MAT CREDIT- “Tax paid” must include surcharge and cess- a discussion with help of provisions and some related judgments.

[CA DEV KUMAR KOTHARI]

Reference and links:

Preamble and objective of Income-Tax Act,1961

Section 4 of Income-tax Act,1961.

Section 115JAA read with sections 115JA and 115JB.

Various Finance Acts which provide that Surcharge and cess shall be levied in addition to tax calculated at prescribed rate of tax.

Commissioner of Income-Tax, Kerala Versus K. Srinivasan 1971 (11) TMI 2 - SUPREME  COURT  IN C.A. 1111 OF 1969  Dated - 05 November 1971

The words 'income-tax' in the Finance Act of 1964 in sub-section (2)(a) and sub-section (2)(b) of section 2 would include surcharge and additional surcharge. Decided in  favor of the revenue.

Richa Global Exports Pvt. Ltd. Versus Assistant Commissioner of Income-tax 2012 (9) TMI 99 - ITAT DELHI  in IT Appeal No. 2303 (Delhi) of 2012  Dated - 31 August 2012

Preliminary:

Minimum Alternate Tax (MAT) is payable by companies when normal tax payable  is less than MAT. The excess of MAT over normal tax is allowed as MAT credit in subsequent years when normal tax is higher than MAT in that year. The details provisions are found in S.115JA and 115JB for levy of MAT and in S. 115JA for credit of MAT or MAT credit.

In the  case of Richa Global,  revenue took opposite view in comparison to the view taken in case of K.Srinivasan that income-tax would not include surcharge and cess for allowing credit of MAT. The judgment of Supreme Court was not referred to and considered by Tribunal. Therefore Tribunal allowed view of revenue that surcharge and education cess are not income-tax and credit for  MAT paid in earlier years was not allowable   u/s 115JAA.

The Tribunal considered that  the section does not talk about the income tax as increased by surcharge & education tax.  It talks about only income tax. Therefore if only income tax is paid under the provisions of section 115JB it is natural that tax credit u/s 115JAA will only be of income tax and not of surcharge and education cess - against assessee.

MAT credit:

Credit for tax paid by way of Minimum Alternate Tax u/s 115JA and 115JB. The credit will be for excess of MAT paid over normal tax payable.

Credit will be allowed only to the extent of normal tax  over MAT within eligible period.

Whether tax includes surcharge and cess:

The controversy is about meaning of income tax or tax. Whether tax will be inclusive of surcharge and cess levied along with income-tax.

Relevant provisions:

Preamble to  INCOME-TAX ACT, 1961  [43 OF 1961]

An Act to consolidate and amend the law relating to income-tax and super-tax.

From the preamble it is found that the Act is to consolidate and amend law relating to income-tax and super tax.

Even before ITA 1961 surcharge and cess were levied on income-tax payers.

Meaning of tax:

Section 2 (43);

2. In this Act, unless the context otherwise requires,—

¹[(1) "advance tax" means the advance tax payable in accordance with the provisions of Chapter XVII-C;]

 (7) "assessee" means a person by whom ¹⁵[any tax] or any other sum of money is payable under this Act, and includes—

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(10) "average rate of income-tax" means the rate arrived at by dividing the amount of income-tax calculated on the total income, by such total income ;

 [(43) "tax" in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under section 115WA ;]

Chapter II

Basis of charge

Charge of income-tax.

4. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year  of every person :

Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly.

(2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.

From section 115JAA

Tax credit in respect of tax paid on deemed income relating to certain companies.

115JAA.  (1) Where any amount of tax is paid under sub-section (1) of section 115JA by an assessee being a company for any assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section.

²[(1A) Where any amount of tax is paid under sub-section (1) of section 115JB by an assessee, being a company for the assessment year commencing on the 1st day of April, 2006 and any subsequent assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section.]

