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TMI Blog2009 (2) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... PARTA LIMITED COMMISSIONER OF INCOME TAX-V Versus NOKIA INDIA LIMITED COMMISSIONER OF INCOME TAX-II Versus MITSUBISHI CORPORATION INDIA (P) LTD COMMISSIONER OF INCOME TAX-V Versus NEGOLICE INDIA PRIVATE LIMITED COMMISSIONER OF INCOME TAX Versus CADENCE DESIGN SYSTEMS (I) PVT LTD COMMISSIONER OF INCOME TAX-V Versus OCL INDIA LIMITED COMMISSIONER OF INCOME TAX Versus E I DUPONT INDIA LIMITED Ms Prem Lata Bansal, Mr Mohan Prasad Gupta and Ms Anshul Sharma [in ITA Nos. 402/2005, 708/2007, 719/2007, 829/2007, 992/2007, 1350/2007, 271/2008, 272/2008, 295/2008, 344/2008, 453/2008, 456/2008, 462/2008, 476/2008, 477/2008, 701/2008, 893/2008, 989/2008] Mr Sanjeev Sabharwal [in ITA Nos. 1474/2006, 802/2008] for the Appellants. Mr Ajay Vohra with Ms Kavita Jha and Mr Sriram Krishna [in ITA Nos. 907/2007, 344/2008, 701/2008] Mr R. M. Mehta [in ITA No. 1063/2007] Dr. Rakesh Gupta, Ms Aarti Saini, Ms Poonam Ahuja [in ITA No. 986/2007, 989/2008] Mr M.S. Syali, Sr. Advocate with Mr Satyen Sethi, Mr Aseem Mawar and Ms Mahua C. Kalra [in ITA Nos. 1474/2006, 453/2008] Mr V.P. Gupta and Mr Basant Kumar[ in ITA NoS.719/2007, 791/2007, 829/2007, 271/2008, 476/2008, 546 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07. According to the learned counsel for the appellant/revenue, after the said amendments, there is no dispute that credit of tax paid under section 115JAA read with section 115JA would have to be set off before interest is computed under sections 234B and 234C. It was further contended that the said amendments were substantive and prospective in nature. Consequently, it was submitted, prior to 01.04.2007, there was no statutory prescription for first setting off the tax credit and then computing the interest under sections 234B and 234C of the said Act. Therefore, the revenue contended, the Tribunal erred in holding that interest under sections 234B and 234C was to be computed only after giving effect to the set off. With regard to the rectification proceedings under section 154, it was contended that the language of the provisions of section 234B and section 234C was clear and unambiguous and, as such, there was no scope for any debate. Thus, it was submitted, that rectification proceedings were in order. 4. The learned counsel who appeared for the assessees/respondents submitted that the provisions of sections 234B and 234C were compensatory in nature. On the basis of this p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x due on returned income, which expression is defined in the Explanation after section 234C(1) to mean the tax chargeable on the total income declared in the return of income furnished by the assessee for the assessment year commencing on the 1st day of April immediately following the financial year in which the advance tax is paid or payable, as reduced by the amount of TDS on any income which is subject to such deduction or collection and which is taken into account in computing such total income. Here, too, according to the revenue, the only reduction permissible is in respect of TDS. 7. It was further contended that this was the position in law prior to 01.04.2007. Since this was causing hardship, various representations were received by the Central Board of Direct Taxes to treat the tax credit under section 115JAA (MAT credit) as advance tax. Subsequently, the amendment to Explanation 1 after section 234B(1) was brought about so as to specifically provide for reduction of the tax determined under section 143(1) or upon a regular assessment by, inter alia, the available tax credit under section 115JAA in addition to the existing reduction of TDS so as to arrive at the figur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd deduction from the Indian Income-tax before furnishing the return of income. 38.3 The credit for the above shall also be allowed under section 140A for calculating tax and interest before furnishing the return of income. 38.4 The above amendments will take effect from 1-4-2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years." 9. On the strength of this Circular, it was contended that reduction of MAT credit prior to computation of interest under sections 234B and 234C is permissible only after 01.04.2007, that is, for assessment year 2007-2008 onwards. Since all these appeals relate to prior assessment years, MAT credit cannot be set off prior to the computation of interest under sections 234B and 234C. 10. Referring to the provisions of chapter XVII-C relating to advance tax, it was submitted by the learned counsel for the revenue that section 207 imposes the liability for payment of advance tax and that section 208 stipulates that the advance tax must be paid in the financial year itself. Section 209 prescribes the mode of computation of advance tax and, as per sub-clause (d) of sub-section (1) thereof, only the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. This reasoning also applies to levy of interest under section 234C. Therefore, the question of equity, rules of natural justice and justification for not making payment do not arise for determination in cases where interest is leviable under section 234B and section 234C. 13. It must be pointed out that this decision was in the context of section 115J, the question being - Whether interest under section 234B and section 234C is chargeable even in a case where tax liability arises only by applicability of section 115J? The question was answered in the affirmative in favour of the revenue and against the assessee. Of course, the questions in the present appeals are entirely different. 