C I T ALWAR vs. M/S GILLATE INDIA LTD

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 626 / 2008 C I T Alwar ----Appellant Versus M/S Gillate India Ltd ----Respondent D.B. Income Tax Appeal No. 291 / 2008 C I T Alwar ----Appellant Versus M/S Gillate India Ltd ----Respondent D.B. Income Tax Appeal No. 873 / 2008 C I T Alwar ----Appellant Versus M/S Gillate India Ltd ----Respondent _____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain For Respondent(s) : Mr. Sanjay Jhanwar _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 16/05/2017 In all these appeals, identical question of law and facts are involved and as they relate to the same assessee, they are decided by the common judgment.

(2 of 6) [ITA-626/2008] 1. By way of these appeals, the appellants have assailed the judgment and order of the Tribunal whereby Tribunal has party allowed the appeal of the assessee and dismissed the appeal filed by the department. 2. This court while admitting the appeals framed following substantial question of law:- Appeal No.626/2008 admitted on 20.1.2009 “(i) Whether on the facts and circumstances of the case and in law, the Tribunal was justified in holding that first stage of tax payable is advance tax and assesee is entitled to set off the MAT credit at this stage whereas total income is computable only after closing of the financial year, not at the state of payment of advance tax therefore set off credit for MAT to be allowed after allowing credit of advance tax u/s 219 of IT Act, 1961? Appeal No. 291 / 2008 admitted on 6.11.2008 “(i) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that first stage of tax payable is advance tax and assessee is entitled to set off the MAT credit at this stage whereas total income is computable only after closing of the financial year, not at the stage of payment of advance tax therefore set off of credit for MAT to be allowed after allowing credit of advance tax u/s 219 of IT Act, 1961? (ii) Whether the Minimum Alternate Tax is at par with Advance tax on TDS/TCS or regular tax as envisaged in the Act? (iii) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the tax credit available to the assessee u/s 115JAA reduces the liability of assessed tax and in turn reduces the liability towards advance tax also even when the definition of “Assessed Tax” has been amended by Finance Act, 2006 applicable w.e.f. 1.4.2007? Appeal No. 873 / 2008 admitted on 10.3.2010 “(1) Whether the findings of the Tribunal are

(3 of 6) [ITA-626/2008] perverse in allowing the foreign exchange fluctuation loss specifically when at the end of the financial year, the same was neither crystalised, nor ascertained, quantified and paid? (2) Whether under the facts and circumstances of the case and in law the Tribunal was justified in allowing the fluctuation loss on the basis of Accounting Standard and Mercantile System of Accounting specifically in the absence of any material on record?” 3. Counsel for the respondent has relied upon the decision of Supreme Court in Commissioner of Income Tax vs. Tulsyan Nec Ltd. reported in (2011) 330 ITR 226 wherein it has been held as under:- 9. 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. Although Section 209(1)(d) does not make any specific provision either before or after the amendments carried out by the Finance Act, 2006 to the effect that an Assessee is

(4 of 6) [ITA-626/2008] entitled to set off the tax credit that would be available in terms of Section 115JAA(1) while computing the quantum of advance tax that is to be paid it must follow that an Assessee would be entitled to do so otherwise it results in absurdity, viz, that an Assessee pays advance tax on the footing that it is not entitled (when in fact it is so entitled as discussed above) to the credit and thereafter claims a refund of such advance tax paid as a consequence of the set off. Moreover, when an A.O. makes an intimation under Section 143(1) he accepts the return filed by the Assessee to which the A.O. may make an adjustment and consequently makes a demand or refund. Section 143(1) provides that where a return is made under Section 139 and if any tax or interest is found due on the basis of such return after adjustment of any TDS, any advance tax, any tax paid on self assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to provisions of Sub-section (2), an intimation will be sent to the Assessee specifying the amount so payable and such intimation shall be deemed to be a notice of demand under Section 156 and all the provisions of the Act shall apply thereto. This section itself makes it clear that whilst the A.O. determines the tax payable he has to give credit for all taxes paid either by way of deduction at source, advance tax, self assessment tax or tax paid otherwise which would include or which cannot exclude tax credit under Section 115JAA(1). However, the question before us is of priority of adjustment for the MAT credit. In this connection, it is important to bear in mind that the credit allowed is the excess of the normal tax liability over MAT liability in the subsequent years. In this connection the following illustration on MAT credit be seen: Particulars Amount (Rs.) Year 1 115JB liability 1,600 Normal tax liability 400 Credit which can be carried forward-I 1200 Year 2 115JB liability (A) 600 Normal tax liability (B) 1400

(5 of 6) [ITA-626/2008] Tax liability= (B) (since B is higher than A) 1400 MAT credit available for set off in year 2 [(A)-(B)]-II 800 Net tax liability for year 2 (B-II) 600 MAT credit to be carried forward (I-II) 400 11. 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. 12. 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

(6 of 6) [ITA-626/2008] 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. 3.1 In decision of Gujarat High Court in The Commissioner of Income Tax-I vs. Alembic Limited Tax Appeal No.1099/2006 decided on 15.7.2016 wherein it has been held as under:- “[F] Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing to adjust MAT credit before calculating interest under Section 234B and 234C,

despite

the

specific machinery provided in these provisions not admitting adjustment of MAT credit before the computation of these interest and despite specific method of computation given in form No. 1 prescribed under Rule 12(1)(a) read with Section 139(1) having the effect of declaring the relevant rule as ultra vires, which is beyond the authority of the Tribunal, a creature of Income Tax Act ? “ 4. Counsel for the appellant was not able to come out of the Supreme Court judgment. Therefore, the issue is answered in favour of the assessee and against the department. All these appeals are dismissed. A copy of this judgment be placed in each file. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Brijesh 263, 54 & 55.