³[(2) The tax credit to be allowed under sub-section (1) shall be the difference of the tax paid for any assessment year under sub-section (1) of section 115JA and the amount of tax payable by the assessee on his total income computed in  accordance with the other provisions of this Act:

Provided that no interest shall be payable on the tax credit allowed under sub-section (1).

(2A) The tax credit to be allowed under sub-section (1A) shall be the difference of the tax paid for any assessment year under sub-section (1) of section 115JB and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of this Act:

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Relevant portion from S.115JB:

Special provision for payment of tax by certain companies.

115JB.  (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the the 1st day of April, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent.    

         [Explanation 2.— For the purposes of clause (a) of Explanation 1, the amount of income-tax shall include—

           (i) any tax on distributed profits under section 115-O or on distributed income under section 115R;

           (ii) any interest charged under this Act;

           (iii) surcharge, if any, as levied by the Central Acts from time to time;

           (iv) Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and

           (v) Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time.]

Finance Acts:

From the Finance Act, 2013 as an illustration portions relevant to ascertainment of rate of income –tax and income-tax.: 

THE FINANCE ACT, 2013

CHAPTER II

RATES OF INCOME-TAX

Income-tax.

     2. (1) Subject to the provisions of sub-sections (2) and (3), for the assessment year commencing on the 1st day of April, 2013, income-tax shall be charged at the rates specified in Part I of the First Schedule and such tax shall be increased by a surcharge, for purposes of the Union, calculated in each case in the manner provided therein.    

     (3) In cases to which the provisions of Chapter XII or Chapter XII-A or section 115JB or section 115JC or sub-section (1A) of section 161 or section 164 or section 164A or section 167B of the Income-tax Act, 1961 (43 of 1961) (hereinafter referred to as the Income-tax Act) apply, the tax chargeable shall be determined as provided in that Chapter or that section, and with reference to the rates imposed by sub-section (1) or the rates as specified in that Chapter or section, as the case may be:

      Provided further that in respect of any income chargeable to tax under section 115A, 115AB, 115AC, 115ACA, 115AD, 115B, 115BB, 115BBA, 115BBC, 115BBD, 115BBE or 115JB of the Income-tax Act, the amount of income-tax computed under this sub-section shall be increased by a surcharge, for purposes of the Union, calculated,—

          (a) in the case of a domestic company, at the rate of five per cent of such income-tax where the total income exceeds one crore rupees;

          (b) in the case of every company, other than a domestic company, at the rate of two per cent of such income-tax where the total income exceeds one crore rupees:

     Provided also that in the case of every company having total income chargeable to tax under section 115JB of the Income-tax Act, and such income exceeds one crore rupees, the total amount payable as income-tax and surcharge on such income-tax shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees.

     (4) In cases in which tax has to be charged and paid under section 115-O or section 115QA or sub-section (2) of section 115R or section 115TA of the Income-tax Act, the tax shall be charged and paid at the rates as specified in those sections and shall be increased by a surcharge, for purposes of the Union, calculated at the rate of ten per cent of such tax.

     Provided that in cases to which the provisions of Chapter XII or Chapter XII-A or section 115JB or section 115JC or sub-section (1A) of section 161 or section 164 or section 164A or section 167B of the Income-tax Act apply, “advance tax” shall be computed with reference to the rates imposed by this subsection or the rates as specified in that Chapter or section, as the case may be:

     Provided further that the amount of “advance tax” computed in accordance with the provisions of section 111A or section 112 of the Income-tax Act shall be increased by a surcharge, for purposes of the Union, as provided in Paragraph A, B, C, D or E of Part III of the First Schedule:

     Provided also that in respect of any income chargeable to tax under sections 115A, 115AB, 115AC, 115ACA, 115AD, 115B, 115BB, 115BBA, 115BBC, 115BBD, 115BBE, 115E, 115JB and 115JC of the Income-tax Act, “advance tax” computed under the first proviso shall be increased by a surcharge, for purposes of the Union, calculated,—

