Karnataka H.C : The difference between the tax payable on its total income and tax payable by it under the provisions of section 115JB of the Act after taking into account the surcharge payable on such taxes and then consider the difference as the amount of brought forward tax credit available for set off and, therefore, the levy interest under sections 234A, 234B and 234C of the Act

High Court Of Karnataka

CIT vs. B.P.L. Ltd.

Assessment Year : 2002-03

Section : 234B, 234C, 115JB

Dilip B. Bhosale And B. Manohar, JJ.

IT Appeal No. 641 Of 2007

February 10, 2014

JUDGMENT

Dilip B. Bhosale, J. – While admitting this appeal by order dated June 17, 2009, a Division Bench framed the following substantial question of law :

“Whether the appellate authorities were correct in holding that the difference between the tax payable on its total income and tax payable by it under the provisions of section 115JB of the Act after taking into account the surcharge payable on such taxes and then consider the difference as the amount of brought forward tax credit available for set off and, therefore, the levy interest under sections 234A, 234B and 234C of the Act ?”

2. This question of law is arising in the present appeal, preferred by the Revenue against the order dated April 30, 2007, passed by the Income-tax Appellate Tribunal, Bangalore Bench “A” in I. T. A. No.1808/Bang/2005. By its order, the Tribunal allowed the appeal filed by the Revenue to the extent indicated in the said order. The appeal before the Tribunal was directed against the order dated August 29, 2005, passed by the Commissioner of Income-tax (Appeals)-VI, Bangalore, in I. T. A. No. DCIT-CC-2(1)/CIT(A)-VI/2005-06. The Commissioner, by its order, allowed the appeal filed by the assessee in part which was directed against the assessment order dated March 30, 2005.

3. It is in this background Mr. Aravind, learned counsel appearing for the Revenue, at the outset, invited our attention to the judgment of the hon’ble Supreme Court in CIT v. Tulsyan NEC Ltd. [2011] 330 ITR 226/196 Taxman 181/[2010] 8 taxmann.com 228 (SC) and submitted that the question raised in the appeal is squarely covered by this judgment.

4. We have perused the said judgment. The hon’ble Supreme Court was dealing with the issue as to how the advance tax be collected when the company has MAT credit. While answering this question, the hon’ble Supreme Court in paragraphs 11 and 12 made the following observations (page 237) :

“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 the 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 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 Act, 2006 with effect from April 1, 2007, to provide along with tax deducted or collected at source, the MAT credit under section 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 the MAT credit, the assessee does so at its risk as in case it is ultimately found that the amount of tax credit availed of was not lawfully available, the assessee would be exposed to levy of interest under section 234B on the short-fall 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 under section 234B would be chargeable. The consequence of adopting the case of the Department would mean that the MAT credit would lapse after five succeeding assessment years under section 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 under sections 234B and 234C on the shortfall in the payment of advance tax despite existence of the MAT credit standing to the account of the assessee. Thus, despite the MAT credit standing to the account of the assessee, the liability of the assessee gets increased instead of it getting reduced.”

5. This court, in CIT v. Deccan Creations (P.) Ltd. (I. T. Appeal No. 104 of 2007) with connected appeals decided on January 31, 2011, wherein the Revenue had challenged the order passed by the Tribunal, held that MAT credit should be given before charging interest under sections 234B and 234C of the Income-tax Act (for short, “the Act”). In this case, the Division Bench, after considering the judgment of the hon’ble Supreme Court in Tulsyan NEC Ltd. (supra) in the concluding paragraph observed thus :

“In view of the aforesaid discussion and the law laid down by the apex court, it is clear from Explanation 1 which was amended with effect from April 1, 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, 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 April 1, 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 April 1, 2007, is only clarificatory. Therefore, the condition is not applicable for the assessee for the period prior to April 1, 2007 and it is rightly rejected by both the appellate authorities.”

6. It is clear from the observations made by the hon’ble Supreme Court in Tulsyan NEC Ltd. (supra) and the observations made by this court in Deccan Creations (P.) Ltd. (supra) that MAT credit should be given to the assessee before charging of interest under sections 234B and 234C of the Act. This being the only issue, Mr. Aravind, learned counsel appearing for the Revenue, based on the aforementioned judgments, fairly conceded that the substantial question framed by this court deserves to be answered against the Revenue and in favour of the assessee.

7. We accordingly dispose of the appeal by answering the questions against the Revenue.

[Citation : 364 ITR 544]