THE COMMISSIONER OF INCOME TAX vs. NOKIA INDIA LTD.

* THE HIGH COURT OF DELHI AT NEW DELHI

Judgment delivered on 06.02.2009

+ ITA 402/2005

COMMISSIONER OF INCOME TAX … Appellant

- versus –

M/S JINDAL EXPORTS LIMITED

... Respondent

WITH

+ ITA 1474/2006

COMMISSIONER OF INCOME TAX … Appellant

- versus –

M/S NESTLE INDIA LIMITED

... Respondent

AND

+ ITA 708/2007

COMMISSIONER OF INCOME TAX … Appellant

- versus –

BRIJBASI ART PRESS LIMITED

... Respondent

WITH

+ ITA 719/2007 2009:DHC:434-DB

- versus –

BIOSEED RESEARCH (INDIA) PVT LTD ... Respondent

AND

+ ITA 791/2007

COMMISSIONER OF INCOME TAX … Appellant

- versus –

ALLIED STRIPS LIMITED

... Respondent

AND

+ ITA 829/2007

COMMISSIONER OF INCOME TAX … Appellant

- versus –

CONTINENTAL PACKAGING PVT. LIMITED ... Respondent

AND

+ ITA 907/2007

THE COMMISSIONER OF INCOME TAX-V … Appellant

- versus –

NIS SPARTA LIMITED

... Respondent

AND

+ ITA 914/2007

THE COMMISSIONER OF INCOME TAX-V … Appellant

- versus –

2009:DHC:434-DB

AND

+ ITA 969/2007

COMMISSIONER OF INCOME TAX-II … Appellant

- versus –

MITSUBISHI CORPORATION INDIA (P) LTD ... Respondent

AND

+ ITA 986/2007

THE COMMISSIONER OF INCOME TAX-V … Appellant

- versus –

NEGOLICE INDIA PRIVATE LIMITED ... Respondent

AND + ITA 992/2007

COMMISSIONER OF INCOME TAX … Appellant

- versus –

CADENCE DESIGN SYSTEMS (I) PVT LTD ... Respondent

AND

+ ITA 1063/2007

THE COMMISSIONER OF INCOME TAX-V … Appellant

- versus –

OCL INDIA LIMITED

... Respondent

AND

+ ITA 1350/2007

2009:DHC:434-DB

- versus –

E I DUPONT INDIA LIMITED

... Respondent

AND

+ ITA 271/2008

COMMISSIONER OF INCOME TAX … Appellant

- versus –

M/S INSILCO LIMITED

... Respondent

AND

+ ITA 272/2008

COMMISSIONER OF INCOME TAX … Appellant

- versus –

INTERNATIONAL PRINT-O-PACK LTD ... Respondent

AND

+ ITA 295/2008

COMMISSIONER OF INCOME TAX … Appellant

- versus –

INTERNATIONAL PRINT-O-PACK LIMITED ... Respondent

AND

+ ITA 344/2008

COMMISSIONER OF INCOME TAX … Appellant

- versus –

INDRAPRASTHA MEDICAL 2009:DHC:434-DB

AND

+ ITA 407/2008

COMMISSIONER OF INCOME TAX-II … Appellant

- versus –

LEROY SOMER & CONTROLS (I) PVT LTD ... Respondent

AND

+ ITA 453/2008

COMMISSIONER OF INCOME TAX-I … Appellant

- versus –

C.J. INTERNATIONAL HOTELS LIMITED ... Respondent

AND

+ ITA 456/2008

COMMISSIONER OF INCOME TAX … Appellant

- versus –

ANANT RAJ INDUSTRIES PVT LIMITED ... Respondent

AND

+ ITA 462/2008

COMMISSIONER OF INCOME TAX … Appellant

- versus –

ANANT RAJ INDUSTRIES PVT LIMITED ... Respondent

AND

+ ITA 476/2008 2009:DHC:434-DB

- versus –

AJANTA OFFSET & PACKAGING LIMITED ... Respondent

AND + ITA 477/2008

COMMISSIONER OF INCOME TAX … Appellant

- versus –

IMI NORGREN HERION PVT. LIMITED ... Respondent

AND

+ ITA 546/2008

COMMISSIONER OF INCOME TAX … Appellant

- versus –

NEHRU PLACE HOTELS LIMITED ... Respondent

AND

+ ITA 701/2008

COMMISSIONER OF INCOME TAX … Appellant

- versus –

SAMTEL COLOUR LIMITED

... Respondent

AND + ITA 801/2008

COMMISSIONER OF INCOME TAX … Appellant

- versus –

COSMO FILMS LIMITED

... Respondent

2009:DHC:434-DB

+ ITA 802/2008

THE COMMISSIONER OF INCOME TAX … Appellant

- versus –

M/S SURYA ROSHNI LIMITED

... Respondent

AND + ITA 893/2008

COMMISSIONER OF INCOME TAX … Appellant

- versus –

