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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N. V. VASUDEVAN & SHRI B. R. BASKARAN
Per N. V. Vasudevan, Vice President
This an appeal by the assesseee against the order dated 29.1.2016 of CIT(A)-4, Bengaluru, relating to Assessment Year 2011-12. The grounds of appeal raised by the assessee in this appeal reads as follows:
(i) General The learned CIT(A) has erred, in law, and on facts, in confirming the 1. order issued by the Additional Commissioner of Income-tax, Range — 5, Bangalore ("the learned AO") under Section 143(3) of the Act. The Appellant craves that the order of the learned CIT(A), inasmuch as it confirms the order of the learned AO, being unsustainable and bad in law, be set aside. The order of the learned CIT(A), in so far as it is prejudicial to the 2. interests of the Appellant, is based on incorrect appreciation of facts and interpretation of law and is, therefore, bad in law and on facts .
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On the facts and in the circumstances of the case, the learned CIT(A) has 3. erred in upholding the assessed total income at INR 4,66,85,833 as against the income of INR 1,17,94,350 as returned by the Appellant. (II) Disallowance of interest expenditure amounting to 1NR 8,85,303 under the provisions of Section 40A(2)(a) of the Act The learned CIT(A) has erred in upholding the disallowance of 4. interest aggregating to INR 8,85,203, made by the Learned AO on the ground of excessive payment to related parties under the provisions of Section 40A(2)(a) of the Act. The learned CIT(A) has erred in not considering the submissions 5. made by the Appellant, before the learned AO during the assessment proceedings, and before the learned CIT(A), that related loans were taken when the Appellant's business was at its nascent stage and the cost of borrowed capital without any security in respect of such business will not be on par with that of an established business. The learned CIT(A) has erred in not appreciating the fact that the 6. lcans at lower interest rates, have been taken by the Appellant during the subsequent years (viz., FY 2010-11) when the Company had established its business and hence, such interest rate is not comparable to the loans taken when the business was at a nascent stage (viz., FY 2005-06 and FY 2006-07) and also, not representative of the fair market value, as required under Section 40A(2)(a) of the Act. The CIT(A) has erred in not appreciating that the reasonableness of an 7. expenditure needs to be adjudged from the point of view of the businessman, as held in various judicial precedents. Without prejudice to the above, The learned CIT(A) has erred in law 8. and on facts by not appreciating the fact that the recipient of interest has offered the entire amount to tax and suffered tax at maximum marginal rate and acccrdingly, this would be revenue neutral for the tax department, as upheld by the Hon'ble Supreme Court in the case of CIT v. Glaxo Smithkline Asia (P) Limited (2010) 195 Taxman 35 and hence, there was no reason for the Appellant or the recipient to take any undue advantage owing to such payment of interest.