     Provided also that in the case of every company having total income chargeable to tax under section 115JB of the Income-tax Act, and such income exceeds one crore rupees but does not exceed ten crore rupees, the total amount payable as “advance tax” on such income and surcharge thereon, shall not exceed the total amount payable as “advance tax” on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees:

     Provided also that in the case of every company having total income chargeable to tax under section 115JB of the Income-tax Act, and such income exceeds ten crore rupees, the total amount payable as “advance tax” on such income and surcharge thereon, shall not exceed the total amount payable as “advance tax” and surcharge on a total income of ten crore rupees by more than the amount of income that exceeds ten crore rupees.

    An analysis:

We find that the Income Tax Act,1961 is a central enactment, and is to consolidate and amend the law relating to income-tax and super-tax. Therefore, basic objective of  earlier enactments continue to be objectives of the   Income Tax Act,1961 and the provisions are consolidated and amended.

As per definition of ‘tax’ in section 2(43) income-tax, is defined to include income-tax, super-tax and fringe benefit tax payable in different years as per prevalent law.

Though the Income-tax Act is a wholesome Act to provide for levy, collection, and procedures in relation to administration of tax on income. However, charge is created only by Finance Act, which is passed in each year.

 As per Finance Act 2013 ( may  be looked into in each Finance Act for finer points) the rates of tax are provided in  CHAPTER II  under the heading “RATES OF INCOME-TAX”.

Then we find provisions for rate of tax applicable in different situation. And tax is to be increased by a surcharge for the Union.

Therefore, it is clear that the surcharge is also income-tax because the tax payable as per rates is increased by surcharge.

The nature of such ‘surcharge’ is similar to ‘surcharge’ and ‘additional surcharge’ considered by honorable Supreme Court in the case of K. Srinivasan. Therefore, surcharge is also income-tax.

The cess, which is levied for specific purposes, is also levied at a rate specified and is calculated on the amount of tax and surcharge. Therefore, cess levied is also in nature of tax on income or income-tax.

In section 115JAA also we find that the expression ‘tax paid’, ‘tax payable’ and ‘tax credit’ are used. Such expressions do not show any limitation as to income-tax only or to exclude ‘surcharge’, ‘additional surcharge’ or even ‘cess’ which may be levied from time to time.

So far the tax on income is concerned, any levy by whatever name called which is paid in accordance with the provisions of the income-tax Act, 1961 and Rules and procedures prescribed  there under, are considered as tax on income. In any case all these categories are   in nature of ‘tax payable, ‘tax paid’ and should therefore be part of ‘tax credit’ also.

We also find that the provisions, and levies are similar to those considered by the Supreme Court in case fo K.Srinivasan. Therefore, it is useful to undertake a study of that judgment for proper understanding of the concept of additional levies made payable along with any particular tax:

   From the judgment of the Supreme Court of India in case of K. Srinivasan (supra.):

Before the Supreme Court the matter was whether ‘surcharge’ and ‘additional surcharge’  levied in addition to income tax is also income tax. The question of law for opinion of High Court and then the Supreme court  was as follows:

" Whether the words 'income-tax' in the Finance Act of 1964 in sub-section (2)(a) and sub-section (2)(b) of section 2 would include surcharge and additional surcharge ? "

The facts were as follows:

 Main source of income of assessee was salary. For PYE 30th March, 1964,  income from salary amounted to Rs. 42,900.

The Income-tax Officer levied surcharge and additional surcharge in accordance with the rates prescribed by the Finance Act, 1963.

In first appeal  it was contended  that the provisions of the Finance Act, 1964, did not permit the Income-tax Officer to levy surcharge and additional surcharge in accordance with the provisions of the Finance Act of 1963 , that under sub-section (2) of section 2 of the Finance Act of 1964 only income-tax was payable in the proportion of salary income formed part in the total income, in case of salary the income-tax  was to be worked out at the rates applicable under the Finance Act, 1963, wherein there is no mention of any surcharge in the sub-section income-tax alone was leviable which did not include surcharge.

