[CIT v. Tulsyan NEC Ltd., (2011) 330 ITR 226 (SC)]
The issue involved a batch of civil appeals filed by the
Department before the Supreme Court, related to the question of whether MAT
credit, admissible in terms of section 115JAA, had to be set off against tax
payable (assessed tax) before calculating interest u/s.234A, u/s.234B and
u/s.234C of the Income-tax Act, 1961 (the Act).
The Supreme Court, at the outset, observed that there was no
dispute with regard to the eligibility of the assessee for set-off of tax paid
u/s.115JA. The dispute was only with regard to the priority of adjustment for
the MAT credit.
The Supreme Court observed that the relevant provisions
u/s.115JAA of the Act, introduced by the Finance Act, 1997, with effect from 1st
April, 1997, i.e., applicable for the A.Y. 1997-1998 and onwards,
governing the carry forward and set-off of credit available in respect of tax
paid u/s.115JA, showed that when tax is paid by the assessee u/s.115JA, then the
assessee becomes entitled to claim credit of such tax in the manner prescribed.
Such a right gets crystallised no sooner tax is paid by the assessee u/s.115JA,
as per the return of income filed by the assessee for a previous year (say, year
one). [See section 115JAA(1)]. The said credit gets limited to the tax
difference between tax payable on book profits and tax payable on income
computed under the normal provisions of the Act [see section 115JAA(2)] in year
one. Such credit is, however, allowable for a period of five succeeding
assessment years, immediately succeeding the assessment year in which the credit
becomes available (say, years two to six) [See section 115JAA(3)]. However, the
MAT credit is available for set-off against tax payable in succeeding years
where the tax payable on income computed under the normal provisions of the Act
the exceeds tax payable on book profits computed for the year [See section
115JAA(4),(5)]. The statute envisages u/s.115JAA ‘credit in respect of the tax
so paid’, because the entire tax is not an automatic credit but has to be
calculated in accordance with sub-section(2) of section 115JAA. Sub-section.(4)
of section 115JAA allows ‘tax credit’ in the year tax becomes payable. Thus, the
amount of set-off is limited to tax payable on the income computed under the
normal provisions of the Act less the tax payable on book profits for that year.
[Refer section 115JAA(4) and section 115JAA(5)]. The Assessing Officer may vary
the amount of tax credit to be allowed, pursuant to completion of summary
assessment u/s.143(1) or regular assessment u/s.143(3) for year one, in terms of
section 115JAA(6). As a consequence of such variation, the tax credit to be
allowed for year one is liable to change. With every change in the amount of tax
payable on book profits and/or tax payable on income computed under the normal
provisions of the Act, the tax credit to be allowed would have to be changed by
the Assessing Officer by passing consequential orders, deriving authority from
section 115JAA(6) of the Act. Thus, the tax credit allowable can be set off by
the assessee while computing advance tax/self-assessment tax payable for years
two to six, limited to the difference between tax payable on income computed
under the normal provisions and tax payable on book profits in each of those
years, as per the assessee’s own computation. Although the right to avail of tax
credit gets crystallised in year one, on payment of tax u/s.115JA and the
set-off thereof, follows statutorily, the amount of credit available and the
amount of set-off to be actually allowed, as in all cases of
deductions/allowances u/s.30/u/s.37, is fluid/inchoate and subject to final
determination are only on adjudication of assessment either u/s.143(1) or
u/s.143(3). The fact that the amount of tax credit to be allowed or to be set
off is not frozen and is ambulatory, does not tax away/destroy the right of the
assessee to the amount of the tax credit.
In the cases before the Supreme Court, it was not in dispute
that the assessees were entitled to set off the MAT credit carried forward from
year one. In fact, the Assessing Officer did set off the MAT credit while
calculating the amount of tax payable for years two to six. However, while
calculating interest payable u/s.234B and u/s.234C, the Assessing Officer
computed the shortfall of tax payable without taking into account the set-off of
MAT credit.
The Supreme Court observed that u/s.234B, ‘assessed tax’
means tax on the total income determined u/s.143(1) or on regular assessment
u/s.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 the omission, on one hand, the MAT credit was
available for set-off for five years u/s.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, the Parliament amended Explanation 1 to section
234B by the Finance Act, 2006, with effect from 1st April, 2007, to provide
along with tax deducted or collected at source, the MAT credit u/s.115JAA also
to be deducted while calculating assessed tax.
The Supreme Court held that any tax paid in
advance/pre-assessed tax paid, can be taken into account in computing tax
payable subject to one caveat, viz., that where the assessee on the basis
of self-computation unilaterally claims set-off or the MAT credit, the assessee
does so at its risk, as in case it is ultimately found that the amount of tax
credit availed of was not lawfully available, the assessee would be exposed to
levy of interest u/s.234B on the shortfall in the payment of advance tax. The
Supreme Court reiterated that it was unable to 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 u/s.234B would be chargeable. The consequence of adopting the case of
the Department would mean that the MAT credit would lapse after five succeeding
assessment years u/s.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 u/s.234B and u/s.234C on the shortfall in the
payment of advance tax, despite existence of the MAT credit standing to the
account of the assessee.
