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Income Tax Appellate Tribunal, “E”, BENCH MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI G. MANJUNATHA&
Date of Hearing 07/08/2019 Date of Pronouncement 28/08/2019 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):
This appeal filed by the revenue and cross objection filed by the assessee are directed against the order of the Commissioner of Co.No.114/Mum/2019 TCS E-Serve International Ltd.
Income Tax (Appeals)–8, Mumbai dated 05/02/2018 and they pertains to the Assessment Year 2014-15.
ITA.No.2779/Mum/2018:-
The revenue has raised the following grounds of appeal:-
1. Whether In the facts & in the circumstances of the case and in law, the learned Commissioner of Income Tax(A) was right in directing the Assessing Officer to allow the carry forward and set off of MAT credit to the assessed company under the Income Tax Act, by relying on a portion of the Hon'ble High Court order sanctioning the scheme of demerger and without appreciating the totality of the facts & circumstances of the case and law and further that the units, in respect of which such MAT credit is available, are no longer a part of the assessee company? 2. The appellant craves leave to amend, alter, delete or add grounds which may be necessary. 3. The brief facts of the case are that TCS E-serve International Ltd. is engaged in the business of providing Information Technology enabled services (IT/ITES), Business process Outsourcing Services (‘BPO’) for its customers in the banking financial services and insurance space. The company’s operations include delivery of core processing services and support services and support services for both data and voice services. The assessee had filed its return of income for AY 2014-15 on 26/11/2014, declaring total income of Rs. 78,49,97,170/- under normal provision of the IT.Act, 1961 and book profit of Rs. 78,26,00,243/- u/s 115JB of the Act, in the return of income, the assessee had claimed set off of Minimum Alternate Tax
Co.No.114/Mum/2019 TCS E-Serve International Ltd.
(MAT) credit of Rs. 10,27,83,613/- (out of the accumulated balance of MAT credit available for set off of Rs. 55,94,84,857/- under section115JAA of the Act.). In the present case, the Board of Directors of the assessee, in their meeting on 19/10/2012 approved a composite scheme of arrangement u/s. 391 to 394 of Companies Act, 2013 proposing demerger of three SEZ undertaking of TCS e- Serve International Ltd with TATA Consultancy Services Limited (TCS Ltd.). The Bombay High Court approved the scheme on 06/09/2013. Pursuant to the order of the Bombay High Court, the SEZ units of the assessee located at Chennai, Gurgaon and Kolkatta were demerged into TCS Ltd. with effect from 01/04/2013 (ie, during AY 2014-15) and the balance operations continued to be carried out by the assessee.
The case was selected for scrutiny. During the course of assessment proceedings, the AO called upon the assessee to file unit –wise break-up of MAT credit available for set off. In response, the assesee has filed unit-wise MAT credit available for set off, in respect of SEZ units. The Ld. AO did not allow to carry forward and set off of MAT credit against the tax liability to the extent, it pertained to the SEZ unit of the assessee that were demerged to Co.No.114/Mum/2019 TCS E-Serve International Ltd.
TCS Ltd. pursuant to a scheme of reorganization with effect from AY 2014-15, however, he allowed MAT credit only to the extent of Rs. 39,84,870/- and the balance amount of Rs. 9,87,98,743/- has been disallowed, while working out tax liability of the assessee.
Aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee had filed a detailed written submissions on allowability of set off of carry forward of MAT credit in the hands of TCS e-serve International Ltd, in light of, the scheme approved by the Hon’ble jurisdictional High Court of Mumbai. The Ld.CIT(A), after considering relevant facts and also taken note of observations of the Hon’ble Bombay High Court held that all the tax, including income tax paid or payable by assessee shall be on account of TCS e-Serve International Ltd before the appointed date, ie. 01/04/2013 and after, the date of appointment, it will be to the account of TCS Ltd. Accordingly, the Ld.CIT(A) directed the AO to allow carry forward and set off of MAT credit available to TCS e-serve International Ltd. Aggrieved by the Ld.CIT(A) order, the revenue is in appeal before us and the assesee has filed cross objection.
Co.No.114/Mum/2019 TCS E-Serve International Ltd.
The Ld. DR submitted that Ld. CIT(A) was erred in directing the AO to allow carry forward and set off of MAT credit to the assessee company under the I.T.Act, 1961 by relying on a portion of the Hon’ble High Court order sanctioning the scheme of demerger and without appreciating the totality of the facts and circumstances of the case and law and further that the units, in respect of such MAT credit available had no longer part of the assessee company.
