2004 (3) TMI 372 - AT - Income Tax

Adjustment of MAT credit against the tax payable before charging interest under ss. 234B and 234C - Interpretation and application of Section 115JAA regarding MAT credit - HELD THAT - It can be seen from the above section that the statute intends to allow set off in respect of brought forward tax credit (MAT credit) and it has to be allowed to the extent of the difference between the tax on its total income and the tax which would have been payable under the provisions of sub-s. (1) of s. 115JA. It may be seen that in this section the legislature has used the word tax and not tax and interest under ss. 234B and 234C of the Act . In such circumstances it is to be inferred that 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 . In our considered view this method of prescribing the order of priority of adjustment of TDS, advance tax and MAT credit is totally against the intention of the legislature because the legislature by insertion of sub-s. (5) to s. 115JAA has intended to give set off of MAT credit against the difference between the tax on total income of the assessee and the tax which would have been payable under the provisions of sub-s. (1) of s. 115JA, and not on the total amount of tax and interest under ss. 234B and 234C as understood by the rule-making authority. Hence in our considered opinion, Sch. G to Form No. 1 is totally against the intention of the legislature which has been clearly prescribed in s. 115JAA. As has been already pointed out in the earlier paragraphs, rules cannot be contrary to the provisions of sections or the intention of the legislature. Hence, as we have already held that Sch. G to Form No. 1 is contrary to the provisions of s. 115JAA, we are inclined to allow the claim of the assessee by directing the AO to give set off of the MAT credit of Rs. 8,64,72,445 first, before the charging of interest under ss. 234B and 234C of the IT Act, 1961. Thus, looking the point at issue, both from logical and legal angles, we are unable to uphold the orders of the first appellate authority in denying the claim of the assessee. In the result, the appeal filed by the assessee is allowed.

Summary

Issues Involved:

1. Adjustment of carry forward MAT credit before calculating interest u/s 234B and 234C.
2. Interpretation and application of Section 115JAA regarding MAT credit.
3. Order of priority for adjustment of TDS, advance tax, and MAT credit.
4. Legality of Schedule G to Form No. 1 as per IT Rules, 1962.

Summary:

1. Adjustment of Carry Forward MAT Credit Before Calculating Interest u/s 234B and 234C:
The assessee argued that the CIT(A) erred by not adjusting the carry forward MAT credit before calculating interest under sections 234B and 234C. The CIT(A) upheld the AO's method of charging interest first and then adjusting the MAT credit, resulting in a tax demand of Rs. 1,64,86,519. The Tribunal found this method illogical and contrary to the intention of the legislature, which intended for MAT credit to be adjusted before charging interest.

2. Interpretation and Application of Section 115JAA Regarding MAT Credit:
The assessee contended that Section 115JAA(4) mandates that tax credit "shall be allowed" to be set off in a year when tax becomes payable on normal computation. The Tribunal agreed, stating that the MAT credit should be treated as advance tax and adjusted before charging interest under sections 234B and 234C. The Tribunal emphasized that the legislature's intention was to allow set off of MAT credit from the tax payable, not from the total amount including interest.

3. Order of Priority for Adjustment of TDS, Advance Tax, and MAT Credit:
The CIT(A) relied on Schedule G to Form No. 1, which prescribes the order of priority for adjustments. The Tribunal found that this schedule, which mandates charging interest first, contradicts the statutory provisions of Section 115JAA. The Tribunal held that rules cannot override the intention of the legislature and that MAT credit should be adjusted first.

4. Legality of Schedule G to Form No. 1 as per IT Rules, 1962:
The Tribunal examined whether the rule-making authority could prescribe the order of priority for adjustments. It concluded that Schedule G to Form No. 1, which prescribes charging interest before adjusting MAT credit, is contrary to the provisions of Section 115JAA. The Tribunal held that rules must conform to the statute and cannot expand or contradict legislative intent.

Conclusion:
The Tribunal allowed the appeal, directing the AO to adjust the MAT credit of Rs. 8,64,72,445 first before charging interest under sections 234B and 234C. The Tribunal emphasized that both logical and legal perspectives support this approach, aligning with the legislature's intention and statutory provisions.