TMI Blog2023 (7) TMI 374X X X X Extracts X X X X X X X X Extracts X X X X ..... in the manner in which we have, i.e., allowing set off of tax strictly against the tax per se , is not only consistent with the relevant provision of the Act (sec.115JAA), as indeed the decision in Tulsyan NEC Ltd . [ 2010 (12) TMI 23 - SUPREME COURT] it also renders irrelevant the payment of surcharge/cess on the tax paid earlier. That is, it would be of no consequence inasmuch as the same stands suffered in relation to the tax paid for an earlier year, in which the same was attracted and, besides, there would be no occasion for the same being paid again. This, incidentally, also provides an answer to the complete non-reference to surcharge and cess, i.e., even by way of proviso or Explanation , in the provision allowing tax credit. Succinctly stated, surcharge and cess, irrespective of whether the same stand paid along with tax on book-profit and, further, irrespective of the variation in its rate subsequently, would stand to be paid only for the year for which the tax is payable under the regular provisions of the Act, i.e., at an amount net of tax credit, and at the rate applicable for that year. Revenue (CPC) has admittedly applied surcharge and education cess on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. (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: Provided that no interest shall be payable on the tax credit allowed under sub-section (1A): Provided further .. (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-sections (4) and (5) but such carry forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /3/2000) or deeming tax payable with reference thereto (s.115-JB/ post 31/3/2000). However, as the tax incentives under Chapter VI-A would get phased out over time, the company s taxable income would once again stand to be determined with reference to the regular provisions of the Act. The tax paid earlier on book-profit under MAT was accordingly to be set off (s.115-JAA), so that a uniform basis for taxation obtains. This was also considered necessary as otherwise the benefit of deduction admissible under Chapter VI-A would stand in effect denied; the law taking away, what it gives with one hand, with the other. There is however no reference to surcharge (and cess) in the tax credit provisions, and which may have been paid, along with the book profit tax . This gives rise to the issue of the manner in which the tax credit is to be allowed. 2.2 Both the sides before us relied on contrary decisions, reading which it transpires that even the Hon'ble High Courts have differed in the matter. While in Pr. CIT v. Scope International Pvt. Ltd . [2020] 429 ITR 500 (Mad) and SREI Infrastructure Finance Ltd. vs. Dy. CIT [2017] 395 ITR 291 (Cal), the Hon'ble High Courts have op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be allocated to, or shared by, the Federation with the States, and for which the Union has the requisite power under Article 271 of CoI. The said decision, being by the Hon'ble Apex Court and, further, relied upon by the Hon'ble High Courts of Calcutta and Madras, it would, where applicable, settle the matter. However, its import, stated hereinbefore, does not throw any light on the issue at hand. 2.4 Without doubt, therefore, credit of tax u/s. 115JAA shall, in terms of the section, arise only where it stands paid for the said year/s. The same should, by extension, apply for surcharge and education cess as well. It is, however, not clear from the material on record if the assessee had paid surcharge (and education cess)for the year(s) in which tax had, in preference to the normal provisions of the Act, been paid by it on or with reference to the book-profit as defined u/s. 115-JB. We question so for one more reason as well. It may not be necessary or follows in consequence that surcharge and cess is payable in respect to tax payable u/s. 115-JB, for which the relevant provisions would have to be seen. Both the charge and collection of tax, which, being a statutor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no doubt that, being a part of tax, cannot be levied again, which is the import and effect of credit in respect of tax paid, on which aspect we observe no variation of opinion. Also, it needs to be emphasized that though bearing the same character, surcharge and cess being levies on the income-tax, there is an essential difference between the two. 2.6 The question that however arises is where the tax rate is not specified by the relevant Finance Act, as qua tax payable u/s. 115-JA, but by the Act itself, viz., ss.112, 112A, 113, 115JB, etc., would surcharge or cess apply? The issue, rather than being confined to sec.115JAA, spreads over a larger canvass, i.e., whether the surcharge and education cess would, where the assessee is liable to tax under any of the specified rates as per the special provisions of the Act, apply. Qua tax, without doubt, it is the special rate, as opposed to the general rate on the total income computed under the other provisions of the Act, that would hold. Sec. 4(1) itself makes the rates prescribed by the relevant Central Act as subject to the provisions of the Act. Interpreting the amendment to section 113 by way of proviso thereto by Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarified by the Apex Court in CIT v. Tulysan NEC Ltd . [2011] 330 ITR 226 (SC) dilating