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TMI Blog2010 (4) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... MENT (Per Dr.D.Y. Chandrachud, J.): The question of law: 1. This appeal by the Revenue arises out of an order of the Income Tax Appellate Tribunal dated 20 June 2007. The Tribunal passed an order that would govern appeals arising out of assessment years 1998-1999, 1999-2000 and 2000-2001. The appeal by the Revenue relates to assessment year 2000-2001. The questions of law which are raised in the appeal are as follows: a) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in holding that credit for brought forward MAT is to be given from gross demand before charging interest u/s.234B of the Income Tax Act, 1961? b) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in holding that interest u/s. 244A of the Income Tax Act, 1961 was allowable on the refundable taxes arrived after giving credit of brought forward MAT from the gross demand? The issue: 2. The issue that arises for the determination of the Court is whether Minimum Alternative Tax (MAT) Credit, to which the assessee is undisputedly entitled, must be given before computing interest payable by the assessee under Section 234B of the Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnishing the return of income; Section 234B for a default of payment of advance tax; and Section 234C for deferment of advance tax. Section 234B was inserted with effect from 1 April 1989 by the Direct Tax Laws (Amendment) Act, 1987. The provision as it stood at the material time was as follows: "Interest for defaults in payment of advance tax. 234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one and one fourth per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under subsection (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to Sections 140A and 234B so as to mean, tax on total income as reduced by the amount of tax credit allowed to be set off, in accordance with the provisions of Section 115JAA. Minimum Alternative Tax (MAT): 8. Section 115JAA provides for a tax credit in respect of tax paid on deemed income relating to certain companies. Subsection (1) of Section 115JAA provides that, where any amount of tax is paid under Section 115JA(1) by an assessee which is a company for any assessment year, then credit in respect of the tax so paid shall be allowed in accordance with the provisions of the section. In other words, the credit which is available under Section 115JAA is in respect of tax paid by an assessee under Section 115JA though, the extent of the credit and the manner in which it would be utilized shall be in accordance with the provisions of Section 115JAA. The provisions for the imposition of a Minimum Alternative Tax were brought into force by Parliament due to a rise in the number of zerotax companies in view of the tax preferences granted in the form of exemptions, deductions and high rates of depreciation. Consequently, a minimum tax was provided by deeming a certain part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had failed to pay advance tax altogether or, as the case may be, on the amount on which advance tax fell short of the assessed tax. Explanation (1) to Section 234B, as it was substituted by the Finance Act of 2001 with effect from 1 April 1989, defined the expression "assessed tax". The expression "assessed tax" was defined to mean the tax on the total income determined under Section 143(1) or on regular assessment as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income. The provisions of Explanation (1) came to be substituted by the Finance Act of 2006 with effect from 1 April 2007. As substituted, Explanation (1) reads as follows: "Explanation 1. In this section, "assessed tax" means the tax on the total income determined under subsection (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of, (i) any tax deducted or collected at source in accordance with the provisions of Chapter XVII on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution of Explanation (1) with effect from 1 April 2007. In sum and substance, therefore, the submission which has been urged on behalf of the Revenue is that though the assessee is entitled to a credit under Section 115JAA on tax paid under Section 115JA and this credit has to be reckoned in determining the actual tax payable by the assessee, the credit available under Section 115JAA cannot be taken into account before the liability to pay interest under Section 234B is computed. (ii) The Assessee: 12. On the other hand, it has been urged on behalf of the assessee that: (i) Independent of the amendment which was made to Explanation (1) to Section 234B by the Finance Act of 2006, MAT credit has to be taken into account before charging interest under Section 234B; (ii) This conclusion would emerge on a plain reading of Sections 140A, 143(1) and 234B(2); (iii) The interest payable under Section 234B has been held to be compensatory in nature so as to be payable by an assessee for depriving the Government of its dues. Upon an excess payment of the Minimum Alternative Tax, for which credit has been given, interest cannot be charged under Section 234B by disregarding the credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto reckoning for the purposes of computing the liability of an assessee to pay tax under Section 140A. The expression "such tax" in Section 140A refers to a tax which is payable on the basis of the return required to be furnished by the assessee after taking into account the amount of tax, if any, already paid under the provisions of the Act. Subsection (1B) of Section 140A stipulated that for the purposes of subsection (1), interest payable under Section 234B shall be computed on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid falls short of the assessed tax. The expression "assessed tax" was originally defined in the Explanation in terms which were similar to Explanation (1) to Section 234B prior to its substitution by the Finance Act of 2006. By the Finance Act of 2006, the Explanation to Section 140A was also substituted in terms similar to the substitution which was effected to Explanation (1) to Section 234B. The effect of the substitution will be considered in a subsequent part of this judgment. At this stage, what is important to emphasize is that even prior to the substitution, in computing the liability of an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 140A. The effect of subsection (2) was that if the assessee paid tax either under Section 140A or otherwise before his total income was determined under Section 143(1) or by the completion of a regular assessment, the liability to pay interest would be reckoned up to the date on which the tax so paid. Once the tax was paid either under Section 140A or otherwise, interest could no longer be attracted under subsection (2) of Section 234B. Subsection (2) of Section 234B refers to the payment of tax by the assessee under Section 140A "or otherwise". The expression "or otherwise" must mean a payment of tax under any other provision of the Act. Like Section 140A which requires account to be taken of the tax, if any, paid under any provision of the Act, subsection (2) of Section 234B similarly stipulates that the payment of tax under Section 140A or otherwise prior to the date of determination of total income under Section 143(1) or completion of a regular assessment would result in interest being calculated only up to the date on which the tax is so paid. This is to obviate the consequence which is provided by subsection (1) of Section 234B under which in the event of a short fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax paid during the previous year. The provisions of Section 234B are compensatory. They have been held to be compensatory in nature by the judgment of the Supreme Court in Commissioner of Income Tax V/s. Pranay Roy{(2009) 309 ITR 231 (S.C.)