Disallowance of interest expenditure of INR 1,90,06,180 by treating the same as prior period expenses 9. On the facts and in the circumstances of the case, the Learned CIT(A) has erred in upholding the disallowance of interest expenditure aggregating to INR 1,90,06,180, made by the learned AO by considering the same to be prior period expenses. 10. On the facts and in the circumstances of the case, the learned CIT(A) has erred in not appreciating the fact that the rate of interest was agreed to between the parties only during FY 2010-11 and thus, the
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interest liability was determined and crystalized only during Financial Year 2010-11. 11. The learned CIT(A) has erred in law and on facts by not appreciating the fact that such expense, recorded in the books for FY 2010-11, does not satisfy the test of prior period as per the Accounting Standard - 5 (Net profit or loss for the Period, Prior Period Items and Changes in Accounting Policies) issued by the Institute of Chartered Accountants of India. 12. Without prejudice to the above, the learned CIT(A) has erred in law and on facts in upholding the disallowance made by the learned AO to the extent of INR 1,44,10,427 included in the total interest expenditure disallowed as prior period expense, without appreciating - the fact that the taxes on such interest expense were deducted and (a) deposited only in the Financial Year 2010-11; and Accordingly interest expenses, even though pertaining to earlier years, (b) be allowed as a deduction in the Financial Year 2010-11 based on the principles of section 40(a)(ia) of the Act. (III) Disallowance of compensation paid towards early termination of license agreement amounting to INR 1,50,00,000 13. The learned CIT(A) has erred in law and on facts, by upholding the disallowance of compensation of INR 1,50,00,000, paid towards termination of license agreement with M/s Apollo Health and Lifestyle Limited, made by the learned AO, by treating the same as capital expenditure. 14. The learned CIT(A) has erred in confirming the disallowance made by the learned AO by holding that the said expenditure is incurred for terminating capital asset acquired in earlier years without appreciating that the initial license agreement did not result into acquisition of any capital asset. 15. The learned CIT(A) has erred, in law and on facts, by not appreciating the fact that the compensation paid towards early termination of license agreement neither brings into existence any new capital asset for the Appellant nor provides any enduring benefit, in the capital field, to the Appellant. The learned CIT(A) has erred, in law and on facts, by not appreciating 16. the fact that license fee that would have been paid had the termination not taken place, would have been revenue expenditure and accordingly, compensation paid for early termination should also be revenue in nature. Further, the learned (CIT(A) has placed incorrect reliance on certain 17. decisions of the Courts in India including the Supreme Court without appreciating that the subject matter in those cases were in the capital field.
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(IV) Claim of MAT credit under section 115JAA of the Act The learned CIT(A) has erred, in law and on facts, by allowing MAT 18. credit of INR 772,212 (without considering surcharge and cess) against the tax liability (inclusive of surcharge and cess) under normal provisions of the Act thereby resulting in additional tax liability of Rs 82,820 to the Appellant, without appreciating that the provisions of section 115JAA of the Act read with Section 2(43) and Section 4 of the Act requires such credit to be given against total tax liability (inclusive of surcharge and cess) under normal provisions of the Act. The Appellant submits that each of the above grounds is independent and without prejudice to one another. Further, the Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Honourable Tribunal to decide on the appeal in accordance with the law.
Grounds 1 to 3 are general in nature and do not require any specific adjudication. Grounds 4 to 8 and 9 to 12 can be taken up together for adjudication. As far as grounds 4 to 8 are concerned, the facts are that the assessee is a company engaged in the business of rendering services in the field of health care and maternity related services under the brand name “Cloud Nine”. The assessee paid interest on loans availed from one Mr. M. Ramachandra and Dr. Kishore Kumar of Rs.23,49,863/- and Rs.6,01,151/- respectively. The rate of interest paid on this loan was 15% p.a. Both the aforesaid persons were related parties of the assessee within the meaning of section 40A(2)(b) of the Income Tax Act, 1961 (hereinafter called ‘the Act’) and therefore the reasonableness of the payment compared to the fair market rate of interest was required to be judged in terms of Sec.40A(2)(a) of the Act. The AO noticed that the assessee has borrowed loans from other related parties and the rate of interest paid to them were between 10.5% to 12% p.a. The AO therefore considered 10.5% as a fair interest rate that should be paid on loans to related parties and he disallowed interest paid in excess of 10.5% and that resulted in disallowance of Rs.7,04,958/- in the case of interest paid to Shri. M. Ramachandra and Rs.1,80,345/- in respect of interest paid to Dr. Kishore Kumar. The addition as
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made by the AO was confirmed by CIT(A) and the assessee has raised ground No.4 to 8 challenging the aforesaid addition.
