2011 (1) TMI 1174 - HC - Income Tax

MAT credit - before charging of interest under Section 234B and 234C - Assessing Officer levied the interest under Section 234B and 234C of the Income Tax Act without giving credit of MAT under Section 115JAA of the Art and passed the assessment orders, Appellate Commissioner held that as per the provisions of Section 115JAA, MAT Credit should be allowed before levy of interest under Section 234B and 234C of the Act Held that - 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 Finance Act, 2006 with effect from 1,4,2007 to provide along with tax deducted or collected at source, MAT credit under Section 115JAA also to be excluded while calculating assessed tax

Summary

Issues:
- MAT credit application before charging interest under Section 234B and 234C.
- Applicability of Explanation-I to Section 234B.
- Interpretation of Sections 115JA(1) and 115JAA.
- Impact of the case law Commissioner of Income Tax vs. Tulsyan NEC Ltd.
- Amendment to Explanation-I by Finance Act, 2006.
- Treatment of MAT credit in computing advance tax.
- Liability for interest under Sections 234B and 234C.

Analysis:
The judgment involves four appeals by the revenue challenging the tribunal's decision on MAT credit application before charging interest under Section 234B and 234C. The assessee, engaged in the manufacture of leather garments, filed returns timely but faced interest levies without MAT credit consideration. The Commissioner of Income Tax and the appellate tribunal ruled in favor of the assessee, emphasizing the importance of allowing MAT credit before interest imposition. The revenue contended that the Explanation-I to Section 234B, substituted by the Finance Act, 2006, post-dated the assessment orders, hence not applicable. However, the Supreme Court's decision in Commissioner of Income Tax vs. Tulsyan NEC Ltd. highlighted the entitlement to MAT credit and its set-off, emphasizing that the right arises upon payment under Section 115JA(1) without dependency on the Assessing Officer's actions.

The judgment delves into the definition of "assessed tax" under Section 234B, which previously excluded MAT credit, causing practical challenges. The amendment to Explanation-I by the Finance Act, 2006 aimed to rectify this by excluding MAT credit while calculating assessed tax, aligning with the provisions of Section 115JAA. The court emphasized that any tax paid in advance could be considered in tax calculations, with a caution that unilateral claims by the assessee could lead to interest liabilities under Section 234B if found unlawful. Rejecting the revenue's stance, the court emphasized that MAT credit should not lapse, and interest under Sections 234B and 234C should not be chargeable despite the existence of MAT credit.

The judgment concluded that the Explanation-I amendment clarified the position regarding MAT credit, making it applicable from 01.04.2007. As there were no specific exclusions for MAT credit before this date, the appellate authorities rightly rejected the revenue's claims. The court dismissed all four appeals, finding no substantial question of law involved. The judgment provides a comprehensive analysis of the interplay between MAT credit, interest levies, and the legislative intent behind the amendments, ensuring a fair application of tax laws.