2011 (2) TMI 1237 - HC - Income Tax

Whether Tribunal is right in holding that TDS and prepaid taxes should be set off against the total taxes payable and then only a MAT credit should be allowed - Whether the Tribunal was correct in holding that on the MAT credit over which refund had been allowed, interest u/s. 244A has to be paid by ignoring the proviso to Section 115JAA(2) of the Act Held that - MAT credit is to be set off first, thereafter TDS, then the advance tax paid and then the tax paid along with returns, no interest is claimable against the MAT credit. Therefore, it is clear that under no circumstances, MAT credit can become the subject matter of refund. It is only liable to be adjusted for five years and it does not carry any interest, decision in favour of the assessee and against the revenue

Summary

Issues:
- Challenge to order regarding set off of TDS and prepaid taxes against total taxes before MAT credit allowance
- Challenge to payment of interest under Section 244A on MAT credit refund

Issue 1: Set off of TDS and prepaid taxes against total taxes before MAT credit allowance
The High Court case involved a dispute where the revenue appealed against the Tribunal's decision allowing set off of TDS and prepaid taxes against total taxes before allowing MAT credit. The case revolved around the assessment year 2001-02 for an assessee engaged in the manufacture and export of fine chemicals and herbal medicines. The Assessing Officer initially disallowed exemption under Section 10B, leading to a series of appeals and revisions. The key contention was whether TDS and prepaid taxes should be set off before considering MAT credit. The revenue argued that only after deductions for TDS and advance tax should MAT credit be considered, contrary to the Tribunal's decision. However, the assessee cited a Supreme Court judgment emphasizing the priority of adjustment for MAT credit, supporting the Tribunal's decision. The Court referred to Sections 115JA and 115JAA, emphasizing the fluid nature of the tax credit and the statutory set-off process. Ultimately, the Court upheld the Tribunal's decision, stating that MAT credit should be adjusted first, followed by TDS and advance tax, in line with legal provisions. The Court clarified that MAT credit is not subject to interest and cannot be refunded, only adjusted within five years.

Issue 2: Payment of interest under Section 244A on MAT credit refund
The second substantial question of law involved whether interest under Section 244A should be paid on MAT credit refunds, ignoring the proviso to Section 115JAA(2) of the Act. The revenue contended that interest on MAT credit refunds should not be paid until deductions for TDS and advance tax were made. However, the Court referred to a Supreme Court judgment highlighting the legislative intent behind MAT credit adjustments and the exclusion of MAT credit while calculating assessed tax. The Court emphasized that the assessee could unilaterally claim set off for MAT credit at its own risk, subject to interest under Section 234B if found unlawfully claimed. The Court rejected the revenue's argument, stating that adopting their stance would increase the assessee's liability despite having MAT credit. The Court clarified that MAT credit adjustments should precede TDS and advance tax deductions, and no interest is payable on MAT credit. Therefore, the Court dismissed the appeal, upholding the Tribunal's decision in favor of the assessee and against the revenue, based on the legal provisions and precedents cited during the proceedings.