Delhi High Court

Commissioner Of Income Tax vs Bharat Aluminium Co. Ltd. on 11 May, 2011

Author: A.K.Sikri

                            REPORTABLE
*              IN THE HIGH COURT OF DELHI AT NEW DELHI

+                          ITA No.1890 of 2010

                                            Reserved On: April 18, 2011
%                                       Pronounced On:   May 11, 2011

       COMMISSIONER OF INCOME TAX                         . . . APPELLANT

                           through :           Ms. P.L. Bansal, Sr. Advocate
                                               with Mr. Deepak Anand,
                                               Advocate.


                                  VERSUS

       BHARAT ALUMINIUM CO. LTD.                         . . .RESPONDENT

                           through:            Mr. M.S. Syali, Sr. Advocate
                                               with Ms. Madhavi Swaroop,
                                               Advocate and Mr. Mayank
                                               Nagi, Advocate.

CORAM :-

       HON'BLE MR. JUSTICE A.K. SIKRI
       HON'BLE MR. JUSTICE M.L. MEHTA

       1.      Whether Reporters of Local newspapers may be allowed
               to see the Judgment?
       2.      To be referred to the Reporter or not?
       3.      Whether the Judgment should be reported in the Digest?


A.K. SIKRI, J.

1. This appeal was admitted on the following substantial questions

of law:

"Whether ITAT was correct in law in allowing interest u/s 244A of the Act to the assessee if the advance tax paid by the assessee was in excess of MAT credit available to the assessee?"

2. We may first recapitulate, in brief, the events which have led to

the aforesaid question. For the Assessment Year 1998-99, the

respondent/assessee filed return of income tax declaring

income at `153.97 crores. Tax payable on this income worked

out to `53,89,06,594/-. The assessee had paid advance tax of

`55.65 crores and in addition thereto against the tax deducted

at source (TDS), a credit of `29,86,273/- was also claimed. In

this way, the total amount paid worked out to ` 55,94,86,273/-

. While processing the return under Section 143(1)(a), the AO

had also charged interest under Section 234C at `55,52,656/-.

Thus, the total tax and interest payable on the income returned

worked out to `54,44,59,250/- as per the normal provisions of

the Act.

3. Later on, the case was selected under scrutiny and during the

course of assessment, various additions, disallowances and

additional claims were made and ultimately after the Income

Tax Appellate Tribunal‟s (hereinafter referred to as „the

Tribunal‟) order, the total income under the normal provisions

was worked out by the AO in terms of order dated 20.11.2007

under Section 254 of the Act at `147,14,95,301/-. However,

subsequently while determining the income for the Assessment

Year 1997-98 giving the appeal effect for those very years

(Assessment Years 1991-92, 1994-95), the income finally

assessable worked out less than the income assessable under

the MAT provisions under Section 115JA of the Income Tax Act

('the Tax' for brevity). Accordingly, the MAT credit in terms of

Section 115JA of the Act of the Assessment Year 1997-98 was

available for adjustment in Assessment Year 1998-99 at

`9,61,45,549/- in terms of Section 115JAA of the Act.

4. In order to set off the MAT credit available to the appellant in

respect of the tax paid under MAT for 1997-98, the AO rectified

the order for Assessment Year 1998-99 under Section 154 of

the Act on 15.02.2008, thereby allowing the MAT credit of

`9,61,05,549/- brought forward from Assessment Year 1997-

98 and recalculated the tax, but no recalculation in respect of

the interest under Section 234C of the Act charged by the AO

at the time of processing the return under Section 143(1)(a) of

the Act on 13.11.1998 at `55,52,656/- was made. In this way,

the AO had worked out a refund of `9,61,45,549/- to the

appellant vide order dated 15.02.2008. On this refund, the AO

had not allowed the interest under Section 244A of the Act in

view of proviso to sub-Section (2) of Section 115JAA of the Act.

5. Thus, in the order dated 15.02.2008 passed by the AO under

Section 154 of the Act the AO neither charged interest under

Section 234C of the Act which was earlier charged at

`55,52,656/- nor granted any interest under Section 244A of

the Act.

6. Against this order of the AO, the assessee went in appeal

before the CIT (A) with the plea that the assessee was entitled

to interest under Section 244A of the Act on the amount of

refund of advance tax which had become payable to it on the

basis of orders of the Tribunal. The assessee also objected to

the action of the AO for not recalculating interest chargeable

under Section 234C of the Act.

