinguishes any prior tax demands, such as those under Section 178(6) of the Income Tax Act, if not part of the approved plan.
Expenditure for replacement of machinery parts qualifies as 'current repairs' under Section 31(i) of the Income-tax Act if it does not result in a new asset or substantially enhance the existing asset's life. For Section 31(i), the critical factor is whether the expense constitutes current repairs, making the general revenue vs. capital distinction less relevant for that specific section.
Expenditure qualifies as 'current repairs' if it maintains existing machinery without replacement, creates no new asset, restores functional efficiency without increasing capacity, and is not an independent unit. Conversely, the cost of replacing machinery, especially independent units, constitutes capital expenditure.
All claims, including statutory dues, that predate the approval of a resolution plan under the IBC stand extinguished by operation of law. No proceedings can be initiated or continued for such claims if they are not part of the approved plan.
The moratorium period under the Insolvency and Bankruptcy Code, 2016, will be excluded when calculating the limitation period for proceedings involving a corporate debtor. The Assessing Officer can seek re-institution of an appeal if the resolution process concludes.
Expenditure incurred on the replacement of a part of machinery is deductible as revenue expenditure if it does not result in an increase in productivity or capacity.
Income tax proceedings initiated against a corporate debtor under section 148 for assessment years prior to the approval of a resolution plan under the Insolvency and Bankruptcy Code (IBC) are invalid, as the IBC aims to provide certainty by extinguishing all claims not part of the resolution plan.
Judgments on Section 31
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