THE COMMISSIONER OF INCOME TAX vs. M/S PRAKASH LEASING LTD

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ITA/764/2007HC KarnatakaKAHC01049648200711 February 2014Bench: B.MANOHAR,DILIP B.BHOSALE9 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the substantial questions of law formulated in the appeal are covered by the Supreme Court judgment in CIT v. Tulsyan NEC Ltd. and the Division Bench judgment of the Karnataka High Court in CIT v. Deccan Creations Pvt. Ltd. The Court noted that the Supreme Court, in Tulsyan NEC Ltd., observed that the definition of 'assessed tax' under Section 234B at the relevant time excluded MAT credit, leading to hardship. The amendment to Explanation 1 to Section 234B by the Finance Act, 2006, effective from April 1, 2007, was to include MAT credit. The Court reiterated that it cannot accept the Department's case that would increase the assessee's liability despite existing MAT credit. The Division Bench in Deccan Creations Pvt. Ltd. also held that MAT credit should be given before charging interest under Sections 234B and 234C, relying on the Tulsyan case. The High Court concluded that the issue is fully covered by these judgments, and the substantial questions of law should be answered against the Revenue and in favour of the assessee. The appeal was disposed of accordingly.

What were the facts?

The Revenue (Commissioner of Income-Tax and Assistant Commissioner of Income-Tax) filed an appeal before the High Court of Karnataka against an order dated May 30, 2007, passed by the Income Tax Appellate Tribunal (ITAT), Bangalore Bench. The ITAT had dismissed the Revenue's appeal, thereby confirming the order of the Commissioner of Income-Tax (Appeals). The dispute pertains to the Assessment Year 1998-1999. The core of the dispute revolves around the calculation of interest under Sections 234B and 234C of the Income Tax Act, 1961, specifically whether Minimum Alternate Tax (MAT) credit should be allowed before levying such interest. The amount in dispute is not explicitly stated.

What were the issues?

1. Whether the Appellate Authorities were correct in holding that MAT-CREDIT should be allowed before levying interest under Sections 234B and 234C of the Income Tax Act, 1961? (Question of law) 2. Whether the Appellate Authorities failed to consider that the Explanation to Sections 234B and 234C of the Act, which defines 'assessed tax', allows for the reduction of tax deducted or collected at source in accordance with Chapter XVII from the assessed tax for the purpose of computing interest under Sections 234B and 234C? (Question of mixed law and fact) Assessee's Contentions: The assessee argued that MAT credit should be allowed before charging interest under Sections 234B and 234C. They relied on the Supreme Court judgment in CIT v. Tulsyan NEC Ltd. (2011) 237 ITR 226 and a Division Bench judgment of the Karnataka High Court in ITA No.104/2007 (CIT v. Deccan Creations Pvt. Ltd.). Revenue's Contentions: The Revenue argued that the appellate authorities erred in allowing MAT credit before levying interest and that the Explanation to Sections 234B and 234C should be considered in a manner that does not allow for such pre-computation of interest. The judgment records no specific arguments made by the Revenue beyond what is implied by their appeal.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 234B,Section 234C,Section 115JAA,Section 143(1),Section 143(3)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE 11TH DAY OF FEBRUARY 2014

PRESENT

THE HON'BLE MR.JUSTICE DILIP B.BHOSALE

AND

THE HON'BLE MR.JUSTICE B.MANOHAR

ITA NO.764/2007

BETWEEN:

1.

The Commissioner of Income-Tax, C.R.Building, Queens Road, Bangalore.

2.

The Assistant Commissioner of Income-Tax, Circle -12 (2), C.R. Building, Queens Road, Bangalore.

…Appellants

(By Sri.K.V.Aravind, Advocate)

AND:

M/s.Prakash Leasing Ltd., No.7(49), 2nd Floor, Kodava Samaja Building, 1st Main, Vasanth Nagar, Bangalore – 5..

…. Respondent

(By Sri.S.Parthasarathi, Advocate a/w Sri.Mallaharao.K., Advocate)

This ITA is filed under Sec.260-A of Income Tax Act 1961, arising out of Order dated 30/05/2007 passed in ITA No.1387/Bang/2005, for the Assessment Year 1998-1999, praying that this Hon'ble Court may be pleased to:

i. formulate the substantial questions of law stated therein,

ii. allow the appeal and set aside the Order passed by the ITAT, Bangalore in ITA No.1387/Bang/2005 dated 30/05/2007 confirming the order of the Appellate Commissioner and confirm the order passed by the Assistant Commissioner of Income Tax, Circle-12(2), Bangalore, in the interest of justice and equity.

This appeal coming on for hearing this day, B.MANOHAR.J., delivered the following:

J U D G M E N T

This appeal is filed by the Revenue under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) being aggrieved by the order dated 30th May 2007 made in ITA No.1387/B/2005 passed by the Income Tax Appellate Tribunal, Bangalore Bench ‘A’ (for short ‘the Tribunal’) dismissing the appeal filed by the Revenue, confirming the order passed by the Commissioner of Income-Tax (Appeals)-III, for the assessment year 1998-99.

2.

The above appeal was admitted for considering the following substantial question of law:

1.

Whether the Appellate Authorities were right in holding that MAT-CREDIT should be allowed first before levy of interest under Section 234B & 234C of the Act? ”

2.

Whether the Appellate Authorities failed to take into consideration that the Explanation to Section 234B & 234C of the Act which defines that assessed tax as per which the amount of tax deducted or collected at source in accordance with the provisions of Chapter-

XVII could be reduced from the assessed tax for the purpose of computation of interest under Section 234B & 234C of the Act? ”

3.

The Advocate appearing for the Revenue as well as the respondent-assessee submitted that the substantial question of law formulated in this appeal is covered by the judgment of the Hon’ble Supreme Court reported in

(2011) 237 ITR 226 in the case of COMMISSIONER OF INCOME-TAX v/s TULSYAN NEC LTD., and the judgment of Division Bench of this Court in ITA No.104/2007 (COMMISSIONER OF INCOME-TAX v/s DECCAN CREATIONS PVT. LTD. ) decided on 31-01-2011.

4.

We have perused the said judgments. The Hon’ble Supreme Court while dealing with the issue “as to how the advance tax has to be collected when the company has MAT CREDIT”, the Hon’ble Supreme Court in paragraphs 11 and 12 made following observations:

“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 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 234C 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.”

5.

Further, the Division Bench of this Court in the judgment referred to above held that the MAT CREDIT should be given before charging interest under Section 243B and 243C of the Act relying upon the judgment of the Hon’ble Supreme Court in TULSYAN case, which reads as under:

“In view of the aforesaid discussion and the law laid down by the Apex Court, it is clear from Explanation-I which was amended with effect from 01.04.2007, as there was no specific words excluding the MAT credit, the position was the same. It is because of the stand taken by the Department in refusing to give that credit, the Parliament had to step in and has expressly provided what it intended to be by way a proviso. Therefore, when once this benefit is confirmed from 01.04.2007, when Section 115JAA was introduced, the legal position is the same and the Explanation introduced by Finance Act, 2006, which came into effect from 01.04.2007, is only clarificatory. Therefore, the condition is not applicable for the assessee for the period prior to 01.04.2007 and it is rightly rejected by both the appellate authorities.”

6.

The issue raised in this appeal is fully covered by the judgments referred to above. In view of that the substantial questions of law formulated by this Court

deserve to be answered against the Revenue and in favour of the assessee.

7.

Accordingly, the appeal is disposed of and the substantial questions of law are answered in favour of the assessee and against the Revenue.

Sd/-

JUDGE

Sd/-

JUDGE

mpk/-*

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