7. As per the provisions of Section 244A of the Act, where refund

of any amount becomes due to the assessee, inter alia, on

account of advance tax, the assessee is entitled to interest at

the rate prescribed in the said provision from the first of April

of the assessment year to the date on which the refund is

granted. Thus, the interest is payable if refund is due out of

advance tax paid by the assessee. The plea of the assessee

was that while paying advance tax, the assessee was entitled

to adjust the MAT credit, as the MAT credit was not set off and

the amount was paid as the advance tax. After the MAT credit

was allowed to the assessee, it is the excess advance tax which

became payable and therefore, the provisions of Section 244A

were applicable and the assessee was entitled to interest

thereupon. The assessee had relied upon the judgment of the

jurisdictional High Court, i.e., this Court in the case of

Commissioner of Income Tax Vs. Jindal Exports [314 ITR

137]. The plea of the assessee was accepted by the CIT (A)

holding that the amount which became refundable to the

assessee was on account of advance tax paid in excess by the

assessee and therefore, Section 244A of the Act was attracted

and the assessee was entitled to interest under the said

provision on the amount of refund of `9,61,45,549/-. As a

consequence, while hearing the appeal of the assessee, the CIT

(A) directed the AO to recalculate the interest chargeable under

Section 234C of the Act as well as after adjustment of set off of

MAT credit available to the appellant.

8. The Revenue, dissatisfied with the aforesaid outcome,

approached the Tribunal challenging the said order of the CIT

(A). However, the rationale given by the CIT(A) in taking the

aforesaid view has been accepted in entirety by the Tribunal

vide impugned order dated 19.02.2010 resulting into the

dismissal of the appeal of the Revenue. It is under these

circumstances, the present appeal is preferred under Section

260A of the Act before this Court challenging the aforesaid

order of the Tribunal.

9. When this appeal came up for hearing, after notice, on

18.04.2011, it was admitted on the question of law already

formulated above. Immediately thereupon, even the final

arguments were heard, as the counsel for both the parties

were willing for the same.

10. As per the Revenue, MAT credit in respect of earlier

assessment years became available only when appeal for

Assessment Year in question, i.e., 1998-99 was filed. Thus,

the assessee was required to deposit the advance tax as per

the normal provisions contained in the Income Tax Act. Thus,

the amount which became refundable as per the Revenue, was

not on account of advance tax, but when the adjustment of

MAT credit was to be given on the basis of decision of the

Tribunal in respect of Assessment Year 1997-98 and in a

situation like this, provisions of Section 244A were not

attracted and no such interest under the said provision was

payable to the assessee. In support of this submission,

reliance is placed on Proviso to sub-Section (2) of Section

115JAA of the Act.

11. This contention of the Revenue cannot be accepted having

regard to the ratio of the judgment of this Court in Jindal

Exports (supra). In that case, interpreting the scheme of

charging interest under Section 234B and 234C of the Act on

advance tax not paid in conjunction with the MAT credit, the

Division Bench of this Court held that the minimum alternate

tax credit under Section 115JAA is nothing but credit for tax

paid under Section 115JA of the Act. Minimum alternate tax

credit is granted for tax already paid under Section 115JA.

Thus, the sum represented by the available minimum alternate

tax credit would fall within the expression "tax already paid

under any provisions 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 minimum alternate tax credit which

represents the tax already paid under the provision of Section

115JA of the Act. The adjustment or set off in respect of the

available minimum alternate tax credit is implicit in the

meaning of "such tax". The Court was also of the opinion that

the amendment introduced by the Finance Act, 2006, with

effect from April 1, 2007 in Explanation 1 after Section 234B of

the Act merely clarifies and makes explicit what was already

implicit. Even if the amendment had not been introduced, the

expression "such tax" as appearing in Section 140A would have

reference to the tax payable on the basis of the returns minus

the minimum alternate tax credit claimed to be set off in

accordance with the provisions of Section 115JAA of the Act.

This Court categorically decided that the tax due to the extent

of available minimum alternate tax credit stood paid. The

Revenue had the amount representing the minimum alternate

tax credit at the very beginning of the year. The Revenue was

not put to any loss. There was no case made out for

compensation. Unless it could be shown that the interest

sought to be charged was by way of compensation of loss

suffered by the Revenue, such "interest" could not be regarded

as interest under Sections 234B and 234C. The interest under

Sections 234B and 234C was to be charged after the tax credit

(minimum alternate tax) available under Section 115JAA was

set off against tax payable on the total income of the year in

question.