 The Appellate Assistant Commissioner did not accede to these contentions. He was of the view that surcharge was only another form of income-tax. The matter was taken to the Appellate Tribunal which upheld the levy of the surcharge and the additional surcharge. On a reference the High Court answered the question (as mentioned earlier) in the negative and in favour of the assessee.

On appeal by revenue, the supreme court considered the following aspects:

  Section 2 of the Finance Act, 1964, is headed as " Income-tax and super-tax " provides in sub-section (1) that income-tax and super-tax shall be charged at the rates specified in Parts I and II of the First Schedule respectively and that in cases to which certain paragraphs of those Parts apply these taxes shall be increased by a surcharge for the purpose of the Union.

 According to sub-section (2) where the total income of an assessee not being a company includes any income chargeable under the head " Salaries " income-tax and super-tax payable by the assessee on the salary portion of the total income shall be the proportionate amount payable according to the rates provided in the Finance Act, 1963.

Under section 2 of the Finance Act, 1963, income-tax was to be charged at the rates specified in Part I of the First Schedule and super-tax at the rates specified in Part II of that Schedule.

The income-tax was to be increased in the cases mentioned by a surcharge and additional surcharge for the purpose of the Union and a special surcharge.

The super-tax was, however, to be increased by a surcharge for the purpose of the Union and a special surcharge.

The  section 2(2) of the Finance Act, 1964, did not contain mention of any of the surcharges. This led to the controversy which resulted in the reference.

Before the High Court the assessee relied on sections 4 and 95 of the Income-tax Act, 1961, hereinafter called " the Act ".

These sections provide for charge of income-tax and super-tax. It was pointed out that surcharge was treated in the Finance Acts as a tax different from the income-tax and super-tax and that surcharge was levied by the Finance Act while the income and super-taxes were levied by the Act. Reference was made in this connection to the First Schedule to the Finance Act, 1963. Part I of that Schedule dealt with " income-tax and surcharge on income-tax ". Under that heading were given the rates of income-tax as also the rates of surcharge. Similarly, Part II of the Schedule dealt with super-tax and surcharge on super-tax and under that heading the rates of super-tax and the rates of surcharge on super-tax were given. Among the surcharges in the case of income-tax were mentioned : (a) a surcharge for the purpose of the Union, (b) a special surcharge and (c) an additional surcharge. As regards the surcharge on super-tax there was mention of (a) a surcharge for the purpose of the Union and (b) a special surcharge. The High Court examined the aforesaid provisions of the Finance Acts of 1963 and 1964 and articles 270 and 271 of the Constitution apart from the legislative entry 82 in List I of the Seventh Schedule. It came to the conclusion that income-tax and super-tax did not include surcharge and that these were called by different nomenclature in all the statutory provisions.

Supreme Court also viewed that the point  for examination by the Court is of considerable complexity, and it is necessary to trace the concept of surcharge in taxation laws in our country.

 The power to increase federal tax by surcharge by the federal legislature was recommended for the first time in the report of the committee on Indian Constitutional Reforms, volume I, part I. From paragraph 141 of the proposals it appears that the word " surcharge " was used compendiously for the special addition to taxes on income imposed in September, 1931.

The Government of India Act, 1935, Part VII, contained provisions relating to finance, property, contracts and suits. Sections 137 and 138 in Chapter I headed " finance " provided for levy and collection of certain succession duties, stamp duties, terminal tax, taxes on fares and freights, and taxes on income, respectively.

