TMI Blog2010 (12) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... off of MAT credit balance against the amount of tax plus interest i.e. after the computation of interest under Section 234B. This was directly contrary to a plain reading of Section 115JAA(4). Further, a form prescribed under the rules can never have any effect on the interpretation or operation of the parent statute. Mat credit allowed to be set off from advance tax before calculating interest - 10677-79 OF 2010 - - - Dated:- 16-12-2010 - S.H. Kapadia, Chief Justice; K.S. Panicker Radhakrishnan and Swatanter Kumar, JJ JUDGMENT S. H. KAPADIA, Chief Justice 1. Leave granted. 2. The issue involved in this batch of civil appeals, by special leave, filed by the Department relates to the question whether MAT credit admissible in terms of Section 115JAA has to be set off against the tax payable (assessed tax) before calculating interest under Sections 234A, B and C of the Income Tax Act, 1961 (the Act). 3. At the outset, it may be stated that there is no dispute in regard to eligibility of the assessee for set off of tax paid under Section 115JA. The dispute is only in regard to priority of adjustment for the MAT credit. 4. To answer the above, we set hereinbelow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or (f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; If any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by,-- (i) the amount withdrawn from any reserves or provisions if any such amount is credited to the profit and loss account: Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 but ending before the 1st day of April, 2001 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation; or (ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or (iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation:- For the purposes of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section. 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) 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). (3) The amount of tax credit determined under sub- section (2) shall be carried forward and set off in accordance with the provisions of sub-section (4) and sub-section (5) but such carry forward shall not be allowed beyond the fifth assessment year immediately succeeding the assessment year in which tax credit becomes allowable under sub-section (1). (4) The ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed. Such a right gets crystallized no sooner the tax is paid by the assessee under Section 115JA, as per the return of income filed by that assessee for a previous year (say, year one). [See Section 115JAA(1)]. The said credit gets limited to the tax difference between tax payable on book profits and tax payable on income computed under the normal provisions of the Act [see Section 115JAA(2)] in year one. Such credit is, however, allowable for a period of five succeeding assessment years, immediately succeeding the assessment year in which the credit becomes available (say years 2 to 6) [See Section 115JAA(3)]. However, MAT credit is available for set off against the tax payable in succeeding years where the tax payable on income computed under the normal provisions of the Act exceeds the tax payable on book profits computed for that year [See Section 115JAA(4),(5)]. At this stage, we would like to emphasize the word "allowed" in all the sub-sections of Section 115JAA. The statute envisages under Section 115JAA "credit in respect of tax so paid" because the entire tax is not an automatic credit but has to be calculated in accordance with sub-section (2) of Section 115JAA. Sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Sections 234B and C, the A.O. computed the shortfall of the tax payable without taking into account the set off of MAT credit. 8. The effect of the stand of the Department is as follows: In Titan's case, the assessee files its returns for assessment year 2001-02. The total income declared in the return was Rs.23,48,68,460/-. The assessee claimed a refund of Rs.10,60,394/-. The A.O. initially processed the return under Section 143(1) and accepted it. Subsequently, the A.O. rectified the alleged mistake and charged interest under Section 234B of Rs.1,10,67,561/-. The A.O. further charged interest under Section 234C of Rs.40,18,170/-. This levy of interest took place because the A.O. took the view that credit of the tax paid under Section 115JA(1) was to be given in terms of Section 115JAA only after computing the interest to be charged under Sections 234B and C. The result was that claim for refund in favour of the assessee of an amount of Rs.10,60,394/-having regard to the pre-paid taxes got converted into the demand by Department of Rs.1,50,58,707/- after giving full credit for the prepaid taxes only because the A.O. gave a set off of MAT credit in the sum of Rs.5,40,15,189 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear one, then, the set off of such tax credit follows as a matter of course once the conditions mentioned in Section 115JAA are fulfilled and the grant of such credit is not dependent upon determination by the A.O. save and except that the ultimate amount of tax credit to be allowed will be dependent upon the final determination of the total income for the first assessment year. There is no provision under Section 115JAA which postpones the right of the assessee to claim set off to the determination of the total income by the A.O. in the first assessment year. Entitlement/right to claim set off is different from the quantum/quantification of that right. Entitlement of MAT credit is not dependent upon any action taken by the Department. However, quantum of tax credit will depend upon the assessment framed by the A.O. Thus, the right to set off arises as a result of the payment of tax under Section 115JA(1) although quantification of that right depends upon the ultimate determination of total income for the first assessment year. Further, an assessee has a right to take into account the set off even while estimating its liability to pay advance tax on the "current income" in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B is higher than A] MAT credit available for set off in Year 2 [(A) - (B)] - II 800 Net tax liability for Year 2 [B-II] 600 MAT credit to be carried 400 Forward [I-II] [See The Chartered Accountant, Vol. 57, No. 09, March, 2009, page 1584] 10. The issue which crops up for decision is - how should the advance tax be calculated when the Company has MAT credit? 11. To answer, we need to look at Section 234B. Under that section, "assessed tax" means the tax on the total income determined under Section 143(1) or on regular assessment under Section 143(3) as reduced by the amount of 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. The definition, thus, at the relevant time excluded MAT credit for arriving at assessed tax. This led to immense hardship. The position which emerged was that due to omission on one hand MAT credit was available for set off for five years under Section 115JAA but the same was not available for set off while calculating ..... X X X X Extracts X X X X X X X X Extracts X X X X
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