12. Since it is categorically held that the MAT credit is available for

adjustment and set off on the first date of the previous year

even before the installment of advance tax is due on the

current income and accordingly, the advance tax liability has to

be worked out on the current income only after the adjustment

and set off the MAT credit brought forward from earlier years.

It would mean that the AO had to first set off the MAT credit

out of the income tax worked out on the total assessable

income and then the credit of advance tax paid by the assessee

as well as the TDS and tax collection has to be allowed. When

the matter is looked into from this angle, what becomes

payable to the assessee is the refund of advance tax given in

excess and interest thereupon under Section 244A of the Act.

Relevant portion of Section 244A of the Act reads as under:

"Section 244A: Interest on refunds

(1) Where refund of any amount becomes due to the assessee under this Act 1963 ], he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely :-

(a) Where the refund is out of any tax collected at source under section 206C or 1964 paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one per cent for every month or part of a month comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted.

Provided that no interest shall be payable if the amount of refund is less than ten per cent of the tax as determined under sub-section (1) of section 143 or on regular assessment;

(b) In any other case, such interest shall be calculated at the rate of one per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted.

Explanation : For the purposes of this clause, "date of payment of tax or penalty" means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand."

13. In Jindal Exports (supra), this Court held that the amount

which was paid as advance tax, it is that amount which

becomes refundable, as MAT credit was available which was to

be adjusted first. The Court relied upon the earlier Division

Bench‟s judgment of this Court in the case of Dr. Prannoy

Roy Vs. Commissioner of Income Tax [2002] 254 ITR

755 to which one of us (A.K. Sikri, J.) was a Member of the

Bench. 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.

In the process, the Court dealt with the expression "advance

tax". Explaining the interpretation given to the aforesaid

expression, the Division Bench made the following observations

in Jindal Exports (supra):

"54. We feel that it would be fruitful to remember what was said by Sinha C.J. (as his Lordship then was), while speaking for a Division Bench of this Court in Dr. Prannoy Roy v. CIT (supra), 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 the said Act began with the words "unless the context otherwise requires". The Division Bench held that though "advance tax" has been defined to mean the advance tax payable in accordance with the provisions of Chapter XVII-C, such a definition is not an exhaustive one and that "advance tax", apart from being used only for the purpose of Chapter XVII-C, may be held to be tax paid in advance before its due date. In other words, the term "advance tax" is not restricted to mean the advance tax payable in accordance with the provisions of Chapter XVII-C. If the context requires, "advance tax" may extend beyond the territory of Chapter XVII-C and could very well refer to any tax paid in advance before its due date. MAT credit represents that portion of MAT which was not actually payable by the company assessee but, has all the same, been collected by the Government. It represents the tax paid before it is due. In our view, the MAT credit which is available for set off in a year falls within the meaning of "advance tax" because the context requires us to give such a purposive meaning."

14. The issue raised by the Revenue would no more survive and is

put beyond the pale of controversy by a recent judgment of the

Apex Court in the case of Commissioner of Income Tax Vs.

Tulsyan NEC Ltd. 330 ITR 226. In that judgment, it has

been authoritatively held that MAT credit admissible in terms of

Section 115JAA has to be set off against the tax payable

(assessed tax) before calculating interest under Sections 234A,

234B and 234C of the Act. Discussing the scheme of tax

payable by the companies under MAT provision, the Court held

that as per provisions of Section 115JA, a company is liable to

pay tax on 30% of book profits, if the income computed under

normal provisions of the Act is less than 30% of the book

profits. Thus, the Assessee is required to compute income

chargeable to tax on two alternative basis - (i) income

computed under normal provisions of the Act and (ii) 30% of

book profits as disclosed in the P & L Account prepared in

accordance with Parts II and III of Schedule VI to the

Companies Act, 1956, subject to the adjustments specified in

the Explanation to Section 115JA. The higher of the two

computations is deemed to be the "total income" chargeable to

tax and tax is payable accordingly. Thus, Section 115JA enacts

a deeming fiction by deeming 30% of book profits to be the

"total income" chargeable to tax. The amount of tax paid under

Section 115JA is held to be a "tax" payable under the Act, as

defined in Section 2(43). (See National Thermal Power

Corporation Ltd. v. Union of India 192 ITR 187 (Delhi).