SAGE METALS LIMITED

... Respondent

AND + ITA 989/2008

COMMISSIONER OF INCOME TAX … Appellant

- versus –

INDIAN SUGAR EXIM CORPORATION LTD ... Respondent

Advocates who appeared in this case: For the Appellants : Mr R D Jolly with Ms. Rani Kiyala[in ITA Nos. 596/2005, 969/2007, 407/2008, 546/2008] 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 Respondents : 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, 2009:DHC:434-DB

Mr C.S. Aggarwal, Sr. Advocate with Mr Prakash Kumar and Mr Ravi Pratap Mall[in ITA Nos. 402/2005, 802/2008 and 989/2008 Mr Satyen Sethi and Mr Johnson Bara [in ITA Nos. 708/2007, 1350/2007, 801/2008] Mr Karan Khanna in [ITA Nos. 456/2008 and 462/2008] Mr S. Nanda Kumar and Mr Achin Goel [in ITA No. 992/07] Mr R.M. Mehta [in ITA No. 1063/2007] Mr Rajesh Mahna and Mr Ramanand Roy in ITA No.791/07

CORAM:- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON’BLE MR JUSTICE RAJIV SHAKDHER

YES

YES

Question A: Whether the Income Tax Appellate Tribunal was correct in law in holding that rectification could not be made by the Assessing Officer under Section 154 of the Income Tax Act, 1961 as the issue regarding charging of interest under Section 234-B of the Act without giving set off of MAT credit available to the Assessee was highly debatable ?

Question B: Whether the Income Tax Appellate Tribunal was correct in law in holding that credit of tax paid under Section 115-JAA can be given before computing interest under Section 234C of the Income Tax Act, 1961 ? 2009:DHC:434-DB

Rival Contentions – Summary: 3. All the appeals are in respect of assessment years prior to the amendments to Explanation 1 after section 234B(1) and to the Explanation after section 234C(1) of the Income Tax Act, 1961 (hereinafter referred to as ―the said Act‖) by virtue of the Finance Act, 2006, w.e.f. 01.04.2007. 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 2009:DHC:434-DB

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.

Rival contentions – in detail:- Contentions on behalf of the Revenue 5. Broadly speaking, these were the submissions of the learned counsel on both sides. However, before we embark upon a discussion of the issues at hand we feel that it would be appropriate if the contentions of the learned counsel are set out in somewhat greater detail. It was submitted on behalf of the appellant/revenue that section 234B provides for charging of interest for defaults in payment of 2009:DHC:434-DB

section 208, fails to pay such tax or where the advance tax paid by the assessee under section 210 is less than 90% of the ―assessed tax‖ then such assessee shall be liable to pay interest at the prescribed rate on the ―assessed tax‖ or on the difference between the ―assessed tax‖ and the advance tax paid, as the case may be. It was submitted that Explanation 1 after section 234(1) defines the term ―assessed tax‖ to mean the tax determined under section 143(1) or upon a regular assessment as reduced by the Tax Deducted at Source (TDS). The said Explanation 1, prior to its amendment with effect from 01.04.2007, did not have any reference to MAT credit. Thus, in order to arrive at the figure of ―assessed tax‖, the only permissible deduction from the tax computed on total income, as determined under section 143(1) or upon a regular assessment, was the amount of TDS.

