2004 (3) TMI 62 - AT - Income Tax

Section 115JA - legislature has used the word tax and not tax and interest under ss. 234B and 234C of the Act - the intention of the legislature is to allow set off of the MAT credit from the tax and not from the total amount including tax and interest - CBDT has framed the forms for filing the returns of income for the companies and while framing Form No. 1, the delegated authority, namely, the CBDT, has included Sch. G (statement of tax) to Form No. 1. While drafting this Schedule the Board has given the order of preference of adjustment of TDS, advance tax and tax credit under s. 115JAA. While doing so the Board has first prescribed charging of interest under ss. 234A and 234B and then has prescribed to give credit for MAT credit available under s. 115JAA of the Act. - Sch. G to Form No. 1 is totally against the intention of the legislature which has been clearly prescribed in s. 115JAA - Rules cannot be contrary to the provisions of sections or the intention of the legislature.

Issues Involved:
1. Adjustment of carry forward MAT credit before calculating interest under sections 234B and 234C.
2. Interpretation and application of section 115JAA regarding tax credit set off.
3. Order of priority for adjustment of TDS, advance tax, and MAT credit.
4. Legality of Schedule G to Form No. 1 under the IT Rules, 1962.

Detailed Analysis:

1. Adjustment of Carry Forward MAT Credit Before Calculating Interest Under Sections 234B and 234C:
The primary issue revolves around whether the MAT credit should be adjusted against the tax payable before charging interest under sections 234B and 234C. The assessee argued that the MAT credit, which is a form of prepaid tax, should be considered before calculating interest to avoid penal consequences and absurd results. The CIT(A) upheld the AO's action of not adjusting the MAT credit before calculating interest, leading to a higher tax demand.

2. Interpretation and Application of Section 115JAA Regarding Tax Credit Set Off:
The assessee contended that section 115JAA(4) mandates that the tax credit "shall be allowed" to be set off in a year when tax becomes payable on normal computation. The provision is interpreted to mean that the MAT credit should be treated as advance tax and adjusted first before any interest is calculated. The CIT(A) did not accept this interpretation, leading to the appeal.

3. Order of Priority for Adjustment of TDS, Advance Tax, and MAT Credit:
The CIT(A) relied on the IT Rules, 1962, specifically Schedule G to Form No. 1, which prescribes the order of priority for adjustments. According to these rules, interest under sections 234B and 234C should be deducted first, followed by the adjustment of MAT credit. The assessee argued that this order is contrary to the legislative intent of section 115JAA.

4. Legality of Schedule G to Form No. 1 Under the IT Rules, 1962:
The tribunal examined whether the rule-making authority (CBDT) could prescribe an order of priority that contradicts the legislative intent of section 115JAA. The tribunal held that rules made under delegated authority should conform to the statute's provisions and cannot override the legislative intent. The tribunal found that Schedule G to Form No. 1, which prescribes the order of adjustments, is contrary to section 115JAA and therefore invalid.

Conclusion:
The tribunal concluded that the MAT credit should be adjusted against the tax payable before charging interest under sections 234B and 234C. The tribunal emphasized that the legislative intent, as expressed in section 115JAA, is to allow the set-off of MAT credit against the tax on total income before any interest is charged. Consequently, the tribunal directed the AO to adjust the MAT credit first and then calculate the interest, thereby allowing the appeal filed by the assessee.

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