As far as ground No.9 to 12 are concerned, the facts are that the assessee borrowed monies from M/s. Scripts and Scrolls India Pvt. Ltd., and Shri. M. Ramachandra in the Financial Years 2006-07 and there have been borrowings and repayments to these parties. The details of which are as follows:
(a) In the case of M/s.Scrips and Scroll Inida Pvt Ltd. The assessee has received loan during the Financial Years 2005-06 (closing balance Rs.1,59,63,000/- Cr), 200607 (closing balance of Rs.8,36,68,000/- Cr), 2007-08(closing balance of Rs.85,68,000/-Cr) and 2008-09 (Nil closing balance amounts squared up), F.Y.2009-10 (assessee company has advanced Rs.25 lakhs i.e., closing balance Rs.25,00,000/- Dr) and during F.Y.2010-11 (assessee company received back advances hence closing balance was Nil). (b)In the case of Sri M.Ramachandra the assessee company had received and repaid loans during the F.Yrs. 2006-07, 2007-08, 2009-10 and 2010-11. During the relevant F.Y. i.e., F.Y.2010-11 the assessee owed around a crore of rupees to Sri M. Ramachandra.
The assessee paid 15% interest for the outstanding amount from Assessment Years 2006-07 to 2010-11 to M/s. Scripts and Scrolls India Pvt. Ltd., and Shri. M. Ramachandra and the sum paid to these 2 parties was (i) Rs.1,44,10,427/- to M/s. Scripts and Scrolls India Pvt. Ltd., and (ii) Rs.45,95,753/- to Shri. M. Ramachandra. Since the aforesaid interest payment related to Assessment Year 2006-07 to 2010-11, the AO took the view that the aforesaid interest payments which were claimed as a deduction by the assessee cannot be allowed in AY 2011-12 as these interest payments did not pertain to the period relevant to Assessment Year 2011-12. The assessee submitted before the AO that when the sums were originally borrowed, the lenders were promised that they will be given a right to participate in the equity capital of the assessee and since this did not materialize, the assessee
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decided to pay interest. It was the plea of the assessee that the decision to pay interest was taken only in the previous year relevant to Assessment Year 2011-12 and therefore the interest liability crystalized only in the previous year relevant to Assessment Year 2011-12 and therefore the interest expenditure claimed should be allowed.
The AO however refused to accept the plea of the assessee on the ground that the expenditure was a prior period expenditure. This resulted in addition of Rs.1,90,06,180/- by way of disallowance of interest. On appeal by the assessee, the CIT(A) confirmed the order of the AO. Against the order of the CIT(A) the Assessee has raised grounds No.9 to 12.
In respect of Grd.No.3 to 8 and Grounds No.9 to 12, the Assessee has filed an application before the Tribunal for admitting additional evidence under Rule 29 of the ITAT Rules, 1963. In the aforesaid application, it has been submitted by the assessee that the following documents (except documents at Sl.No.V to VII which is relevant for ground No.13 to 17, to which we shall refer to while dealing with those grounds) are necessary for adjudication of the dispute raised in Grounds NO.4 to 12 and the Assessee has been able to gather them to establish the claim of the Assessee:
I. Affidavit signed by Mr. M Ramachandra dated 18 June 2018 (enclosed as Annexure 'A') II. Affidavit signed by Mr. Rajagopal Kishore Kumar dated 18 June 2018 (enclosed as Annexure 'B') III. Affidavit signed by Director of M/S Scrips and Scroll India Pvt. Ltd. (enclosed as Annexure 'C') IV. Letter dated 22 October 2009 in connection with reducing the rate of royalty payable to Apollo from 4% p.a to 2% p.a (enclosed herewith as Annexure 'D') V. Minutes of the meeting of Board of Directors of the Appellant Company held on 21 December 2005 (enclosed as Annexure `E')
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VI. Form No. 16A for the fourth quarter of Financial Year 2010- 11 issued by the Appellant to Apollo in connection with termination fee (enclosed as Annexure 'F') VII. Termination agreement entered into with Apollo Health and Lifestyle Limited ("Apollo") (enclosed as Annexure `G') VIII. Loan agreement dated 09 July 2010, in connection with secured loan taken by Appellant from Kotak Mahindra Bank (enclosed as Annexure 'H')