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 figure of ―assessed tax‖ which formed the basis of the charge of interest. A similar amendment was brought about in the Explanation after 234C(1).

38.1 Under the existing provisions of sections 234A and 234B an assessee is held liable to pay simple interest at the rate of one per cent for every month or part of a month for default in furnishing the return of income and for default in payment of advance tax respectively. Similarly under the existing provisions of section 234C in respect of deferment of advance tax, the assessee is held liable to pay simple interest at the rate of one per cent per month and if there is shortfall of tax paid before the 15th March, one per cent on the amount of the shortfall. While computing interest, credit for advance tax paid and tax deducted or collected at source is allowed. MAT credit under section 115JAA, relief of tax under section 90 and deduction from income- tax payable under section 91 are not taken into account while charging interest under the aforesaid sections. Under section 140A also, interest is required to be paid for any delay in furnishing the return or for any default or delay in 2009:DHC:434-DB

38.2 It has been represented from several quarters that the tax credit allowed under section 115JAA is no different from the tax paid in advance and credit for having paid the minimum alternate tax should be allowed against the tax liability determined on assessment. On a similar analogy, credit for taxes paid in a country outside India has also been recommended to be allowed so that interest is not charged on an amount that equals to the taxes paid outside India. Accordingly, for calculating interest under sections 234A, 234B and 234C, the Finance Act, 2006 has provided for

(a) reduction of tax credit allowed to be set off under section 115JAA from the tax on the total income; and (b) reduction of the amount of relief of tax allowed under section 90 and 90A and 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.‖

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 of TDS is to be reduced for arriving at the figure of advance tax. A reference was then made to section 140A which lays down the procedure for payment and computation of self-assessment tax. This, too, according to the learned counsel for the revenue, speaks of reduction of only the TDS amount from the tax payable. It was submitted that whether it is the computation of advance tax or self- assessment tax, the only reduction permissible is of the TDS amount and there is no mention of MAT credit.

Mahindra Finance Ltd: 265 ITR 119 (Bom) for explaining the scope of sections 234B and 234C. The Bombay High Court observed that:

―Section 234B and section 234C fall under Chapter XVII of the Income-tax Act which deals with collection and recovery. Chapter XVII-F deals with interest chargeable in certain cases. Section 234B along with section 234A and section 234C were inserted by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. 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. 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.‖

―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.

interest under section 234B or 234C is not originally charged, the same can be corrected in proceedings under section 154 of the said Act. Reliance was placed by the learned counsel for the revenue on CIT v. Malayala Manorama Co. Ltd: 253 ITR 791 (Ker) and Nicco Corporation Ltd v. CIT: 272 ITR 58 (Cal).

Contentions on behalf of the Respondents/Assessees 16. Mr C.S. Aggarwal, the learned senior counsel who appeared for the respondent/assessee in ITA 402/2005, submitted that for an assessee to be liable to pay interest under section 234B, the assessee must first be liable to pay advance tax. The liability to pay advance tax, in turn, arises under section 208 if the advance tax payable by the assessee is Rs 5000/- or more. It was further contended that the ―advance tax payable‖ is to be computed in accordance with section 209(1)(a) whereunder the assessee is required to estimate its income and calculate the tax payable thereon and thereafter to reduce from it the TDS amount. It was further contended that by virtue of section 115JAA(4) the assessee is entitled to set off MAT credit at the stage at which the tax has become payable. Consequently, it was submitted, that the assessee is entitled to take into account the tax credit (MAT credit) available to it under section 115JAA when it computes the tax payable under section 209 of the said Act. It was submitted that the tax payable 2009:DHC:434-DB

income less the Tax credit available for set off. It was therefore contended that the liability to pay interest under section 234B can only be computed after the liability to pay advance tax is calculated, which, in turn, depends on the tax payable on the current income. Such tax payable has to be computed after setting of the Tax Credit available under section 115JAA. Thus, interest under section 234B can only be computed after the tax credit under section 115JAA is set off against the tax payable on the current income.