In the proviso to section 137 the federal legislature was empowered to increase at any time any of the duties or taxes leviable under that section by a surchage for federal purposes and the whole proceeds of any such surcharge were to form part of the revenues of the federation. Sub-section (3) of section 138 which dealt with taxes on income related to imposition of a surcharge. Under the Government of India Act, 1935, the surcharge was levied for the first time by the Indian Finance No. 2 Act, 1940. Section 3(1) of that Act read :

" Subject to the provisions of this section, the rates of income-tax and rates of super-tax ... imposed by sub-section (1) of section 7 of the Indian Finance Act, 1940, shall, in respect of the year beginning on the first day of April, 1940, be increased by a surcharge for the purposes of the Central Government... "

Similar phraseology was employed in respect of surcharge on super-tax. The provisions relating to surcharge were omitted in the Finance Acts of 1946 to 1950. It was reintroduced in the Finance Act of 1951 and the same has been continued in the Finance Acts of subsequent years. Special surcharge came to be levied in the Finance Acts of 1958 to 1964 and 1966 to 1971 and the additional surcharge was levied only by the Finance Act of 1963.

In the Finance Act of 1951, section 2 relating to income-tax and super-tax provided that these taxes would be levied at the rates specified in Parts I and II of the First Schedule increased in each case by a surcharge for the purpose of the Union. The Finance Act of 1952 was a short document and section 2 thereof simply provided :

 " The provisions of section 2 of, and the First Schedule to, the Finance Act, 1951, shall apply in relation to income-tax and super-tax for the financial year 1952-53 as they apply in relation to income-tax and super-tax for the financial year 1951-52 ........"

There was no specific mention whatsoever of surcharge in section 2 nor was there any modification of the First Schedule to the Finance Act of 1951 which contained the rates, etc., relating to the surcharge. Similar state of affairs existed with regard to the Finance Acts of 1953, 1954 and 1957. Section 2 of the Finance Act, 1971, is to the effect that the provisions of section 2 and of the First Schedule to the Finance Act, 1970, shall apply in relation to income-tax for the assessment year or, as the case may be, the financial year commencing on the first day of April. 1971, as they apply in relation to income-tax for the assessment year commencing on the first day of April, 1970, with certain modifications set out, in the section. The First Schedule to the Finance Act of 1970 was modified and the Schedule so modified contains provisions for a surcharge on income-tax. It is significant that section 2 of the Finance Act of 1971 speaks only of income-tax and not of any surcharge. It is only in the modifications made in the Schedule to the Finance Act of 1970 that there is provision for a surcharge.

The above legislative history of the Finance Acts, as also the practice, would appear to indicate that the term " income-tax " as employed in section 2 includes surcharge as also the special and the additional surcharge whenever provided which are also surcharges within the meaning of article 271 of the Constitution. The phraseology employed in the Finance Acts of 1940 and 1941 showed that only the rates of income-tax and super-tax were to be increased by a surcharge for the purpose of the Central Government. In the Finance Act of 1958, the language used showed that income-tax which was to be charged was to be increased by a. surcharge for the purposes of the Union. The word " surcharge " has thus been used to either increase the rates of income-tax and super-tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the term " income-tax " as used in section 2 includes surcharge.

According to article 271, notwithstanding anything in articles 269 and 270, Parliament may at any time increase any of the duties or taxes referred to in those articles by a surcharge for the purposes of the Union and the whole proceeds of any such surcharge shall form part of the consolidated fund of India. Article 270 provides for taxes levied and collected by the Union and distributed between the Union and the States. Clause (1) says that taxes on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the States in the manner provided in clause (2). Article 269 deals with taxes levied and collected by the Union but assigned to the States. The provisions of article 268 which is the first one under the heading " Distribution of revenue between the Union and the States " relate to duties levied by the Union but collected and appropriated by the States. Thus, these articles deal with the levy, collection and distribution of the proceeds of the taxes and duties mentioned therein between the Union and the States. The legislative power of Parliament to levy taxes and duties is contained in articles 245 and 246(1) read with the relevant entries in List I of the Seventh Schedule.