It has been submitted by the Assessee that the minutes of the meeting of Board of Directors of the Assessee Company held on 21 December 2005 (enclosed as Annexure 'A') would evidence the fact that the Assessee decided to take unsecured loans from directors/corporate for which the interest was to be decided at a later date. Thus rate of interest was decided and paid in AY 2011-12. The Affidavit of Mr.Rachandra, Mr.Kishore Kumr and M/S.Scrips and Scrolls India Ltd., was filed to demonstrate that the payees have filed their return of income disclosing the interest received from the Assessee as their income and therefore there is no loss to the revenue. Similar, the Assessee has also sought to rely on the fact that it had raised a secured loan from Kotak Mahindra Bank dated 09 July 2010 (enclosed as Annexure 'B') at the rate of interest of 13.5% with security. The Assessee wants to rely on this document to prove that the interest paid to Directors Mr. M Ramachandra and Mr. Rajagopal Kishore Kumar and M/S Scrips and Scroll India Pvt. Ltd. was with regard to unsecured loan without any security, thus interest rate of 15% cannot be said to be excessive or unreasonable under Section 40A(2)(a). It is the plea of the Assessee that the additional evidence sought to be placed on record now before the Tribunal have direct bearing on the allowability of the interest expenditure. It is the further plea of the Assessee that some of the documents were not available earlier or the Assessee bona fide believed that some of the documents may not relevant to the issues at hand, but in view of allegations/presumptions made in proceedings, it now believes that these might have a bearing in deciding the issues in the present appeal.
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Learned Counsel for the assessee submitted that the aforesaid documents are necessary for the purpose of proper adjudication of the issue that has to be decided in the appeal and has prayed for admission of the additional evidence. Learned DR opposed the prayer for admission of additional evidence. We are, however, of the view that for proper adjudication of the issues raised by the assessee in grounds 4 to 12, the aforesaid documents would have a material bearing. Hence, we admit the all the additional evidence. For example, the loan agreement which is Annexure H to the application for admission of additional evidence is a loan availed by the assessee from Kotak Mahindra Bank @ 13.5% without security which will have a bearing on a decision on grounds 4 to 8 and the invocation of provisions to section 40A(2)(b) of the Act. Similarly, to substantiate the case of the assessee that when the loans were originally received from Shri. M. Ramachandra, there was no rate of interest agreed is also sought to be filed as Annexure E which is the minutes of the Board Meeting held on 21.5.2005. The evidence has also been filed in the form of Affidavit of M/s. Scripts and Scrolls India Pvt. Ltd., and Mr. M. Ramachandra and Dr. Kishore Kumar to show that they have offered the interest income received from the assessee to tax in the return of income and that there is no loss to the Revenue.
After considering the rival submissions, we are of the view that the issue sought to be raised in grounds 4 to 8 which is a disallowance under section 40A(2)(b) of the Act and the issue sought to be raised in grounds 9 to 12 with regard to the question whether interest expenditure of Rs.1,90,06,180/- crystallized as an liability to the assessee during the previous year relevant to Assessment Year 2011-12 requires fresh consideration by the AO in the light of the additional evidence filed before us by the assessee. We, therefore, remand the aforesaid two issues to the AO for fresh consideration, after affording opportunity of being heard to the assessee.