The Ld. AR for the assessee, on the other hand, strongly supporting order of the Ld.CIT(A) submitted that as per, the order of the Hon’ble Bombay High Court, all taxes including income tax, if any paid or payable by assessee shall be on account of TCS e-serve International Ltd. before the appointed date and after, the date of appointment, it will be to the account TCS Ltd. The Ld.CIT(A), after considering the observations of the Hon’ble High court, which is being in the nature of law of the land, has rightly directed the AO to allow set off of carry forward of MAT credit to the assessee. The Ld.AR, further submitted that even, otherwise as per, the scheme of taxation MAT credit is available to a person, who had paid MAT tax in the earlier financial years. In this case, the assessee has paid MAT tax, in respect of earlier years and whatever, credit available in Co.No.114/Mum/2019 TCS E-Serve International Ltd.
respect of MAT is eligible for set off, in respect of assessee, who had paid such MAT tax. The Ld. AR, further submitted that the Hon’ble jurisdictional High Court, in the case of Sadanand S. Varde vs State of Maharashtra 247 ITR 607 had held that after, the scheme of arrangement is approved by the Hon’ble High Court, the scheme gets a statutory recognition and any scheme sanctioned by High Court would apply as operation law. In view of the above, the Ld.CIT(A) has rightly allowed MAT credit available prior to the appointed date to the assessee tax liability under normal provisions of the Act and accordingly, his order should be upheld.
We have heard both the parties, perused material available on record and gone through orders of the authorities below. It is an admitted fact that MAT credit represents excess tax paid under MAT over the tax payable under the normal provisions of the Act by the assesse in the earlier years. Therefore, MAT credit available on account of excess payment of tax is that of the assessee itself and not of the demerged company. Further, the Hon’ble Bombay High Court in its order approving, the scheme of demerger has categorically held that all the taxes, including income tax paid or payable by respondent shall be on account of TCS e-serve
Co.No.114/Mum/2019 TCS E-Serve International Ltd.
International Ltd, before the appointed date i.e 01/04/2013 and after, the date of appointment, it will be to the account of TCS Ltd. It is a settled position of law that any order passed by the High Court, including scheme of arrangement approved by the Hon’ble High Court acquired statutory recognition, in case there is no specific provision is provided in the Act, in respect of carry forward and set off of MAT credit. In case of demerger, the law laid down by the Hon’ble High Court, in the scheme of demerger would apply as operation of law. Therefore, we are of the considered view that even though, there is no specific provision is provided in the Act, in respect of carry forward and set off of MAT credit, in respect of demerger, but in view of specific directions of the Hon’ble Bombay High Court that till the appointed date i.e up to 01/04/2013, all the tax, including income tax paid or payable shall be on account of TCS e-serve International Ltd, we are of the considered view that whatever, MAT credit available to the assessee prior to that date even though, the same is arised on account of SEZ units, the credit for such MAT credit needs to be allowed to the assessee, but not to the demerged SEZ units. We further noted that TCS Ltd has not claimed credit for MAT credit in their return of income, which is evident from the fact that the AO of TCS Ltd in their assessment has Co.No.114/Mum/2019 TCS E-Serve International Ltd. categorically stated that MAT credit of TCS e-serve International Ltd will be available to the TCS e-serve International Ltd. Only. We, further stated that MAT credit should go into entity, but not with resulting company. Therefore, we are of the considered view that the Ld.CIT(A) has rightly considered the issue in light of provision of Act and also, the scheme of demerger approved by the Hon’ble Bombay High Court, while directing the AO to allow carry forward and set off of MAT credit.
Coming to the case laws relied upon by the assessee. The assessee has relied upon by the decision of ITAT, Mumbai ‘B’ Bench, in the case of DCIT vs. Brandon & Co. (P) Ltd. in the Tribunal after considering relevant provisions of Act, held that MAT credit is available to the entity, which is paid excess tax under MAT over the tax payable under the normal provision of the Act. The relevant findings of the Tribunal are as under:-
“10. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the MAT credit represents the excess tax paid under MAT over the tax payable under the normal provisions of the Act by the assessee itself in the earlier years. Thus, the MAT credit is that of the assessee itself and not of the demerged company. There are no provisions under section 115JAA of the Act that on demerger, the brought forward MAT Credit of the assessee itself cannot be carry forward. Further section 115JAA (7) of the Act specifically provides, the instances under which MAT Credit will not be Co.No.114/Mum/2019 TCS E-Serve International Ltd. allowed to be carry forward and the only instances specified that there is on conversion of Private Company or unlisted private Ltd. Company into a limited liability partnership and in such circumstances, the arguments of the AO would have been relevant only if the MAT credit was claimed by the resulting company i.e. Ramrod Advisors Pvt. Ltd. But that is not the case here. Accordingly, we find no infirmity in the order of CIT(A) and this issue of the Revenue’s appeal is also dismissed.”