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 2009:DHC:434-DB

case means the tax payable on the basis of normal computation of total income of the company.

(2) MAT credit will be allowed carry forward facility for a period of five assessment years immediately succeeding the assessment year in which MAT is paid. Unabsorbed MAT credit will be allowed to be accumulated subject to the five-year carry- forward limit.

(3) In the assessment year when regular tax becomes payable, the difference between the regular tax and the tax computed under MAT for that year will be set off against the MAT credit available.

(4) The credit allowed will not bear any interest.

45.5 The rationale for allowing credit in respect of taxes paid under MAT in the aforesaid manner is that a company should always pay a minimum tax. The above method will ensure that the company will always pay a minimum tax even while offsetting the MAT credit against the regular tax.

45.6 The amendment will take effect from the 1st April, 1997, and will accordingly, apply in relation to the assessment year 1997-98 and subsequent years.‖

calculating the interest. He submitted further that the expression ―or otherwise‖ was wide enough to take within its sweep the available MAT credit and since the MAT credit was available at the beginning of the year, there would be no question of computing any interest on it.

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, i.e., tax paid before its due date. The matter might have been otherwise, had there been an exhaustive definition of the said provision. The scheme of payment of the advance tax is that it will have to be paid having regard to the anticipated income on September 15, December 15 and March 15. A person, who does not pay the entire tax by way of advance tax, may deposit the balance amount of tax along his return.

In the instant case, tax has been paid although no return has been filed. The Revenue, therefore, has not suffered any monetary loss.

We, therefore, are of the opinion that in this case if the doctrine of purposive construction is not taken recourse to, the same would betray the purport and object of the Act. If the aforementioned construction is not resorted to, we will have to read a penal provision in section 234A, which was not and could not have been the object of the law for the reasons stated hereinbefore.

It is further well known that in case of doubt or dispute, taxation statute must be liberally construed.

We, therefore, are not in a position to assign stringent meaning to the words ―advance tax‖ ….‖

234B is by way of compensation. If the revenue’s interpretation is accepted, charging of interest under section 234B would be permissible even when the revenue has suffered no loss and the occasion for compensation itself does not arise.

He submitted that the absurdity of such a contention was obvious: the department expects an assessee to first pay advance tax to the extent of MAT credit already available and then claim refund of the same amount.

Since the tax due had already been paid which was not less than the tax payable on the returned income which was accepted, the question of levy of interest does not arise..‖ 2009:DHC:434-DB

In this background, Mr Syali submitted that as the tax due stood paid because of the available tax credit, there was no question of charging interest under sections 234B or 234C of the said Act.

favour of the assessee should be preferred. For this proposition, reliance was placed on UOI v. Onkar S. Kanwar: 258 ITR 761 (SC) and CIT v. Kulu Valley Transport Co. P. Ltd: 77 ITR 518.

sum representing MAT credit is available with the government even prior to the commencement of the relevant previous year. Consequently, MAT credit cannot be treated as anything but tax paid in advance and is, therefore, to be set off against the tax payable before computing interest under sections 234A, 234B and 234C of the said act.

extent of the availability of MAT credit, monies are held by the government and the assessee cannot be charged interest on the shortfall of the tax, excluding the amount of MAT credit, when, in fact, such credit is set off against the tax payable for the relevant previous year. He submitted that two different criteria cannot be adopted, one, for calculating the tax payable and the other for computing the amount of interest payable by an assessee on the alleged shortfall of taxes.

―Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational 2009:DHC:434-DB

provision is an attempt to discover the intention 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 construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction…‖ (underlining added)

2009:DHC:434-DB

2009:DHC:434-DB

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

Rejoinder on behalf of the Revenue 37. In rejoinder, the learned counsel for the revenue/appellant submitted that the case of Dr Prannoy Roy (supra) was not applicable as the tax had been paid in the year in question. It was also contended that availability of MAT credit could not be equated to advance tax actually paid. The case of refunds was referred to. The learned counsel submitted that each year is treated as an independent year and it cannot be assumed that if there is refund for an earlier year, advance tax to that 2009:DHC:434-DB

with which we agree, is that while refunds cannot be set off in a subsequent year as there is no provision for it, MAT credit has to be set off as a matter of right in view of the provisions of section 115JAA itself.

Analysis and discussion: Sections 234B, 208, 143(1), 140A et al 38. Having set out the contours of the controversy at hand, it is time for us to examine the provisions. Section 234B of the said Act as it stood prior to the amendments introduced by the Finance Act, 2006, to the extent relevant, is as follows:- “234B. Interest for defaults in payment of advance tax.--(1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety percent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one and one-half per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub- section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.

Explanation 1.—In this section, “assessed tax” means the tax on the total income determined under sub-section (1) of section 143 or on regular assessment 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 2009:DHC:434-DB

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 supplied)

liability to pay interest for this default is fixed at the prescribed rate on the difference between the tax paid and the ―assessed tax‖. The expression ―assessed tax‖ is defined in Explanation 1 after section 234B(1) [as it stood prior to the amendment introduced by the Finance Act,2006] to mean the ―tax on the total income‖ determined under sub- section (1) of section 143 or on regular assessment 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.

“140A. Self-assessment.--(1) Where any tax is payable on the basis of any return required to be furnished under section 139 or section 142 or section 148 or, as the case may be, section 158BC, after taking into account the amount of tax, if any, already paid under any provision of this Act, the assessee shall be liable to pay such tax, together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest.‖

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 or the set off in respect of the available MAT credit is implicit in the meaning of ―such tax‖. However, after the amendment introduced by the Finance Act, 2006, this has been made explicit. This would be immediately clear by reading the section 140A(1) as it stands today, that is, after the said amendment:- “140A. Self-assessment.--(1) Where any tax is payable on the basis of any return required to be furnished under section 139 or section 142 or section 148 or section 153A or, as the case may be, section 158BC, after taking into account,— (i) the amount of tax, if any, already paid under any provision of this Act ; (ii) any tax deducted or collected at source ; (iii) any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India ; (iv) any relief of tax claimed under section 90A 2009:DHC:434-DB

territory outside India referred to in that section ; and (v) any tax credit claimed to be set off in accordance with the provisions of section 115JAA, the assessee shall be liable to pay such tax, together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest.‖

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 which has been carried forward and is available for set off under the provisions of section 115JAA in a subsequent year would qualify as tax paid ―otherwise‖. Since, it is available at the beginning of the subsequent year, it is obvious that such tax credit would be tax paid by the assessee before the date of determination of total income under section 143(1) or completion of regular assessment.

tax ought to be allowed against the tax liability determined on assessment. This circumstance is another indicator that the amendments were clarificatory in nature.

Sections 115JA and 115JAA 46. The relevant portions of sections 115JA and 115JAA are as follows:- ―115JA. Deemed income relating to certain companies.--(1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, 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.

2009:DHC:434-DB

―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-section (1).

(3) The amount of tax credit determined under sub- section (2) shall be carried forward and set off in accordance with the provisions of sub-section (4) and sub-section (5) but such carry forward shall not be allowed beyond the fifth assessment year immediately succeeding the assessment year in which tax credit becomes allowable under sub-section (1).

(4) The tax credit shall be allowed set-off in a year when tax becomes payable on the total income computed in accordance with the provisions of this Act other than section 115JA.

(5) Set off in respect of brought forward tax credit shall be allowed for any assessment year to the extent of the difference between the tax on his total income and the tax which would have been payable under the provisions of sub-section (1) of section 115JA for that assessment year.