15. Again in no uncertain terms, the Apex Court laid down that

when tax is paid by the assessee under Section 115JA, he

becomes entitled to claim the credit of such tax in the matter

prescribed and:

".........Such a right gets crystallized no sooner the tax is paid by the assessee under Section 115JA, as per the return of income filed by the assessee for a previous year (say, year one)....

(emphasis supplied)"

16. The scheme of Section 115JA and 115JAA (relating to tax

credit) has been explained by the Court in the following

manner:

"We have discussed hereinabove the scheme of Section 115JA(1) and Section 115JAA. The entire scheme of Sections 115JA(1) and 115JAA shows that if an Assessee is entitled to a tax credit as a consequence of the Assessee making payment of tax under Section 115JA(1) in the year one, then, the set off of such tax credit follows as a matter of course once the conditions mentioned in Section 115JAA are fulfilled and the grant of such credit is not dependent upon determination by the A.O. save and except that the ultimate amount of tax credit to be allowed will be dependent upon the final determination of the total income for the first assessment year. There is no provision under Section 115JAA which postpones the right of the Assessee to claim set off to the determination of the total income by the A.O. in the first assessment year. Entitlement/right to claim set off is different from the quantum/quantification of that right. Entitlement of MAT credit is not dependent upon any action taken by the Department. However, quantum of tax credit will depend upon the assessment framed by the A.O. Thus, the right to set off arises as a result of the payment of tax under Section 115JA(1) although quantification of that right depends upon the ultimate determination of total income for the first assessment year. Further, an Assessee has a right to take into account the set off even while estimating its liability to pay advance tax on the "current income" in accordance with the provisions of Chapter XVII-C."

17. The Court also specifically dealt with the question of calculating

advance tax when the company has MAT credit. Following

answer is provided:

"The issue which crops up for decision is - how should the advance tax be calculated when the Company has MAT credit?

To answer, we need to look at Section 234B. Under that section, "assessed tax" means the tax on the total income determined under Section 143(1) or on regular assessment under Section 143(3) 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 definition, thus, at the relevant time excluded MAT credit for arriving at assessed tax. This led to immense hardship. The position which emerged was that due to omission on one hand MAT credit was available for set off for five years under Section 115JAA but the same was not available for set off while calculating advance tax. This dichotomy was more spelt out because Section 115JAA did not provide for payment of interest on the MAT credit. To avoid this situation, Parliament amended Explanation 1 to Section 234B by Finance Act, 2006 w.e.f. 1.4.2007 to provide along with tax deducted or collected at source, MAT credit under Section 115JAA also to be excluded while calculating assessed tax.

From the above, it is evident that any tax paid in advance/pre-assessed tax paid can be taken into account in computing the tax payable subject to one caveat, viz, that where the Assessee on the basis of self computation unilaterally claims set off or MAT credit, the Assessee does so at its risk as in case it is ultimately found that the amount of tax credit availed was not lawfully available, the Assessee would be exposed to levy of interest under Section 234B on the shortfall in the payment of advance tax. We reiterate that we cannot accept the case of the Department because it would mean that even if the Assessee does not have to pay advance tax in the current year, because of his brought forward MAT credit balance, he would nevertheless be required to pay advance tax, and if he fails, interest under Section 234B would be chargeable. The consequence of adopting the case of the Department would mean that MAT credit would lapse after five succeeding assessment years under Section 115JAA(3); that no interest would be payable on such credit by the Government under the proviso to Section 115JAA(2) and that the Assessee would be liable to pay interest under Sections 234B and C on the shortfall in the payment of advance tax despite existence of MAT credit standing to the account of the Assessee. Thus, despite MAT credit standing to the account of the Assessee, the liability of the Assessee gets increased instead of it getting reduced."

18. It is clear from the above that the provision of Section 115JAA

has been inserted by the Legislature only for the purpose of

adjustment and set off of MAT credit in respect of the tax paid

by the assessee in earlier years on the income which was not

otherwise taxable under the law. As per the provision of

Section 115JAA, the MAT credit in respect of the tax paid in

earlier years is available for set off against the tax liability

arisen on the total income computed as per the normal

provisions of law in subsequent year. As per the provision of

sub-Section (3) of Section 115JAA, the amount of tax credit of

a particular year is available to be set off upto the fifth

assessment year immediately succeeding the assessment year