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The Commissioner of Income Tax Versus M/s. Ambattur Clothing Limited

Interest under Section 244A on refund - benefit of MAT credit under Section 115JAA - Tribunal allowed claim - Held that:- In the present case, originally the Commissioner of Income Tax (Appeals) has correctly interpreted the provisions of Section 115JAA(4) of the Income Tax Act to the effect that tax credit should be allowed set-off in a year when tax becomes payable on the total income computed in accordance with the provisions of this Act other than Section 115JA or Section 115JB, as the case .....

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0 (12) TMI 23 - Supreme Court of India] came to the conclusion that insofar as priority is concerned, MAT credit should be taken into account and thereafter credit should be given to Advance Tax paid and TDS etc. The Supreme Court rejected the contention of the Department that even if there is a MAT Credit balance, the assessee is required to pay the Advance Tax and if he fails to pay, interest under Section 234 would be chargeable, thereby, making it clear that MAT credit should be first given .....

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Income Tax For the Respondent : Mr. R. Venkat Narayanan JUDGMENT (Judgment of the Court was delivered by R. Sudhakar,J.) This Tax Case (Appeal) filed by the Revenue as against the order of the Income Tax Appellate Tribunal was admitted by this Court on the following substantial question of law: Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in setting aside the orders of the lower authorities and decide the issue in favour of the assessee, even thoug .....

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now rendering in the present tax case (Appeal). It is made clear that either parties will be entitled to clarify the exact amount of refund. 3. Hence, the question of law that arise for consideration in this Tax Case (Appeal) is modified as follows: Whether the Tribunal was justified in allowing the appeal filed by the assessee, who claimed interest under Section 244A of the Income Tax Act consequent to the benefit of MAT credit under Section 115JAA of the Income Tax Act extended to the assesse .....

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t ₹ 1,77,48,720/-. The Assessing Officer arrived the taxable income at 30% of the book profit at ₹ 53,24,616/-. Hence, the higher amount of taxable income, namely, ₹ 1,33,06,600/- was taken as taxable income of the assessee and tax was determined at 35% at ₹ 46,57,310/-. From the said amount, the amount of TDS and Advance Tax paid was deducted. Thereafter, interest under Section 234B and 234C were added. Thereafter, tax paid under Section 140A and MAT Credit was deducted. .....

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the tax due from the assessee in the subsequent ear. The moment tax becomes payable by the assessee in subsequent year on normally computed income, the tax credit brought forward is to be automatically adjusted against such income tax by virtue of the provision of Section 115JAA(4). Therefore, the assessee is not to be expected to pay the advance tax to the extent of MAT credit brought forward from the preceding years. Only the balance tax liability remaining, if any, after such set off, is pay .....

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. As against the order of the Commissioner of Income Tax (Appeals), the Revenue has not filed any appeal and hence, the said order has become final. To give effect to the order of the Commissioner of Income Tax (Appeals), the Assessing Officer passed an order on 29.11.2002, but the said order is not a giving effect to order, but contrary to the order passed by the Commissioner of Income Tax (Appeals). Hence, the Assessing Officer passed another order on 28.3.2003 correcting the error in the earl .....

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Dated 18.03.2002 6,94,42,189 Less: Deduction u/s.80HHC 5,53,19,475 Revised Book Profit 1,41,22,714 OR 1,41,22,710 30% thereof 42,36,814 [B] Taxable Income being higher of [A] or [B] i.e,. Rs.96,80,600/- Income tax thereon @ 35% 33,88,210 Less : MAT Credit u/s.115JAA 19,05,326 14,82,884 Less: TDS 13,09,401 Advance Tax 8,26,000 21,35,401 Refund Due 6,52,517" 6. Consequent to the above-said giving effect to order, the assessee filed a petition on 08.04.2003, requesting interest under Section 2 .....

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f Income Tax (Appeals), who granted relief in favour of the assessee in the earlier round of litigation. The said order of the Commissioner of Income Tax (Appeals) reads as follows: 3. The Assessing Officer has correctly determined that as per proviso to Section 115JAA(2), no interest shall be payable on the tax credit allowed under sub-section (1). Hence interest u/s.244A has not be granted on the refund of ₹ 6,52,517/- which is only consequential to the credit given u/s.244A on the refun .....

