CIT and Another vs Deccan Creations (P) Ltd. and Others

These four appeals are by the revenue challenging the order passed by the Tribunal holding that MAT credit should be given before charging of interest u/s s 234B and 234C. These four appeals pertain to very same Assessee and in respect of four assessment orders. As the questions involved in these appeals are the same, they are taken up together for consideration and disposed off by this common order.

The Assessee is carrying on business in the manufacture of leather garments. The Assessee has filed a return of income for each assessment year within the time stipulated. The Assessing Officer levied the interest u/s s 234B and 234C of the Income Tax Act (for short hereinafter referred to as the Act) without giving credit of MAT u/s 115JAA of the Act and passed the assessment orders. Aggrieved by the said assessment orders, the Assessee preferred an appeal to the Commissioner of Income Tax (Appeals-I), Bangalore. The Appellate Commissioner held that as per the provisions of Section 115JAA, MAT Credit should be allowed before levy of interest u/s s 234B and 234C of the Act. Accordingly, he allowed the appeal. Aggrieved by the same, the revenue preferred an appeal to the appellate Tribunal. The Tribunal on re-appreciation of the entire material on record and also taking note of its earlier order in the case of M/s. Unique Creations (Bang) Ltd., held that MAT credit should be given before charging of interest u/s s 234B and 234C of the Act. Accordingly, it dismissed the appeal. Aggrieved by the same, the revenue is in appeal.

The learned Counsel for the revenue contended that the present explanation to Section 234 came to be substituted by Finance Act, 2006 with effect from 1-4-2007 and therefore, for the assessment orders anterior to the said period, the said explanation has no application. As in the instant case, the assessment orders are prior to 1-4-2007, hence, it has no application. Therefore, the appellate authorities committed a serious error in extending the said benefit to the Assessee for the period prior to 1-4-2007.

The Supreme Court had an occasion to consider this aspect in the case of Commissioner of Income Tax, Chennai v. Tulsyan NEC Ltd., In Civil Appeal Nos. 10677-79 of 2010 : (2010 TIOL 114 SC IT LB) disposed off on 16-12-2010. After noticing Section 115-JA(1) and Section 115-JAA, it held as under:

The entire scheme of Section s 115JA(1) and 115JAA shows that if an Assessee is entitled to a tax credit as a consequence of the Assessee making payment of tax u/s 115JA(1) in the 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. There is no provision u/s 115JAA which postpones the right of the Assessee to claim set off to the determination of the total income by the assessing officer 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 assessing officer. Thus, the right to set off arises as a result of the payment of tax u/s 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 amendments carried out by the Finance Act, 2006 to the effect that an Assessee is entitled to set off the tax credit that would be available in terms of Section 115JAA(1) while computing the quantum of advance tax that is to be paid it must follow that an Assessee would be entitled to do so otherwise it results in absurdity, viz., that an Assessee pays advance tax on the footing that it is not entitled (when in fact it is so entitled) to the credit and thereafter claims a refund of such advance tax paid as a consequence of the set off. Moreover, when an assessing officer makes an intimation u/s 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 u/s 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 amount paid otherwise by way of tax or interest, then, without prejudice to provisions of Sub-section (2), an intimation will be sent to the Assessee specifying the amount to payable and such intimation shall be deemed to be a notice of demand u/s 156 and all the provisions of the Act shall apply thereto. This, Section itself makes it clear that whilst the assessing officer determines the tax payable he has to give credit for all taxes paid either by way of deduction at source, advance tax, self assessment tax or tax paid otherwise which would include or which cannot exclude tax credit u/s 1153AA(1).

To answer, we need to understand Section 234B.

Under that section, assessed tax means the tax on the total income determined u/s 143(1) or on regular assessment u/s 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 u/s 115JAA but the same was not available for set off while calculating advance tax. This dichotomy was more spelt out because Section 1153AA did not provide for payment of interest on the MAT credit. To avoid this situation, Parliament amended Explanation 1 to Section 234B by Finance Act, 2006 with effect from 1-4-2007 to provide along with tax deducted or collected at source, MAT credit u/s 115JAA also to be excluded while calculating assessed tax.

From the above, it is evident that any tax paid in advance/pre-assessed tax paid can be taken into account in computing the tax payable subject to one caveat, viz., that where the Assessee on the basis of self computation unilaterally claims set off or MAT credit, the Assessee does so at its risk as in case it is ultimately found that the amount of tax credit availed was not lawfully available, the Assessee would be exposed to levy of interest u/s 234B on the shortfall in the payment of advance tax. We reiterate that we cannot accept the case of the Department because it would mean that even if the Assessee does not have to pay advance tax in the current year, because of his brought forward MAT credit balance, he would nevertheless be required to pay advance tax, and if he fails, interest u/s 234B would be chargeable. The consequence of adopting the case of the Department would mean that MAT credit would lapse after five succeeding assessment years u/s 115JAA(3); that no interest would be payable on such credit by the Government under the proviso to Section 115JAA(2) and that the Assessee would be liable to pay interest u/s s 234B and C on the shortfall in the payment of advance tax despite existence of MAT credit standing to the account of the Assessee. Thus, despite MAT credit standing to the account of the Assessee, the liability of the Assessee gets increased instead of it getting reduced.

In view of the aforesaid discussion and the law laid down by the Apex Court, it is clear from Explanation-I which was amended with effect from 1-4-2007, as there was no specific words excluding the MAT credit, the position was the same. It is because of the stand taken by the Department in refusing to give that credit, the Parliament had to step in and has expressly provided what it intended to be by way a proviso. Therefore, when once this benefit is confirmed from 1-4-2007, when Section 115JAA was introduced, the legal position is the same and the Explanation introduced by Finance Act, 2006, which came into effect from 1-4-2007, is only clarificatory. Therefore, the condition is not applicable for the Assessee for the period prior to 1-4-2007 and it is rightly rejected by both the appellate authorities. In that view of the matter, we do not see any substantial question of law involved in these appeals. Accordingly, all the four appeals are dismissed.