The next issue that requires consideration is with regard to sum of Rs.1.5 crores which was disallowed by the AO on the ground that the said expenditure was
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in the nature of capital expenditure. This issue is sought to be raised by the assessee in grounds 13 to 15 of the grounds of appeal filed before the Tribunal. The factual background with regard to this issue is that on 18 January, 2006, the Assessee had entered into a license agreement with Apollo Health and Lifestyle Limited ("Apollo") as per which Apollo had licensed the brand - "Cradle" to the Assessee for a period of 9 years. As per this license agreement, the Assessee was allowed to use the brand and be provided with guidance from time to time on clinical procedures / methodology including marketing support, associations with Third Party Assurances (TPAs) for insurance claims, etc. Towards the same, the Assessee paid license fee as a percentage of its revenue to Apollo. Initially, the said license fee was paid at the rate of 4% of the revenue which was subsequently reduced to 2% of revenue, since both the parties realised that Apollo was not providing adequate support as originally envisaged in the license agreement. The Assessee claimed the license fee paid to Apollo as revenue expenditure in its return of income filed for earlier years and also for the FY 2010-11. During FY 2010-11, relevant to AY 2011-12, the Assessee decided to terminate the agreement due to lack of support extended by Apollo as originally agreed, which compelled the Assessee to terminate the existing Agreement in look out for either changing the service provider or developing an in-house brand and clinical procedures / methodologies by which they could avoid sharing of revenue. Owing to early termination of the license agreement, the Assessee commercially agreed to pay Rs 1,50,00,000 to make good the loss of license fee that would be suffered by Apollo upon such early termination. According to the Assessee this payment being revenue in nature, was claimed as a deduction while filing the return of income.
The Assessee submitted to the AO that the expenditure is revenue in nature since the Assessee is neither acquiring any capital asset nor deriving an enduring benefit from such expenditure. Drawing reference to various judicial precedents on the matter, the Assessee submitted before the learned AO that such expenditure
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should be allowable as a deduction. The AO however disallowed the claim for deduction on the ground that the expenditure was capital expenditure.
On appeal by the assessee, the CIT(A) confirmed the order of the AO. Aggrieved by the order of the CIT(A), assessee has raised grounds 13 to 17 before the Tribunal.
We have heard the rival submissions. Learned Counsel for the assessee while reiterating the submissions made before the lower authorities also placed reliance on certain judicial pronouncements to which we will make reference later. The Learned DR relied on the order of the CIT(A).
We have considered the rival submissions and we find that the assessee entered into an agreement with Apollo. Initially the rate of licence fee was agreed at 4% of the Revenue but subsequently it was reduced to 2% since Apollo was not providing adequate support as originally envisaged in the licence agreement. During the previous year, the assessee decided to terminate the agreement due to lack of support extended by Apollo. Because of the earlier termination of the licence agreement, the assessee paid compensation of Rs.1.5 lakhs to Apollo. This was claimed as a revenue expenditure. The case of the Revenue is that since the brand name (cradle) is a capital asset and the payment is being made for right to use the brand name, it gives the assessee an enduring benefit and has to be regarded as a brand building activity of the assessee. Therefore, the expenditure had to be regarded as a capital in nature. The approach of the Revenue authorities in our view is erroneous. The Assessee was not owner of any brand name. It had a right to use a brand name. Besides the use of brand name it had a right to have guidance from time to time on clinical procedures / methodology including marketing support, associations with Third Party Assurances (TPAs) for insurance claims. All these rights which the Assessee gets under the agreement is only with a view to enable the
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Assessee to carry on its business more profitably. The reasons for termination of the agreement and the reason for which the Assessee paid compensation are all for business considerations and exigency and there is no allegation of any mala fides in the decision taken by the Assessee. By incurring the expenses, the Assessee does not acquire any capital asset but only derives an advantage to enable it to carry on its business more profitably. The Hon’ble Supreme Court has laid down tests for deciding as to what constitutes capital expenditure and revenue expenditure.
- If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account even though the advantage may endure for indefinite future — Empire Jute Co. Ltd. vs. CIT [1980] (124 ITR 1, 10) (SC) - If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business, it properly attributable to capital and is of the nature of capital expenditure. If on the other hand, it is made not for the purpose of bringing into existence, any such asset or advantage but for running the business or working it with a view to produce the profits, it is revenue expenditure — CIT vs. Motors Industries Co. Ltd. - It would not be enough to merely ascertain whether a particular expenditure has resulted in any advantage of an enduring character. The advantage must be in a commercial sense and, further, it must be in the capital field. If there is a payment made on the ground of commercial expediency and if such payment does not result in the acquisition of any capital or an enduring benefit, merely because such payment is made to get rid of the liability which is much larger, the outgoing amount cannot be considered as capital in nature - CIT vs. Pioneer Engg. Syndicate [1988] 38 Taxman 15141989] 175 ITR 93 (Mad.) - It is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned.
