2009 (4) TMI 33 - HC - Income Tax

Whether Tribunal was right in holding that, Sales tax and Excise Duty do not form part of turnover for the purpose of calculation of deduction u/s 80HHC - Whether Tribunal was right in holding that MAT credit is to be set off from the tax payable before levying interest under section 234B and 234C - first question of law is covered against the revenue by the decision of the SC in the case of CIT vs. Lakshmi Machine, wherein it has been held that excise duty and sales tax cannot form part of the total turnover under section 80HHC(3) - With regard to the second question of law, held that intention of the legislature is to give tax credit to tax and not to the tax and interest, Once the intention is clear, the revenue cannot rely on the Form-I to say that the MAT credit under Section 115JAA should be given only after tax and interest both the questions of law has to be necessarily answered in affirmative in favour of the assessee

Summary

Issues:
1. Whether sales tax and excise duty form part of turnover for the purpose of deduction u/s 80HHC of the Income Tax Act, 1961?
2. Whether MAT credit is to be set off from the tax payable before levying interest under section 234B and 234C of the Income Tax Act, 1961?

Issue 1 - Sales Tax and Excise Duty as Part of Turnover:
The case involved an appeal by the revenue against the order of the Income Tax Appellate Tribunal regarding the inclusion of excise duty and sales tax in the total turnover for the computation of deduction u/s 80HHC. The Tribunal dismissed the appeal in favor of the assessee, citing a previous decision. The Supreme Court decision in Commissioner of Income Tax vs. Lakshmi Machine was referenced, stating that excise duty and sales tax cannot form part of turnover for the purpose of section 80HHC. The Court upheld this reasoning, concluding that excise duty and sales tax should be excluded from the total turnover for deduction u/s 80HHC.

Issue 2 - MAT Credit Set Off Before Levying Interest:
Regarding the second issue, the matter of setting off MAT credit from the tax payable before levying interest under Section 234B and 234C was discussed. A Division Bench of the Court, in a previous case involving Chemplast Sanmar Limited, held that MAT credit should be given effect before charging interest under Section 234B and 234C. The Court emphasized that the intention of the legislature was to provide tax credit to tax and not to tax and interest. It was clarified that the order of priority of adjustment of TDS, advance Tax, and MAT credit under Section 115JAA cannot go beyond the provisions of the Act. The Court found no error in the Tribunal's order and ruled in favor of the assessee, stating that MAT credit should be set off before levying interest, answering both questions in favor of the assessee and dismissing the appeal.

In conclusion, the High Court of Madras upheld the Tribunal's decision, ruling in favor of the assessee on both issues. The judgment clarified that excise duty and sales tax should not be included in the total turnover for deduction u/s 80HHC and that MAT credit should be set off before levying interest under Section 234B and 234C.