on the provisions of s. 115-JAA,delineating the sum in respect of which credit is to be allowed at para 5 of it s Judgment, reproduced as under: 5. The relevant provisions under section 115JAA of the Act, introduced by the Finance Act, 1997, with effect from April 1, 1997, i.e., applicable for the assessment years 1997-98 and onwards, governing the carry forward and set off of credit available in respect of tax paid under section 115JA, show that when tax is paid by the assessee under section 115JA, then 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 under section 115JA, as per the return of income filed by that assessee for a previous year (say, year one). (See to 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 succe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition, we may now address the issue of the manner of allowing tax credit. As would be apparent, this position itself is the genesis of the controversy. This is as while surcharge (and cess) gets paid, along with the tax at the specified rate u/s. 115-JB (or for that matter u/s. 115-JA r/w s. 4(1) r/w the relevant Finance Act), the credit envisaged u/s. 115JAA is with reference to tax alone. That is, the Act itself unequivocally suggests allowance of tax credit sans surcharge or cess levied and paid thereon. There has been no uniform pattern in the tax return forms as well, which have varied from allowing credit at the stage of tax, to that at the stage of tax inclusive of surcharge. The same, i.e., the prescribed form, in any case, as explained in Tulysan NEC Ltd. (supra) (at pg. 238), cannot be determinative of the matter. This is understandable inasmuch as, as afore-noted, levy and collection of tax has to be strictly in terms of the relevant provisions of the Act, with, rather, any ambiguity therein being liable to be read in favour of the tax payer. We shall, in view of this apparent conflict, examine the issue from the standpoint of the first legal principles. As afore- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge /Cess 6 (@ 3%) 5 (@ 5%) 5 Total 206 105 101 It is easy to see that the net surcharge could, depending on the variation in its rate over said two years, as well as the quantum of GT and TC, i.e., on which the same is to be applied, could be in the negative, clearly an unfeasibility. We have deliberately kept a difference in the rates of surcharge (and education cess) between the two years so as to highlight the issue, as the same would get blurred or even obliterated where the said rate is the same across different years, and which would rather make it a non-issue in case it is so, which depiction (Case 3A) would incidentally also project the merit of the tax credit being at net of surcharge (Case 3B), as under: Case 3A Particulars GT TC NP Tax 200 100 100 Surcharge / Cess @ 5% 10 5 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeded on first principles, i.e., that the surcharge and cess, both levies on tax, could not be levied on the tax paid earlier, the credit in respect of which is being allowed, i.e., on the tax becoming payable under the regular provisions of the Act. There is, further, no question of set off of the surcharge/cess, as in the case of tax, in the absence of specific provisions in its respect. Accordingly, the tax credit is to be allowed against the tax per se , paid earlier. Surcharge and cess would therefore, if at all, become payable only on the balance tax . No amount of tax would accordingly suffer surcharge/cess twice. We see this as a common ground in all the decisions, even though they may have decided the question, as set up before them, differently. And it is this that results in the proposition of allowing tax credit as exclusive of surcharge/cess being pleaded for and on behalf of the Revenue, as was the case in Vacment India (supra), while being so for and on behalf of the assessee in SREI Infrastructure Finance Ltd . (supra). The former in fact is the only decision which seeks to answer the question with reference to the computation formula as stated in the retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the details, with a copy (on record)to the other side. As it transpires, the Revenue (CPC) has admittedly applied surcharge and education cess at Rs. 21,11,411 on a tax credit u/s. 115JAA of Rs. 232.94 lakhs, i.e., at 9.062%, or at a higher than applicable rate of 8.15%, resulting in an additional charge of Rs. 2,12,925. As it appears, the levy of surcharge/cess while allowing tax credit, has not been on the amount of credit, but on Rs. 259.07 lacs, the tax payable under the regular provisions of the Act. Not only, thus, the issue cannot be said to be, as projected, one of tax credit at inclusive or exclusive of surcharge, the Revenue s stand is inexplicable as the levy has to necessarily be at that obtaining for the current year, i.e., 8.15% or, as apparent, on a sum other than for which credit is being allowed. This also clarifies, if it was required to, that where the same rate is adopted, the manner of allowing credit with reference to surcharge and cess incident thereon, becomes academic and of no consequence, a non-issue, as exhibited at para 2.8 of this order (Case 3A 3B). A perfect example of much ado about nothing. The impugned demand is accordingly directed for deleti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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