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- If expenditure is so related to the carrying on or conduct of the business that it can be regarded as an integral part of the profit carrying process, and not towards acquisition of an asset or a right of permanent character, the possession of which is a condition of carrying on of the business, the expenditure should be regarded as revenue expenditure - Empire Jute Co. Ltd. vs. CIT [1980] 124 ITR 1 (SC)/CIT vs. Hinthisthan Gpneral Flectrical Corpn. Ltd. [1971] 81 ITR 243 (Cal.)/CIT vs. Oblum Electrical Industries (P.) Ltd. [1981] 127 ITR 409 (AP).
In the light of the judicial decisions referred to above, we are of the view that the payment in question was owing to commercial expediency and enabled the assessee to avoid payment of future licence fee and thereby reduced the operating cost of the assessee. Such payment cannot be regarded as a capital expenditure. We, therefore, hold that the expenditure in question is revenue in nature and should be allowed as a deduction. Grounds 13 to 17 are decided accordingly.
As far as ground 18 is concerned, the facts are that during the FY 2010-11, the Assessee was eligible for MAT credit of Rs. 8,55,032 under section 115JAA of the Act which has been arrived at after considering surcharge and cess on the same. However, while passing the order, the learned AO has not considered surcharge and cess applicable on such MAT credit and allowed MAT credit of only Rs. 7,72,212 which has been set off against the tax liability arrived under normal provisions inclusive of surcharge and cess, which has resulted in an increased tax liability of Rs. 82,820. Before the CIT(A), the Assessee contended that Section 2(43) of the Act defines the term "tax" to mean income tax chargeable under the provisions of the Act and fringe benefit tax payable u/s 115WA. Further, the charging section 4 of the Act provides that income tax shall be charged for a particular assessment year in accordance with and subject to provisions (including provisions for levy of additional income tax) of the Act in respect of total income of the previous year of every person, at the rate or rates of tax enacted by any Central Act for that year. Thus, a combined reading of section 2(43) with section 4 indicates that
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income tax also includes any additional income tax computed as per provisions of the Act. The Act does not define "surcharge" or "cess". It is only in the Finance Act that surcharge and cess is specifically provided for. The Assessee placed reliance on the Supreme Court ruling in the case of CIT vs. K. Shrinivasan [1972] (83 ITR 346), in which the Supreme Court after referring to legislative history dealing with levy of surcharge and after referring to Article 271 of Constitution of India conferring power on Parliament to increase taxes or duties by surcharge has held that the surcharge is part of income tax. The Assessee drew attention to section 2(29C) defining maximum marginal rate and section 113 dealing with tax on undisclosed income of block period which provide for tax to be increased by applicable surcharge. Thus, these provisions of the Act also support surcharge as being part of income tax. Further, education cess is defined as additional surcharge in sections 2(11) and 2(12) of the Finance Act. Therefore, what is true for surcharge should equally apply to education cess. It was submitted that object and legislative intent on MAT Credit appears to be to neutralize impact of MAT liability paid in year 1 by allowing the assessee to avail MAT Credit thereof in year 2. Where MAT is paid inclusive of surcharge and education cess, on parity of reasoning, MAT credit should also be considered inclusive of surcharge and education cess. Similar to TDS and advance tax, MAT Credit also represents tax actually paid. Thus, if credit for TDS and advance tax is allowed inclusive of surcharge and education cess, there could be no reason to take different view for MAT Credit which is identical in nature. It was submitted that section 115JAA provides for mechanism to ascertain amount of tax credit available. For determining tax credit, law requires to compare tax paid under section 115JB with that of tax payable under normal provisions. Accordingly, tax payable should mean the total tax payable including surcharge and education cess by the assessee with respect to his tax obligation worked out under normal provisions of the Act. The intent of the law is suggestive of comparison of final tax liability including surcharge and education cess. It was therefore submitted
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that MAT credit should also be inclusive of surcharge and education cess. The Assessee also pointed out that Explanation 2 inserted in section 115JB by the Finance Act, 2008 with retrospective effect from 1 April 2001 defining 'income tax' for the purposes of Explanation (a) inter alia includes surcharge and education tax. Given the above, it was argued that section 115JAA or 115JB does not indicate that the word "tax" has to be understood in a manner different from its usage under the rest of the Act. It has been well settled legal proposition that where the legislature uses the same word in different parts of the statute, presumption is that the word carries same meaning unless context requires otherwise. Had the intention of legislature been to provide MAT credit without including surcharge and cess, the same would have been specifically stated in the section itself. The Assessee thus submitted that MAT credit should be provided inclusive of surcharge and cess.
