Allowing the petition the ,Court held that ; the Code was published in the Gazette of India dated May 28, 2016. Section 238 of the Code stipulates that the provisions of the Code shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Section 247 deals with “amendments to the Income-tax Act, 1961” and provides that that Act shall be amended in the manner specified in the Third Schedule. The Third Schedule to the Code provides that in sub-section (6) of section 178 of the 1961 Act, after the words “for the time being in force”, the words and figures “except the provisions of the Insolvency and Bankruptcy Code, 2016” shall be inserted. Section 178 of the 1961 Act, which is titled “Company in liquidation”, provides for a priority in appropriation of the amounts set aside by the liquidator for clearance of the tax dues. However, liquidation of a company could be under the provisions of different enactments. In so far as liquidation of a company under the Code is concerned, section 178 of the 1961 Act stands excluded by virtue of the amendment of section 178(6) with effect from November 1, 2016, in accordance with the provisions of section 247 of the Code read with the Third Schedule appended thereto. Therefore, in the event an assessee-company is in liquidation under the Code, the Income-tax Department can no longer claim a priority in respect of clearance of tax dues of the company, as provided under section 178(2) and (3) of the 1961 Act. In the context of liquidation of an assessee-company under the provisions of the Code, the Income-tax Department, not being a secured creditor, must necessarily have recourse to distribution of the liquidation assets in terms of section 53 of the Code. Section 53(1) provides the order of priority for such distribution and any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State in respect of the whole or any part of the period of two years preceding the liquidation commencement date comes fifth in the order of priority under clause (e) thereof.

In the light of the statutory schemes obtaining under the Code and the 1961 Act, respectively, it is clear that the Income-tax Department does not enjoy the status of a secured creditor, on par with a secured creditor covered by a mortgage or other security interest, who can avail of the provisions of section 52 of the Code. At best, it can only claim a charge under the attachment order, in terms of section 281 of the Act.

An order of attachment was passed by the Tax Recovery Officer on the immovable properties of a company on October 27, 2016. The properties of the company were sold by auction under the provisions of the 2016 Code on January 31, 2018 and the petitioner purchased them. The Sub-Registrar refused to register the petitioner’s purchase of immovable property at the behest of the Income-tax Department, which claimed a charge over the property pursuant to the attachment proceedings of the Tax Recovery Officer. On a writ petition :

Held, that the Tax Recovery Officer could not claim any priority merely because of the fact that the order of attachment dated October 27, 2016 issued by him was prior to the initiation of liquidation proceedings under the Code against the company. Section 36(3)(b) of the Code indicates in no uncertain terms that the liquidation estate assets may or may not be in the possession of the corporate debtor, including but not limited to encumbered assets. Therefore, even if the order of attachment constituted an encumbrance on the property, it still did not have the effect of taking it out of the purview of section 36(3)(b) of the Code. The order of attachment therefore could not be taken to be a bar for completion of the sale effected by the liquidator under the provisions of the Code. The Income-tax Department necessarily had to submit its claim to the liquidator for consideration as and when the distribution of the assets, in terms of section 53(1) of the Code, was taken up. The Sub-Registrar had to entertain and register the sale transaction effected by the liquidator in favour of the petitioner, if not already done.