In this view of the matter and consistent with view taken by the Co-ordinate Bench, we are of the considered view that the Ld.CIT(A) has rightly directed the AO to allow carry forward and set off of MAT credit to the assessee and hence, we are inclined to uphold the findings of the Ld.CIT(A) and dismissed appeal filed by the revenue.
Co.No. 114/Mum/2019
The assessee has raised following grounds of appeal in its cross objection:-
1. erred in challenging the order of the Commissioner of Income Tax (A)-8 [CIT(A) wherein CIT(A) after considering the directions of the Jurisdictions! High Court sanctioning the demerger schemes, held that the Respondent is eligible to carry forward and claim set-off of the MAT credit under the provisions of the Income tax Act, 1961 ('Act); 2. erred in not appreciating that the MAT credit is available qua to the transfer Company(TCS E-serve) and riot qua the undertaking which has been transferred and thereby CIT(A) has rightly allowed the MAT credit to the respondent 3. erred in not appreciating that the CIT(A) had followed the decision of the jurisdictional High Court, (which has approved the scheme of demerger) and such order of High Court would apply by 'operation of law' and thereby CIT(A) has rightly allowed the MAT credit to the respondent; 4. erred in not appreciating that the learned AO of Tata Consultancy Services Limited (TCS') (transferee company) has held that the MAT credit for the subject AY should be available only to TCS E-serve (i.e.
Co.No.114/Mum/2019 TCS E-Serve International Ltd. respondent) and thereby CIT(A) has rightly allowed the MAT credit to the respondent; 5. erred in not giving direction that the balance un-utilized MAT credit of Rs. 45,67,01,244/- (ie, Rs.55,94,84,857/- (total accumulated opening balance of MAT credit) Rs 10,27,83,613 [allowed by CIT(A) to set off against current year's tax liability], should be allowed to be carry forward to the subsequent assessment year and can be set-off against the tax liability of the subsequent years; 6. Without prejudice to above, the carry forward and set-off of MAT credit in respect SEZ units allowed to TCS in case the same is not allowed in the hands of Respondent.
The assessee has filed cross objection by taking six grounds of cross objections in its memorandum of cross objections filed against order of the Ld.CIT(A), the ground No. 1 to 4 of cross objection are supporting the order of the Ld.CIT(A), in respect of allowability of MAT credit to the assessee. Ground No. 5 of cross objection relates to available of carry forward of balance unutilized MAT credit to TCS e-serve International Ltd. The assessee has taken this ground of cross objection for the first time before the Tribunal. During the year under consideration, out of the total accumulated MAT credit of Rs. 55,94,84,857/-, the assessee has utilized the MAT credit of Rs. 10,27,83,613/-. The grievance of the assessee through ground No. 5 of cross objection is that although, the Ld.CIT(A) has directed the AO to allow carry forward and set off of MAT credit to the assessee, but there is no specific finding, in respect of carry forward of balance unutilized MAT credit of Rs.
Co.No.114/Mum/2019 TCS E-Serve International Ltd.
45,67,01,244/-. We find that the Ld.CIT(A) has categorically recorded finding in his appellate order regarding carry forward and set off of MAT credit and accordingly, directed the AO to allow MAT credit as claimed by the assessee. Once, the allowability of MAT credit has been decided in favour of the assessee, the remaining issue of carry forward and set off of MAT credit to subsequent years is consequential and the AO needs to verify, the fact with regard to availability of MAT credit, after setting off of such credit against tax liability of current year tax liability. Therefore, we are of the considered view that there is no dispute with regard to allowability MAT credit to the assessee, because we have already affirmed, the finding of Ld.CIT(A), in respect of allowability of set off of MAT credit availability to the assessee against its tax liability. In so far as, carry forward of unutilized MAT credit , the facts needs to be verified by the AO and accordingly, we set aside the issue to the file of the AO and direct him to cause necessary enquiries, in light of claim of assessee that it has unutilized MAT credit of Rs. 45,67,01,244/-. In case, the AO found that the claim of the assessee is correct then, the AO is directed to allow carry forward of unutilized MAT credit to subsequent years.
Co.No.114/Mum/2019 TCS E-Serve International Ltd.
Ground No.6 of cross objection is alternative claim of the assessee. The assessee has made an alternative plea, in as much as in case MAT credit is not allowable to the assessee, then a suitable directions may be given to the AO to allow such MAT credit to resulting company. We find that since, we have already directed the AO to allow carry forward and set off of MAT credit to the assessee , the alternative claim sought by the assessee by way of ground No.6 becomes infructuous and accordingly, ground no.6 of cross objection has been dismissed as not maintainable.
In the result, cross objection filed by the assessee is partly allowed.
As a result, appeal filed by the revenue is dismissed and cross objection filed by the assessee is partly allowed.
Order pronounced in the open court on this 28 /08/2019