As mentioned before, the legislative entry 82 in List I relates to taxes on income other than agricultural income ; income-tax, super-tax and surcharge would all fall under this entry. It is in exercise of the legislative power conferred by that entry that the Union Parliament enacts the provision in the Finance Act each year relating to them. It is that Act which authorises these taxes to be charged and prescribes the rates at which they can be charged. Section 4 of the Act simply provides that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates income-tax at that rate or those rates shall be charged in accordance thereto and subject to the provisions of the Act. Section 95, which was omitted by the Finance Act of 1965, contained similar provision with regard to super-tax. Although under the Act section 4 is the charging section yet income-tax can be charged only where the Central Act which, in the present case, will be the Finance Act, enacts that income-tax shall be charged for any assessment year at the rate or rates specified therein. The distinction made by the High Court that the surcharges are levied only under the Finance Act and income-tax under the Act may not hold good if the above view which has been pressed on behalf of the revenue were to be accepted. In our judgment it is unnecessary to express any opinion in the matter because the essential point for determination is whether surcharge is an additional mode or rate for charging income-tax.

The meaning of the word " surcharge " as given in the Webster's New International Dictionary includes, among others, " to charge (one) too much or in addition...... " ; also " additional tax ". Thus, the meaning of surcharge is to charge in addition or to subject to an additional or extra charge. If that meaning is applied to section 2 of the Finance Act, 1963, it would lead to the result that income-tax and super-tax were to be charged in four different ways or at four different rates which may be described as : (i) the basic charge or rate (In Part I of the First Schedule) ; (ii) surcharge ; (iii) special surcharge ; and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way, the additional charges form a part of the income-tax and super-tax. It is possible to argue, and that argument has been commended on behalf of the revenue, that the word " surcharge " has been used in article 271 for the purpose of separating it from the basic charge of a tax or duty for the purpose of distributing the proceeds of the same between the Union and the States. The proceeds of the surcharge are exclusively assigned to the Union. Even in the Finance Act itself it is expressly stated that the surcharge is meant for the purpose of the Union.

In the result we are unable to sustain the view of the High Court. The question that was referred must be answered in the affirmative and in favour of the revenue. In view of the nature of the point involved the parties are left to bear their own costs in this court. The appeal by certificate is dismissed.

Application of the principal in relation to MAT credit:

As discussed earlier, MAT credit u/s 115JAA is also about ‘tax paid’. The tax paid is paid as per section 4 read with the Finance Act. So far tax payer and tax authorities are concerned, tax includes surcharge, and cess in all aspects of tax administration. Therefore, in context of S. 115JA  tax paid should be considered inclusive of income-tax, surcharge, and cess or any such levies which are provided as additional tax or additional rat of tax.

It cannot be said that ‘cess’ levied’ is in nature of any fees or a donation for particular purpose. When cess, is levied on the basis of amount of tax or rate of tax, then there is no difference between tax , and cess.

The definition of ‘tax’ in section 2(43) is in nature of an inclusive definition. Furthermore this definition is also subject to the context. We also need to understand the concept of ‘tax’ as per general understanding of people concerned with the subject matter. Therefore, in the context of S.115JAA for MAT credit , surcharge and cess must be considered as part of tax.

In section 115JB the words used are income-tax, and not tax, whereas in S. 115JAA words used are ‘tax paid’. S. 115JB provides for rate of tax  and the Finance Act  may provide  for surcharge as an additional tax or extra tax or rate of tax. It can be said that basic rate of tax is fixed in S.115JB, and additional tax by way of surcharge, cess or any other name is provided through the Finance Act.

Tax credit is allowed in respect of tax paid and not only income-tax. For computing amount of tax credit ‘tax paid’ S. 115JA or 115JB and tax payable in case of normal tax computation are relevant. Therefore, in context of MAT credit full amount of tax inclusive of surcharge, and cess should be considered. 