14. With regard to the issue of rectification proceedings, it was submitted that the provisions are clear. There is no scope for debate. Moreover, the provisions being mandatory and automatic, there is no question of waiver. That being the position, it was submitted, if interest under section 234B or 234C is not o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which contained the Explanatory Notes on provisions relating to Direct Taxes in the Finance Act, 1997. The relevant portions of the said paragraph 45 are as under:- Minimum alternative tax on companies 45.1 The minimum alternative tax (MAT) on companies was introduced by the Finance (No.2) Act, 1996, with effect from the 1st April, 1997. This was necessary due to a rise in the number of zero-tax companies in view of tax preferences granted in the form of exemptions, deductions and high rates of depreciation. The rate of minimum tax was kept at a modest figure deeming 30 per cent of book profits as total income. This modest amount is likely to go down further with the downward revision of corporate tax rate to 35 per cent and abolition of surcharge. xxxx xxxx xxxx xxxx 45.4 The Act also inserts a new section 115JAA to provide for a tax credit scheme by which the MAT paid can be carried forward for set-off against regular tax payable during the subsequent five-year period subject to certain conditions:-- (1) When a company pays tax under MAT, the tax credit earned by it shall be an amount which is the difference between the amount payable under MAT and the regular tax. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... caused to the revenue and, therefore, there is no question of charging any interest thereon by way of compensation. Reliance was placed upon the decision of this court in Dr. Prannoy Roy v. Commissioner of Income-tax : 254 ITR 755 (Del). In that case the provisions of section 234A were in issue. The question before the court was whether interest could be charged under section 234A when, though the return had not been filed in time, the tax had been paid. The argument raised on behalf of the revenue that such payment of tax did not strictly comply with the meaning of advance tax and would therefore have to be disregarded for the purposes of charging interest under section 234A, was rejected. The court also held that interest under section 234A was compensatory in nature and unless any loss was caused to the revenue, the same could not be charged from the assessee. Inter alia, referring to the definition of advance tax in section 2(1) of the said Act, the court also observed as under:- The interpretation clause, as is well known, is not a positive enactment. The interpretation clause also begins with the word unless the context otherwise requires. Advance tax has been defined to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aggarwal that amendment in Explanation 1 after section 234B brought about by the Finance Act, 2006 with effect from 01.04.2007 is merely declaratory. He placed reliance on the said Circular No. 14/2006 dated 28.12.2006 and upon Allied Motors v. CIT: 224 ITR 677 (SC) and Suresh N. Gupta v. CIT: 297 ITR 322 (SC). Consequently, what was introduced by way of amendment was merely to clarify and declare in explicit terms what was always the position in law. 22. Lastly, it was submitted by Mr Aggarwal, in the context of applicability of section 154, that, in any event the issue was highly debatable. This was so because, according to him, the Tribunal in several cases had concluded that MAT credit has to be given prior to computation of advance tax liability. Reference was made to 92ITD 441 (Chandigarh) and 83 TTJ 427 (Chennai). These demonstrate that the issue was debateable and could not have the subject matter of section 154 proceedings. 23. Mr Syali, senior advocate, appeared for the respondent/assessee in ITA 1474/2006 in which the issue was with regard to section 234C. In addition to the arguments of Mr C S Aggarwal in respect of section 234B, which, according to Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly, the tax payable in any year is only the amount after the tax credit under section 115JAA is set off. 26. It was also contended that the available tax credit has to be set off mandatorily against the tax payable. The department has no option in this regard. This is clear from the language employed in sub-section (4) of section 115JAA which uses the expression the tax credit shall be allowed set-off... Mr Syali submitted that as tax credit is to be mandatorily set-off against tax payable, therefore, for computing interest under sections 234B and 234C also, the tax credit is to be set-off first and only thereafter the deductions of the TDS amount and the advance tax paid are to be made. 27. In similar vein to what Mr Aggarwal had submitted, Mr Syali also contended that it is a settled principle of law that literal construction may be the general rule in construing taxing enactments, but that does not mean that it should be adopted even if it leads to a discriminatory or incongruous result. When a literal interpretation leads to an absurd or unintended result, the language of the statute can be modified to accord with the intention of the legislature and to avoid absurdity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition is that interest is compensatory in character. He submitted that interest is levied by the government for tax legitimately belonging to the government which has not been paid by the assessee in time. Conversely, interest is paid by the government where the refund of taxes legitimately due to an assesse are withheld by the government. Referring to the Supreme Court decision in Sandvik Asia Ltd v. CIT: 280 ITR 643, Mr Vohra contended the Supreme Court held that the interest levied/granted under the provisions of the said act being compensatory in nature, had to be paid by the government even on refund of interest paid by the assessee under the provisions of the act. In other words, the Supreme Court directed grant of interest on interest on the principle that interest being compensatory in character had to be paid to the assessee to compensate for deprivation of the use of money, for the period such monies were illegally detained by the government. He submitted that the Supreme Court held that even outside the provisions of the said act, interest had to be granted by the government, in a situation where the government had withheld refund of taxes and interest was determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Legislature from the language used. It is necessary to remember that language is at best an imperfect instrument for the expression of human intention. It is well to remember the warning administered by judge Learned Hand that one should not make a fortress out of the dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meaning. We have noted the object of s. 16(3) of the Act which has to be read in conjunction with s. 24(2) in this case for the present purpose. If the purpose of a particular provision is easily discernible from the whole scheme of the Act, which in this case is to counteract the effect of the transfer of assets so far as computation of income of the assessee is concerned, then bearing that purpose in mind, we should find out the intention from the language used by the Legislature and if strict literal construction leads to an absurd result, i.e., a result not intended to be subserved by the object of the legislation found in the manner indicated before, then if another construction is possible apart from strict literal construction, then that constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d:- Particulars As per the Department (Rs) As per the Company/Assessee (Rs) Taxable income as per intimation u/s 143(1) dated 02.03.2004 77,44,490 77,44,490 Tax on above @ 36.75% 28,46,100 28,46,100 Less: MAT credit -- 5,48,075 28,46,100 22,98,025 Less: TDS 4,26,357 4,26,357 Less Advance Tax -- -- 24,19,743 18,71,668 Add: Interest u/s 234B 2,31,376 1,64,666 Add: Interest u/s 234C 1,52,748 1,18,149 Tax + interest payable 28,03,867 21,54,483 Less: MAT credit 5,48,075 -- Total Tax + interest liability 22,55,792 21,54,483 Difference 1,01,309 36. The above table clearly illustrates the difference in the stands adopted by the parties. While the MAT credit is the same, the point at which it is set off makes all the difference. As per the department the MAT credit is to be set off after interest under sections 234B and 234C are computed. On the other hand, as per the assessee, the MAT credit has to be set off agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject to such deduction or collection and which is taken into account in computing such total income. Explanation 2.- Where in relation to an assessment year, an assessment is made for the first time under section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section. Explanation 3- In Explanation 1 and in sub-section (3), "tax on the total income determined under sub-section (1) of section 143" shall not include the additional income-tax, if any, payable under section 143. (2) Where, before the date of determination of total income under sub-section (1) of section 143 or completion of a regular assessment, tax is paid by the assessee under section 140A or otherwise,-- (i) interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section; (ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax. xxxx xxxx xxxx xxxx (emphasis s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax payable on the basis of the return which is to be furnished and has to pay the amount of such tax after taking into account the amount of tax, if any, already paid under any provision of this Act. Such tax is to be paid together with interest payable for any delay in furnishing the return (section 234A) or any default or delay in payment of advance tax (Sections 234B and 234C). The expression such tax referred to in section 140A(1) means the tax payable on the basis of the return minus the amount of tax, if any, already paid under any provision of the Act. The MAT credit under section 115JAA is nothing but credit for tax paid under section 115JA of the said Act. Both the sections are part of the said act. MAT credit is granted for tax already paid under section 115JA. Thus, the sum represented by the available MAT credit would fall within the expression tax….already paid under any provision of this Act. This means that the expression such tax referred to in section 140A(1) would mean the tax payable on the basis of the return minus, inter alia, the available MAT credit which represents the tax already paid under a provision (section 115JA) of the said Act. The adjustment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of it is accounted in the same year