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TMI Blog2010 (4) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 244A of the Income-tax Act, 1961 was allowable on the refundable taxes arrived at after giving credit of brought forward MAT from the gross demand? The issue: 3. The issue that arises for the determination of the court is whether minimum alternative tax (MAT) credit, to which the assessee is undisputedly entitled, must be given before computing interest payable by the assessee under section 234B of the Income-tax Act, 1961; or whether, as contended by the Revenue, the credit is allowable after the liability to pay interest under section 234B is computed. For the purposes of this appeal, it would be necessary to note that there is no dispute before the court either as regards the extent of the MAT credit or the tax that was paid by the asses- see by way of advance tax or tax deductible at source (TDS). 4. From the order passed by the Assessing Officer on February 4, 2004, while giving effect to the 6rder passed by the Commissioner (Appeals), it is evident that the total income of the assessee was computed at Rs. 6.40 crores. The tax chargeable was Rs. 2.46 crores. The assessee was entitled to a MAT credit of Rs. 30.98 lakhs. The TDS worked out to Rs. 37.47 lakhs, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. Explanation 1. - In this section, 'assessed tax' means the tax on the total income determined under sub-section (1) of section 143 or on regular assessment as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter )(VII on any income which is subject to such deduction or collection and which is taken into account in computing such total income…. (2) Where, before the date of determination of total income under sub-section (1) of section 143 or completion of a regular assessment, tax is paid by the assessee under section 140A or otherwise, (i) interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be utilized shall be in accordance with the provisions of section 115JAA. The provisions for the imposition of a minimum alternative tax were brought into force by Parliament due to a rise in the number of zero tax companies in view of the tax preferences granted in the form of exemptions, deductions and high rates of depreciation. Consequently, a minimum tax was provided by deeming a certain part of the book profits as total income. MAT credit: Section 1I5JAA (1) allows a credit to the company for tax paid under section 115JA(1). The salient aspects of the deferred tax credit that is provided under section 115JAA are as follows: (i) The quantum of tax credit allowed under section 115JAA(1) is the difference between the tax paid for any assessment year under section 115JA and the amount of tax payable on the total income computed in accordance with the provisions of the Act; (ii) The amount of tax credit determined under sub-section (2) of section 115JAA could be carried forward and set off subject to certain conditions for five assessment years immediately succeeding the year in which the credit became allowable; (iii) The tax credit could be set off in a year in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituted, Explanation 1 reads as follows: "Explanation 1. - In this section, 'assessed tax' means the tax on the total income determined under sub-section (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of, (i) any tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income; (ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India; (iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section; (iv) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and (v) any tax credit allowed to be set off in accordance with the pro visions of section 115JAA." 16. After the substitution of Explanation 1, the expression "assessed tax" has now been specifically defined to account for any tax credit allowed to be set off in accordance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d emerge on a plain reading of sections 140A, 143(1) and 234B(2); (iii) The interest payable under section 234B has been held to be compensatory in nature so as to be payable by an assessee for depriving the Government of its dues. Upon an excess payment of the minimum alternative tax, for which credit has been given, interest cannot be charged under section 234B by disregarding the credit to which the assessee is entitled; (iv) The construction which has been suggested by the Revenue to the effect that interest under section 234B would be liable to be charged without giving due consideration to the entitlement of the assessee to the credit available under section 115JAA would result in unintended and absurd consequences. The task of interpretation must be to place a construction on a statutory provision which does not result in absurdity or a consequence which was not envisaged by Parliament; (v) En any event, the amendment to Explanation 1 to section 234B is curative and clarificatory and would apply to preceding years; and (vi) It is a settled principle of law that a form which is prescribed under subordinate legislation cannot override a statutory prescription. Our interpretat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2006. By the Finance Act of 2006, the Explanation to section 140A was also substituted in terms similar to the substitution which was effected to Explanation 1 to section 234B. The effect of the substitution will be considered in a subsequent part of this judgment. 22. At this stage, what is important to emphasize is that even prior to the substitution, in computing the liability of an assessee to pay tax under the self-assessment provisions of section 140A, the tax paid under any provision of the Act was liable to be reckoned. The question of interest under section 234B arose if there was a short fall but in determining as to whether there was a short fall in the first place, the entitlement of an assessee to avail of MAT credit could not be ignored. This was evidently the position on a plain construction of the provisions of sub-section (1) of section 140A. 23. The next provision to which it would be necessary to refer is section 143(1). Sub-section (1) of section 143, prior to its amendment by the Finance Act of 2008 provided that where a return has been made under section 139, or in response to a notice under section 142(1), if any tax or interest is found due on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilarly stipulates that the payment of tax under section 140A or otherwise prior to the date of determination of total income under section 143(1) or completion of a regular assessment would result in interest being calculated only up to the date on which the tax is so paid. This is to obviate the consequence which is provided by sub-section (1) of section 234B under which in the event of a short fall in the payment of tax, the liability to pay interest would arise and would continue to subsist up to the date of determination of total income under section 143 or to the date of a regular assessment. 