The CIT(A) however did not agree with the submissions of the Assessee and he held that the ITAT Delhi Bench in the case of Richa Global Exports Pvt.Ltd. Vs. ACIT 54 SOT 185(Del) has rejected a similar claim. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal.
The learned counsel for the Assessee reiterated the plea of the Assessee as put forth before CIT(A). The Learned DR relied on the order of the CIT(A).
We have carefully considered the rival submissions. As far as the issue of disallowance of MAT credit without including surcharge and cess is concerned, the Assessee placed reliance of the Tribunal’s decision reported in the case of Consolidated Securities Ltd. v. Asstt. CIT [2018] 96 taxmann.com 418/172 ITD 163 (Delhi – Trib.) wherein, it was held that the amount of the MAT tax credit, inclusive of surcharge and education cess etc., if any, should be reduced from the amount of tax determined on the total income after adding surcharge and education cess, etc.,
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and only the resultant amount payable will suffer interest under the relevant provisions of the Act. In the aforesaid decision, vide paragraph no. 8 & 9 it was held as under:
“8. A careful circumspection of the above provision deciphers certain things. First is that the amount of advance tax and TDS etc. rank pari passu with the amount of MAT tax credit available u/s. 115JAA. Secondly, the amount of tax payable for the year is determined after reducing the amount of advance tax, TDS and MAT credit. Thirdly, the resultant amount arrived at after making such deductions is the amount of tax, which the assessee is liable to pay. Fourthly, the amount of interest payable under any provision of this Act is calculated on the resultant amount. This shows that the amount of interest under the Act is liable to be paid on the amount of tax payable determined after deducting, inter alia, the amount of MAT tax credit.
We, therefore, hold that the amount of the MAT tax credit, ‘inclusive of surcharge and education cess etc., if any, should be reduced from the amount of tax determined on the total income after adding surcharge and education cess, etc. Only the resultant amount payable will suffer interest under the relevant provisions of the Act. Since the amount of MAT tax credit is uncertain, we set aside the impugned order and remit the matter to the file of the Ld. AO for ascertaining the correct amount of MAT tax credit available with the assessee inclusive of surcharge and education cess etc., if any, and then allow tax credit as indicated above. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in this regard.”
The aforesaid decision is applicable to the facts of the present case on all fours and by respectfully following the same, we set aside the impugned order and remit the matter to the file of the Ld. AO for ascertaining the correct amount of MAT tax credit available to the assessee including of surcharge/cess and then allow tax credit as indicated in the decision of the Consolidated Securities Ltd. (supra).
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In the result, the appeal of the assessee is partly allowed.
Pronounced in the open court on the date mentioned on the caption page.
Sd/- Sd/- (B. R. BASKARAN) ( N. V. VASUDEVAN) Accountant Member Vice President Bangalore. Dated: 22.1.2021. /NS/*
Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT 5. DR 6. Guard file By order
Assistant Registrar, ITAT, Bangalore.