TMI Blog2004 (3) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... ember(s) N. BARATHVAJA SANKAR., N. R. S. GANESAN. Bench : ITAT CHENNAI-C BENCH JUDGMENT: The assessee, M/s Chemplast Sanmar Ltd., Chennai, has filed this appeal for the asst. yr. 2002-03 against the order dt. 23rd May, 2003, of the CIT(A)-III, Chennai, raising the following grounds of appeal: "1. The learned CIT erred in upholding the action of the AO by not adjusting the carry forward MAT credit before calculating interest under ss. 234B and 234C. 2. The learned CIT has failed to appreciate the fact that as per sub-s. (4) of s. 115JAA (which is reproduced as below), tax credit shall be allowed to be set off in a year when tax becomes payable on normal computation. 'The tax credit shall 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 s. 115J.' 3. The learned CIT(A) erred in ignoring the submission that the logic behind s. 115JAA(3) clearly established that the tax paid under s. 115JA and provided right of set off under s. 115JAA shall be treated as tax paid ahead of advance tax. Sec. 115JAA(3) stipulates that no interest shall be paid by the IT Department on credit available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO processed the return under s. 143(1) by intimation dt. 21st Feb., 2003, accepting the income returned. While computing the tax, the AO has not adjusted the carry forward MAT credit available to the assessee before charging interest under s. 234B of Rs. 1,17,64,830 and under s. 234C of Rs. 56,31,754 and raised a tax demand of Rs. 1,64,86,519. Further, the AO had not given credit for TDS of Rs. 4,49,527. The assessee went in appeal before the CIT(A) contending that the AO has failed to appreciate the fact that as per sub-s. (4) of s. 115JAA tax credit shall be allowed to be set off in a year when tax becomes payable on normal computation and that the provision of s. 115JAA had to be applied first as it is a tax credit or prepaid taxes with the Government available to the assessee for set off, before applying the provisions of ss. 234B and 234C. The CIT(A) held that the order of priority of adjustment of TDS, advance tax and tax credit under s. 115JA had not been spelt out in the Act, that one had to take recourse to the IT Rules, 1962, for this purpose, that r. 12(1)(a) of the IT Rules, 1962, lays down that in the case of a company the return of income required to be furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be for a period of four years. Under sub-s. (4) tax credit shall be set off in the year in which tax becomes payable under normal computation. Under sub-s. (5) carried forward tax credit is set off to the extent of the difference between the regular computation and the book profits. It does not contemplate set off after reduction of advance tax and TDS. Under sub-s. (6) if there is increase or decrease of the demand, the credit shall also be increased or decreased. Here again there is no question of setting off of the advance tax or TDS. 4.3 In the assessment year when an assessee is taxed under s. 115JA, then the difference between the tax on book profits and the tax under normal computation is treated as MAT credit and retained by the Department. This tax credit is to be carried forward and in the year when the assessee is taxable under the normal computation of the income-tax, carried forward tax credit is set off against the difference between the tax payable under normal computation and the tax payable on book profits. If the tax liability is increased or decreased on account of appeal, revision, rectification and reopening, then the amount of credit set off is also increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ratio of the following case law may be looked into: 1. C.W.S. (India) Ltd. vs. CIT (1994) 118 CTR (SC) 118 : (1994) 208 ITR 649 (SC) 2. K. Govindan Sons vs. CIT (2000) 164 CTR (SC) 490 : (2001) 247 ITR 192 (SC) 3. Dy. CIT vs. Shaw Wallace Co. Ltd. (2001) 165 CTR (Cal) 489 : (2001) 248 ITR 81 (Cal). Rational construction to achieve the intention of the legislature is a must. If strict construction leads to absurd results then if another construction is possible other than the strict construction the other construction should be followed. In this connection the following case law were cited: 1. CIT vs. J.H. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC) 2. CIT vs. Textool Co. Ltd. (2002) 174 CTR (Mad) 458 : (2002) 257 ITR 39 (Mad) 3. CIT vs. Smt. Bharati C. Kothari (2000) 160 CTR (Cal) 165 : (2000) 244 ITR 352 (Cal) 4. ITO vs. H.P. Vishweswaraiah (2002) 168 CTR (Kar) 616 : (2001) 250 ITR 863 (Kar). 