25. The provisions of section 140A, section 143(1) and section 234B(2) leave no manner of doubt that the payment of tax by the assessee under section 115JA would, where an assessee is entitled to a credit under the provisions of section 115JAA, have to be reckoned in computing the liability to pay interest under section 234B. Undoubtedly, Explanation 1 to section 234B defined the expression "assessed tax" to mean the tax on the total income determined under section 143(1) or on regular assessment as reduced by the amount of tax deducted or collected at source. However, to read the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 234B being compensatory in nature, the object underlying the levy of interest under the provision is to provide compensation to the Exchequer for being deprived of the payment of advance tax, to which it was legitimately entitled. In a case such as the present where an assessee has paid the minimum alternative tax and is in fact entitled to a credit under section I15JAA in respect of excess tax collected by the Exchequer, the basis and foundation for the levy of compensatory interest would not exist. Consequently, the submission which has been urged on behalf of the Revenue cannot be accepted, both having regard to the nature and purpose of the levy of interest under section 234B and the unintelligible consequence that follow, if that interpretation were to be accepted. Clarificatory amendment: 28. Parliament substituted Explanation I to section 234B by the Finance Act of 2006. The amendment which was brought into force with effect from April 1, 2007, now specifically contemplates that for the purposes of the section "assessed tax" would be reckoned after taking due account of a tax credit allowed to be set off in accordance with the provisions of section 115JAA. The contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 140A and 234B. Parliament considered it appropriate to step in and resolve an area of ambiguity, particularly having regard to the circumstance that representations were received from several quarters, as noticed in the circular issued by the Central Board of Direct Taxes. An amendment which is intended to remove an ambiguity in the interpretation of a section must of necessity be regarded as clarificatory. If it is clarificatory in nature, it is expressive of a position in law which Parliament intended to hold the field at all material times and must consequently be regarded as operating with retrospective effect. The fact that Parliament has brought the provision into effect from April 1, 2007 by the Finance Act of 2006 would not be dispositive of the question as to whether the amendment is clarificatory. If the amendment is clarificatory as we hold it is, it must apply in respect of the previous years as well. 31. In CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625, the Supreme Court considered the provisions of section 27 of the Income-tax Act, 1961, under which certain persons who were not otherwise legal owners are deemed to be owners for certain purposes. The Finance Bill o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in Core Health Care Limited dealt with an amendment to section 36(1)(iii) of the Income-tax Act, 1961 by which Parliament had sought to restrict the area of interest allowable, by way of a proviso. Section 36(1) provided for a deduction in computing the income referred to in section 28 of the interest paid in respect of capital borrowed for the purposes of business or profession. The proviso stipulated that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of an existing business or profession for any period beginning from the date on which the capital was borrowed for acquisition till the date on which such asset was first put to use, shall not be allowed as deduction. The Supreme Court observed that interest on moneys borrowed for the purposes of business is a necessary item of expenditure in a business. In order to allow a claim for deduction of interest under the section, all that was necessary is that the money should have been borrowed by the assessee; that it should have been borrowed for business; and that the assessee ought to have paid interest on the borrowed amount. The Supreme Court noted that its earlier view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by substituting Explanation 1 to section 234B was clarificatory or curative in nature. Forms do not override legislation: 37. On behalf of the Revenue reliance was sought to be placed on the provisions of the form appended to the Income-tax Rules, as it obtained prior to the amendment to section 234B. Schedule C which deals with the statement of taxes, inter alia, provided for the computation of interest under section 234B after adjusting tax deducted/collected at source and advance tax from the tax payable. Under the form, the tax credit to be allowed under section 115JAA was to be reckoned after computing the interest liability under section 234B. The form has since been amended after the amendment brought about by the insertion of substituted Explanation 1 to section 234B. As amended the form now requires credit under section 115JAA to be taken into account prior to computing the interest leviable under section 234B. 38. A form provided by a rule-making authority which is a delegate of the legislature cannot override a statutory provision. Forms are subservient to legislation. Forms are intended to facilitate the implementation of legislation. Forms cannot supplant legislatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and available as credit at the beginning of the year; (vii) The assessee cannot, therefore, be charged interest on some thing which he has already paid; (viii) The provisions of section 234A are compensatory. Since the tax due to the extent of available MAT credit stands paid, the levy of interest under section 234A thereon would not arise. 41. We are in respectful agreement with the view expressed by the Delhi High Court in Jindal Exports Ltd. [2009] 314 JTR 137. Our conclusions: 42. In view of the aforesaid discussion, the first question of law as framed would have to be answered in favour of the assessee and against the Revenue. 43. In so far as the second question is concerned, counsel appearing on behalf of the Revenue has conceded before the court that it would be consequential to the determination of the first question. As already noted earlier in this judgment, as against the tax payable of Rs. 2.46 crores, the tax paid by the assessee amounted to Rs. 4.24 crores after giving due adjustment for MAT credit, TDS, advance tax and self-assessment tax. The assessee was, therefore, entitled to a refund of excess tax paid for the assessment year 2000-01 over and above the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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