(6) Where as a result of an order under sub-section (1) or sub-section (3) of section 143, section 144, section 147, section 154, section 155, sub-section (4) of section 245D, section 250, section 254, section 260, section 262, section 263 or section 264, the amount of tax payable under this Act is reduced or 2009:DHC:434-DB

credit allowed under this section shall also be increased or reduced accordingly.‖

30% of its Book Profit in year 0 = Y0

If X0 is less than Y0, implying that the total income as computed under the normal provisions of the Act is less than 30% of the book profit, then, because of section 115JA(1), Y0 (i.e., 30% of the book profit) shall be deemed to be the total income of the company assessee which would be chargeable to tax. If the rate of tax in year 0 is t0%, the tax payable (TJA0) on this deemed total income by the company assessee in respect of year 0 would be t0/100 x Y0. So, we see that the factum 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. 2009:DHC:434-DB

Assume that: Total income in year 1 = X1 30% of book profit in year 1 = Y1 X1 > Y1 [therefore, set off is permissible] 2009:DHC:434-DB

Then: T1 = t1/100 x X1;

TJA1 = t1/100 x Y1 T1 > TJA1 [since, X1 > Y1] Set off permissible in year 1 = T1 – TJA1 But, actual set off would depend on whether (T1 – TJA1) is greater than or less than or equal to TC0. There are these possibilities :-

(i) Set off (S1) = (T1 – TJA1) – TC0 [where, T1 – TJA1 > TC0 ]

(ii) Set off (S1) = T1 – TJA1 [where, T1 – TJA1 < TC0 ] [the balance credit (TC0 – [T1 – TJA1]) shall be permitted to be carried forward subject to the five year limit in section 115JAA(5)]

(iii) Set off (S1) = TC0

[where, T1 – TJA1 = TC0]

[i.e., the entire tax credit is set off]

2009:DHC:434-DB

Interest under sections 234A, 234B and 234C is Compensatory or penal?

provisions of the Act such as sections 234A, 234B and 234C. The scheme of the Act and the nature of these provisions reveal that they are compensatory and not penal. Under these provisions interest is chargeable by way of compensation and not by way of penalty. This is also clear from the fact that none of the safe-guards such as stipulation of opportunity of hearing and the like as are necessary accompaniments of penal provisions are to be found in these sections. In any event, this issue is now beyond the pale of controversy in view of the Supreme Court decision in Dr Prannoy Roy (supra), wherein it accepted this Court’s conclusion that interest charged under section 234A of the Act is not a penalty and that the interest is levied by way of compensation to compensate the revenue in order to avoid it from being deprived of the payment of tax on the due date. This, in our view, would apply with equal vigour to sections 234B and 234C. In the said decision the Supreme Court also observed that ―[s]ince the tax due had already been paid which was not less than the tax payable on the returned income which was accepted, the question of levy of interest does not arise.‖ The learned counsel for the revenue referred to this sentence and submitted that in Dr Prannoy Roy (supra) the tax had been paid but the return was not filed and therefore that case stood on a different footing. We are not impressed by this line of thought. What the Supreme Court decided was that the provisions of section 234A were compensatory in nature and since 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.

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 the said Act began with the word ―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. 2009:DHC:434-DB

Conclusions: 55. This discussion leads us to the conclusion that interest under sections 234B and 234C is to be charged after the tax credit (MAT credit) available under section 115JAA is set off against tax payable on the total income of the year in question. This being the position and rival stands taken by the revenue and the respondents as well as the decisions of benches of the Tribunal [92ITD 441 (Chandigarh) and 83 TTJ 427 (Chennai)] do indicate that the Tribunal was correct in law in holding that rectification could not be made by the Assessing Officer under Section 154 of the Income Tax Act, 1961 as the issue regarding charging of interest under Section 234-B of the Act without giving set off of MAT credit available to the Assessee was highly debatable. Consequently, we answer both the questions against the revenue and in favour of the respondents / assessees. The appeals are dismissed. The parties are left to bear their own costs.

BADAR DURREZ AHMED, J

RAJIV SHAKDHER, J February 06, 2009 HJ 2009:DHC:434-DB