and the remainder is to be carried forward as MAT credit under section 115JAA. To make it clear, MAT credit under section 115JAA is not given in respect of the entire tax (viz., Minimum Alternate Tax) paid under section 115JA in a year. MAT credit is given only in respect of the amount of MAT which is in excess of the tax payable for that year by the assessee under the normal provisions (i.e., other than the special provisions of section 115JA). It represents the amount of tax paid by the assessee in excess of what it would be required to make under the normal provisions only because of the special provisions requiring company assessees to pay a minimum tax each year. It is for this reason that credit is given to the assessee for such payment and the assessee can, as a matter of right, subject to certain conditions, carry forward and set off the tax credit against the tax payable in a subsequent year. There can be no doubt that the entire amount of MAT paid under section 115JA would be towards tax. Part of it may be towards tax for that year and part of it, for which credit is given, is towards tax for a subsequent year. Thus the tax credit whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, being a company, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 (hereafter in this section referred to as the relevant previous year) is less than thirty per cent. of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent. of such book profit. xxxx xxxx xxxx xxxx" 115JAA. Tax credit in respect of tax paid on deemed income relating to certain companies.-- (1) Where any amount of tax is paid under sub-section (1) of section 115JA by an assessee being a company for any assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section. (2) The tax credit to be allowed under sub-section (1) shall be the difference of the tax paid for any assessment year under sub-section (1) of section 115JA and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of this Act: Provided that no interest shall be payable on the tax credit allowed under sub-sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the total income computed under the normal provisions of the Act being less than 30% of the book profit triggers the deeming provision of sub-section(1) of section 115JA and then, the total income is deemed to be 30% of the book profit. This implies that the floor income (total income) which would be subject to tax would be 30% of book profit. By employing this deeming fiction the Minimum Alternate Tax (TJA0) is computed on the deemed total income. 48. But, the tax payable (T0) on the total income (X0) under the normal provisions would have been equal to t0/100 x X0. Since the actual total income (X0) is less than the deemed total income (Y0), the tax payable (T0) on actual total income would also be less than the tax payable (TJA0) on the deemed total income. This brings in the provisions of section 115JAA which stipulate that credit shall be allowed to the company assessee to the extent of the excess of tax paid (TJA0) under section 115JA and the tax payable (T0) under the normal provisions of the said Act ie., Tax Credit in respect of year 0 (TC0) = TJA0 T0. Though such tax credit (TC0) is allowed in respect of year 0, no interest is payable thereon by the revenue. Such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready paid and available as credit at the beginning of the year. Consequently, the assessee cannot be charged interest on something which it had already paid. Interest under sections 234A, 234B and 234C is Compensatory or penal? 51. We have already noted above that the learned counsel for the respondents had submitted in unison that the provisions of sections 234A, 234B and 234C are compensatory in nature. We agree with this submission. In fact, even in CIT v. Kotak Mahindra Finance Ltd: (supra), a decision strongly relied upon by the learned counsel for the revenue, the Bombay High Court held that:- 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. This reasoning also applies to levy of interest under section 234C." 52. We are also of the view that sections 234A, 234B and 234C are of the same genre. On going throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax stood paid there was no question of levy of interest even though the return had not been filed when the tax was paid. 53. In the present appeals, the tax due to the extent of available MAT credit, stood paid. If that be the case, how would the question of levy of interest arise ? The revenue had the amount representing the MAT credit at the very beginning of the year. The revenue was not put to any loss. There is no case made out for compensation. Unless it can be shown that the interest sought to be charged was by way of compensation of loss suffered by the revenue, such interest cannot be regarded as interest under sections 234B or 234C. Purposive meaning to be ascribed to "advance tax" 54. We feel that it would be fruitful to remember what was said by Sinha CJ (as his lordship then was), while speaking for a Division Bench of this court in Dr. Prannoy Roy v. Commissioner of Income-tax: 254 ITR 755 (Del), with regard to the interpretation to be placed on the term advance tax as defined in section 2(1) of the said Act. It was observed that an interpretation clause, as is well known, is not a positive enactment. It was specifically noticed that section 2 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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