2004 (10) TMI 275 - AT - Income Tax

Interpretation of statutes - Tax Credit - treatment of set-off of MAT credit u/s 115JAA - Charging of interest u/s 234B and 234C - sale and manufacture of lamps, fluorescent tubes, and glass shells - HELD THAT - In our view, the interpretation given by the Revenue Authorities leads to absurdity insofar as proviso to section 115JAA(2) is rendered superfluous when assessee is required to pay advance tax to the extent of MAT credit and thereafter claim refund of the advance tax so paid. In such eventuality, proviso to section 115JAA(2) is rendered superfluous. This could not be the intention of the Legislature. The intention of the Legislature is unambiguous insofar as assessee has been made eligible to set off of tax, which is recovered in respect of the deemed income u/s 115JA against the tax payable for the years for which section u/s 115JA is not attracted (sic). Section 115JA(4) provides that all other provisions of the Act shall apply to every assessee being a company mentioned in that section. When all the provisions of the Act apply, there can be no doubt that the provisions relating to payment of advance tax as well as the provisions of set off apply. Therefore, in our considered view, the provisions of sections 207,208 and 209 cannot be ignored in determining the stage at which the tax becomes payable by the assessee for the purpose of set off of tax credit. We are, therefore, of the considered view that assessee is entitled to set off the MAT credit of the tax paid u/s 115JA even at the time of computation of advance tax payable for the relevant year in which provisions of section 115JA are not attracted. In our considered view, once the tax payable on the returned income is calculated, the interest under sections 234B and 234C has got to be calculated with reference to the tax payable in advance and not with reference to the tax payable on the returned income. Though provision for set off before calculation of interest under sections 234B and 234C would have been ideal, yet providing for set off of tax credit after determination of tax payable on the returned income and after calculation of interest under sections 234B and 234C does not make any difference. We first calculate the tax payable by the company on the returned income of Rs. 1 crore which is Rs. 35 lakhs. We set off the MAT credit i.e. Rs. 20 lakhs. Balance payable works out to Rs. 15 lakhs. Interest under sections 234B and 234C, which has been presumed by us at Rs. 1 lakh, is to be added to Rs. 15 lakhs. The total demand including the interest would work out to Rs. 16 lakhs. It is thus seen that there is no difference in the calculation of interest under sections 234B and 234C when the set-off MAT credit is allowed either before calculation of interest under sections 234B and 234C or after allowing the credit. It may be stated at the cost of repetition that interest calculation is not affected by giving priority to it in adjustment. We are, therefore, of the considered opinion that Form No. 1 does not have any effect of influencing the interpretation in regard to the priority in adjustment of MAT credit allowable u/s 115JAA. The Tribunal set aside the orders of the Assessing Officer and CIT(A), directing the recalculation of interest u/s 234B and 234C after allowing the set-off of MAT credit. The appeal filed by the assessee was allowed.

Summary

Issues Involved:
1. Treatment of set-off of MAT credit u/s 115JAA.
2. Charging of interest u/s 234B and 234C.

Summary:

Issue 1: Treatment of set-off of MAT credit u/s 115JAA

The assessee, a company engaged in manufacturing and sales, filed its return for the assessment year 2002-2003, admitting taxable income and tax payable, including interest u/s 234C. The Assessing Officer processed the return u/s 143(1) but did not adjust the carry forward of MAT credit before charging interest u/s 234B and 234C, resulting in a net demand. The assessee appealed, arguing that MAT credit should be set off in the year when tax becomes payable, before calculating interest u/s 234B and 234C. The CIT(A) decided against the assessee, referencing Schedule G of Form No. 1, which allows set-off after interest calculation. However, the Chennai Bench of ITAT in Chemplast Sanmar Ltd v. Dy. CIT supported the assessee's view, and the Tribunal agreed, noting that the legislative intent and provisions of the Act support the set-off of MAT credit at the stage of advance tax payment.

Issue 2: Charging of interest u/s 234B and 234C

The Tribunal examined the provisions of the Income-tax Act, particularly sections 115JAA, 207, and 208, and determined that the assessee is entitled to set off MAT credit against tax payable on the total income computed under the Act, excluding section 115JA. The Tribunal emphasized that the tax becomes payable at the stage of advance tax computation, where MAT credit should be considered. The Tribunal rejected the revenue's reliance on Form No. 1, which suggests calculating interest before MAT credit adjustment, stating that the form does not dictate the calculation method of interest. The Tribunal concluded that interest u/s 234B and 234C should be calculated based on the tax payable after MAT credit set-off.

Conclusion:

The Tribunal set aside the orders of the Assessing Officer and CIT(A), directing the recalculation of interest u/s 234B and 234C after allowing MAT credit set-off. The appeal filed by the assessee was allowed.