4.10 The provisions of the Act as a whole should be taken in interpreting a section and the decision of the Hon'ble Calcutta High Court in the case of West Bengal State Electricity Board vs. Dy. CIT (2001) 165 CTR (Cal) 502 : (2001) 248 ITR 152 (Cal) sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st. yr. 2002-03 is to be adjusted against the tax payable for the assessment year arrived at by the AO before charging of interest under ss. 234B and 234C of the Act or the same is to be adjusted against the total tax and interest due arrived at by the AO after charging interest under ss. 234B and 234C of the Act. 6.3 The fact remains that the AO while preparing the intimation under s. 143(1) of the Act (intimation dt. 21st Feb., 2003), has charged interest under ss. 234B and 234C on the tax payable by the assessee and then proceeded to adjust the MAT credit available from the total amount of tax plus interest under ss. 234B and 234C of the Act. The MAT credit available for the assessee was Rs. 8,64,72,445. This amount was adjusted against the total amount due towards tax and interest under ss. 234B and 234C as arrived at by the AO which has resulted in a demand of Rs. 1,64,86,519, for which a demand notice was issued by the AO. The assessee while filing the return has adjusted the MAT credit of Rs. 8,64,72,445 from the tax due for the assessment year and had arrived at a refund of Rs. 11,54,231. In effect, due to the change in the method of adjustment of MAT credit available for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, he proposed to make certain changes in the provisions of MAT. Pursuant to such decision the following change was made, which is found at para 99 of the Budget Speech: "(ii) A system of credit will be introduced in respect of the payment of MAT. When a company pays MAT, the tax credit earned by it shall be allowed to be carried forward for a period of 5 assessment years and, in the assessment year when regular tax becomes payable, the difference between the regular tax and tax computed under MAT for that year will be set off against the MAT credit available. Thus, at the proposed new rate of corporate tax, every company including the zero tax companies, would have to pay income-tax of not less than 10.5 per cent on its book profits." It can be seen from the above paragraph that the intention of the legislature was to adjust from the difference between the regular tax and the tax paid under the MAT from the relevant assessment years the MAT credit already available for the assessment. This would mean that the assessee is entitled to adjust the MAT credit first before charging of interest under ss. 234B and 234C. Even otherwise, keeping the assessee's money under the promis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) of the IT Rules, 1962, laid down that in the case of a company the return of income required to be furnished shall be in Form No. 1 and that Sch. G to Form No. 1 laid down the manner of computing the total tax payable by the assessee, and that it also gives the order in which TDS, advance tax and tax credit under s. 115JAA shall be given effect to and that Form No. 1 had been substituted by the Income-tax (19th Amendment) Rules, 2001, w.e.f. 17th Aug., 2001, and that therefore there was no ambiguity w.e.f. 17th Aug., 2001, that interest under ss. 234B and 234C shall be first deducted and thereafter tax credit under s. 115JAA shall be given. For the above reasons the CIT(A) has upheld the action of the AO. 6.7 Now, let us consider whether rule can prescribe order of priority of adjustment of TDS, advance tax and tax credit under s. 115JAA. The Act is silent about the same. The CBDT gets the power of making rules by virtue of s. 295 of the IT Act. Generally, while various provisions of the legislative enactments contain the law broadly, principles and the main policy of the legislature on the relevant subject, the minute details and procedural matter are delegated to some autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he end that the provisions of the statute may be better carried out into effect and not with a view to neutralising or contradicting those provisions [East Asiatic Co. (India) Ltd. vs. State of Madras (1956) 7 STC 299, 314 (Mad)]. The rule-making authority cannot, in exercise of its rule making power, destroy a substantive right created by a provision of the statute [A.H.M. Allaudin vs. Addl. ITO (1964) 52 ITR 900, 904 (Mad)], or alter, affect or abrogate a legislative provision in any other statute [Revula Subba Rao vs. CIT (1951) 20 ITR 337, 346 (Mad)]nor can give any greater power to an authority than what is granted in the Act itself [Basudeb Hota vs. State of Orissa (1958) 9 STC 663 (Ori)]. 6.10 In this case on hand we have to first go through the provisions of s. 115JAA regarding adjustment of tax credit. Sub-s. (5) of s. 115JAA reads as under: "Set off in respect of brought forward tax credit shall be allowed for any assessment year to the extent of the difference between the tax on his total income and the tax which would have been payable under the provisions of sub-s. (1) of s. 115JA (or s. 115JB, as the case may be) for that assessment year." It can be seen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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