}. The same view was expressed in a judgment of a Division Bench of this Court in Commissioner of Income Tax V/s. Kotak Mahindra Finance Limited{(2004) 265 ITR 119 (Bom)}. The Division Bench held as follows: "..... It is well settled that interest under section 234B is compensatory in character. It is not penal in nature. So also, interest under section 234C is compensatory in character. It is for this reason that section 234B does not envisage grant of hearing in so far as levy of interest is concerned. The levy is automatic on it being proved that the assessee has committed a default as governed by section 234B." 17. Interest under Section 234B being compensatory in nature, the object underlying the levy of interest under the provision is to provide compensation to the exchequer for being deprived of the payment of advance tax, to which it was legitimately entitled. In a case such as present where an assessee has paid the minimum alterna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing taken of the tax credit allowed to be set off under Section 115JAA. 20. Having regard to the background in which the amendment was brought into force, it must be regarded as being clarificatory in nature. The amendment clearly removes a cause of ambiguity in the interpretation of Section 234B. As interpreted by us in the earlier part of this judgment, the provisions of Section 234B, more particularly subsection (2) as well as the entire scheme envisaged in Sections 140A and 143(1) clearly require due account being taken of the MAT credit to which the assessee was entitled under Section 115JAA. Consequently, even prior to the amendment the credit to which the assessee was entitled under Section 115JAA could not be ignored in determining the liability to pay interest under Section 234B. There was a certain element of ambiguity in the Explanation to Sections 140A and 234B. Parliament considered it appropriate to step in and and resolve an area of ambiguity, particularly having regard to the circumstance that representations were received from several quarters, as noticed in the circular issued by the CBDT. An amendment which is intended to remove an ambiguity in the interpreta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture considers to be the true meaning beyond any controversy or doubt". The same principle has been recently applied by the Supreme Court in Commissioner of Income Tax V/s. Alom Extrusions Limited{(2009) 319 ITR 306 (S.C.)}, where the second proviso to Section 43B was held to be curative in nature, having regard to the fact that it was intended to bring about a degree of uniformity and to obviate problems in implementation. The principle has been recognised in the judgment of the Supreme Court in Commissioner of Income Tax V/s. Gold Coin Health Food P. Limited{(2008) 304 ITR 308 (S.C.)} while construing the provisions of Section 271(1)(c). 22. Counsel appearing on behalf of the Revenue, however, sought to submit, by placing reliance on the judgment of the Supreme Court in Deputy Commissioner of Income Tax Vs. Core Health Care Limited{(2008) 298 ITR 194 (S.C.)}, that since Explanation (1) to Section 234B was inserted by the Finance Act of 2006 with effect from 1 April 2007, retrospectivity cannot be read into the provision. Now, the decision in Core Health Care Limited dealt with an amendment to Section 36(1)(iii) of the Income Tax Act, 1961 by which Parliament had sought to restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere finally paid after disposal of the reference. The case was, therefore, clearly distinguishable on facts. Similarly, the judgment of the Delhi High Court in Commissioner of Income Tax Vs. Rajasthan Mercantile Co. Limited{(1995) 211 ITR 400 (Delhi)}, dealt with the insertion of Explanation (2) to Section 37(2A) of the Income Tax Act, 1961. The provision widened the scope of the concept of entertainment expenditure by including in its scope such expenditure, which was otherwise traditionally understood as routine business expenditure in connection with business hospitality. Consequently, the widened meaning could not be extended to past periods when the amended Explanation was not in operation. The judgment of the Delhi High Court, therefore, dealt with a situation where an amended provision of an Explanation was not obviously clarificatory because it widened the definition of the expression "entertainment expenditure" beyond its ordinary connotation. 24. For the reasons aforesaid, we are of the view that the amendment brought about by Parliament by the Finance Act of 2006 by substituting Explanation (1) to Section 234B was clarificatory or curative in nature. Forms do not ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit for tax paid under Section 115JA; (ii) The sum represented by the available MAT credit would fall within the expression "tax ... already paid under any provision of this Act" in Section 140A(1); (iii) The expression "such tax" in Section 140A(1) would mean the tax payable on the return, minus, the available MAT credit which represents the tax already paid under a provision (section 115JA) of the Act; (iv) The expression tax paid "otherwise" in Section 234B(2) would take within its sweep any tax paid under a provision of the Act including the MAT credit which is available under Section 115JAA; (v) The amendment to Explanation (1) of Section 234B by the Finance Act of 2006 is clarificatory; (vi) The tax credit which is allowed to the assessee and obtained in a particular year is a part of the Minimum Alternative Tax of that year. It represents tax paid by the assessee to the exchequer. In the year in which such tax credit is sought to be set off in terms of Section 115JA, the tax credit is available on the first day of that year and hence the tax deducted to the extent it can be set off represents tax already paid and available as credit at the beginning of the year; (vii) The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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