2009 (4) TMI 61 - HC - Income Tax

Q. 1. Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in holding that the carry forward MAT credit available to the assessee was to be adjusted first before charging interest under Sections 234B and 234C? - Held Yes - Q. 2. Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in holding that Rule 12(1)(a) which lays down that every company has to furnish a return of income in Form No.1 and schedule G to the said form clearly lays down the manner of computation of the total income and also the order in which TDS, Advance Tax and Tax credit under Section 115JAA should be given effect to, is against the intention of the legislation and hence not applicable? - Held Yes - Q. 3. Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in not considering the fact that Form 1 had been substituted by the Income Tax (19th amendment) Rules 2001 with effect from 17.08.2001 and as such interest chargeable under Section 234B or 234C should be first deducted and thereafter tax credit under Section 115JAA should be given? - Held Yes

Issues Involved:
1. Adjustment of Carry Forward MAT Credit before Charging Interest under Sections 234B and 234C.
2. Applicability and Interpretation of Rule 12(1)(a) and Form No.1 regarding the order of tax credit adjustments.
3. Effect of the Income Tax (19th Amendment) Rules 2001 on the computation of interest under Sections 234B and 234C.

Issue-wise Detailed Analysis:

1. Adjustment of Carry Forward MAT Credit before Charging Interest under Sections 234B and 234C:
The primary issue was whether the carry forward MAT credit should be adjusted before charging interest under Sections 234B and 234C. The Tribunal had ruled in favor of the assessee, directing that MAT credit should be set off before calculating interest under these sections. The Department contended that the Tribunal's decision was incorrect, arguing that the MAT credit should be adjusted only after computing the interest. The High Court, agreeing with the reasoning of the Delhi High Court in a similar case, held that the MAT credit under Section 115JAA should indeed be adjusted before charging interest under Sections 234B and 234C. The Court noted that the legislative intent was clear in allowing tax credit to be set off against tax payable and not against the total amount including interest.

2. Applicability and Interpretation of Rule 12(1)(a) and Form No.1:
The second issue concerned the interpretation of Rule 12(1)(a) and Form No.1, which prescribe the order of priority for adjustments of TDS, advance tax, and MAT credit. The Tribunal had found that the order of adjustments as per Schedule G of Form No.1 was contrary to the legislative intent. The High Court upheld this view, stating that the rule-making authority cannot override or contradict the provisions of the Act. The Court emphasized that Rule 12(1)(a) and Form No.1 must conform to the substantive provisions of the Act, and any inconsistency would render the rule ultra vires. The Court cited several Supreme Court judgments to reinforce that subordinate legislation must align with the enabling statute.

3. Effect of the Income Tax (19th Amendment) Rules 2001:
The third issue was whether the substitution of Form No.1 by the Income Tax (19th Amendment) Rules 2001 affected the computation of interest under Sections 234B and 234C. The Department argued that the amended form clarified the order of adjustments, mandating that interest should be computed before allowing MAT credit. However, the High Court held that the amendment did not change the legislative intent, which was to allow MAT credit to be set off against tax payable before computing interest. The Court noted that the amendment was not retrospective and applied only from the assessment year 2007-2008 onwards. The Court also referenced a CBDT circular which indicated that the amendment was made in response to representations and was meant to clarify the existing law rather than change it.

Conclusion:
The High Court dismissed the Department's appeals, affirming the Tribunal's decision that MAT credit should be adjusted before charging interest under Sections 234B and 234C. The Court held that Rule 12(1)(a) and Form No.1 could not override the substantive provisions of the Act. The judgment clarified that the legislative intent was to allow MAT credit to be set off against tax payable, and any rules or forms suggesting otherwise were ultra vires. The decision reinforced the principle that subordinate legislation must conform to the enabling statute and cannot expand or contradict its provisions.

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