It can also be viewed from the angle that in case it was intended to include only income-tax, or tax and exclude surcharge and cess, then the word ‘tax paid’ and ‘tax payable’ would not appear or there should be clarity that ‘tax’ means only ‘income-tax’ or that ‘tax’ does not include surcharge and cess. In absence of any such clarification, the expression ‘tax’ paid must be considered as inclusive of surcharge and cess. The scope and ambit of ‘tax’ cannot be restricted to the basic rate of income-tax.

In the Explanation 2 to S.115JB it is provided that for the purpose of clause (a) of Explanation 1, the amount of income-tax shall include not only income-tax on company’s profit but also tax paid on dividend distributed, surcharge and cess on all taxes and interest payable under the act. The purpose of this Explanation is restricted in relation to computation of book profits and for that reason all cost on account of tax on income including interest are considered for the purpose of increasing the book profit with the amount of such tax costs.

Therefore, the meaning of income-tax as per this Explanation is not fully applicable in other contexts. However, it can be said that ‘tax paid’ should be considered  as inclusive of tax by way of income-tax at applicable basic rates and tax charged by additional or supplementary rates called as ‘surcharge’ or ‘cess’. However,  tax other than tax on income of company like tax paid on dividend distributed or Fringe Benefit Tax will not be covered while considering MAT credit. Similarly interest paid under IT Act under any provision will not be included in ‘tax paid’ for the purpose of MAT credit.      

   Decision of Tribunal in case of Richa Global (supra.)

The Tribunal has held that for the purpose of S.115JAA , tax  means income-tax and does not include surcharge and cess. The Tribunal made following conclusions:

Section 115JB does not specify that the income-tax shall be increased by amount of surcharge and cess;

Wherever Statute has intended that income-tax shall include surcharge and cess, it has specifically provided so like it has provided in Explanation 2 to section 115JB;

In Form 29B, which is filed along with return of income where MAT is applicable, at Point No. 14 it is stated that the amount of income-tax payable by the assessee would be 15% of book profits, and it does not provide for levy of surcharge and cess;

Thus, MAT payable under section 115JB only includes income-tax and not surcharge and cess;

In view of above, if only income-tax is paid under the provisions of section 115JB, the entitlement to tax credit under section 115JAA would be for income-tax only and not surcharge and cess;

 The Explanation 2 to section 115JB was inserted to clarify the meaning of 'tax' as used in Explanation 1 to section 115JB with respect to calculation of book profit, which cannot be extended to section 115JAA of the Act.

 Therefore, the order of the CIT(A) was upheld.

Lacking in the contentions raised before the Tribunal:

It seems that in case of Richa Global, various contentions as discussed earlier were not raised. The use of words ‘tax paid’ in S. 115JAA and use of words ‘tax’ as well ‘income-tax’ in S. 115JB was not considered.  The provisions of Finance Act were not referred to. The objects and preamble of Income-tax was not discussed.

It was also not argued that revenue itself had contended and won on the issue that  ‘tax’ includes ‘surcharge’ and ‘additional surcharge’ when it was in favor of revenue in case before Supreme Court as discussed earlier. In fact the judgment of the Supreme Court  in Commissioner of Income-Tax, Kerala Versus K. Srinivasan 1971 (11) TMI 2 - SUPREME  COURT  IN C.A. 1111 OF 1969  Dated - 05 November 1971has not been cited, and discussed. It can be said that it is not fair on part of revenue, to contend that ‘tax’ does not include ‘surcharge’ and ‘cess’, when the revenue itself contended that ‘surcharge’ is part of tax and won on that before the Supreme Court. It was also not fair on the part of Departmental Representative not to point out the judgment of the Supreme Court in case of K.Srinivasan. Therefore, the judgment in case of Richa Global is fit for filing an appeal and assessee can also try his luck by filing a rectification petition before the Tribunal to rectify the order in view of law laid doen in case of K.Srinivasan by the Supreme Court.