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ons on both sides, the Tribunal passed the following order: 5. We have heard the rival contentions and perused the relevant records. The learned counsel of the assessee submitted that there is no question of assessee receiving refund on account of MAT credit. Unadjusted MAT credit is only carried forward and no credit is received on account of that. It is only the tax paid and TDS which remain after adjustment of MAT credit that the assessee become eligible for refund. Hence, the claim of intere .....

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o give credit to MAT payment of ₹ 27,93,693/- and afterwards work out the interest payment u/s. 234B&C. 7. Upon consideration of the aforesaid, we are of the opinion that the assessee's claim is perfectly justified. Hence, we set aside the orders of the authorities below and decide the issue in favour of the assessee. 8. Aggrieved by the order of the Tribunal, the Revenue is before this Court. 9. Heard learned Standing Counsel appearing for the Revenue and the learned counsel appea .....

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we are inclined to take up the issue for consideration. 11. Before going into the merits of the case, for better appreciation, we extract hereunder the relevant provisions, namely, Section 115JA (1) and (2) and proviso: "115JA. Deemed income relating to certain companies. (1) Not withstanding anything contained in any other provisions of this Act, where in the case of an assessee, being a company, the total income, as computed under this Act in respect of any previous year relevant to the a .....

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for the relevant pre vious year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956) : Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of pre paring the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Ac .....

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issioner of Income Tax (Appeals) has correctly interpreted the provisions of Section 115JAA(4) of the Income Tax Act to the effect that tax credit should be allowed set-off in a year when tax becomes payable on the total income computed in accordance with the provisions of this Act other than Section 115JA or Section 115JB, as the case may be. He rightly held that the assessee is not expected to pay the advance tax to the extent of MAT credit brought forward from the preceding years. Only the ba .....

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in the issue before the Supreme Court was regarding the priority to be given on the adjustment of MAT credit. The Supreme Court observed that when tax is paid by the assessee under Section 115JA, the assessee becomes entitled to claim credit of such tax in the manner prescribed. Such a right gets crystallized no sooner the tax is paid by the assessee. It further held that although the right to avail of tax credit gets crystallized in year one, on payment of tax under section 115JA and the set of .....

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14. In the above-said case before the Supreme Court, the Assessing Officer, while determining the interest payable under Section 234B and C, computed the short fall of tax payable without taking into account the set off of MAT Credit. Hence, the Supreme Court came to the conclusion that insofar as priority is concerned, MAT credit should be taken into account and thereafter credit should be given to Advance Tax paid and TDS etc. The Supreme Court rejected the contention of the Department that ev .....

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entitled to a tax credit as a consequence of the assessee making payment of tax under section 115JA(1) in year 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 Assessing Officer 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 .....

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t 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 accordance with the provisions of Chapter XVII-C. Although section 209(1)(d) does not make any specific provision either before or after the amendm .....

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ch advance tax paid as a consequence of the set off. Moreover, when an Assessing Officer makes an intimation under section 143(1) he accepts the return filed by the assessee to which the Assessing Officer may make an adjustment and consequently makes a demand or refund. Section 143(1) provides that where a return is made under section 139 and if any tax or interest is found due on the basis of such return after adjustment of any TDS, any advance tax, any tax paid on self-assessment and any amoun .....

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ax, self-assessment tax or tax paid otherwise which would include or which cannot exclude tax credit under section 115JAA(1). However, the question before us is of priority of adjustment for the MAT credit. In this connection, it is important to bear in mind that the credit allowed is the excess of the normal tax liability over the MAT liability in the subsequent years....... 9. The issue which crops up for decision is how should the advance tax be calculated when the company has MAT credit ? 10 .....

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MAT credit for arriving at assessed tax. This led to immense hardship. The position which emerged was that due to omission on one hand the MAT credit was available for emerged set off for five years under section 115JAA but the same was not available for set off while calculating advance tax. This dichotomy was more spelt out because section 115JAA did not provide for payment of interest on the MAT credit. To avoid this situation, Parliament amended Explanation 1 to section 234B by the Finance A .....

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