ITA Nos. 402/2005 & Others Page No.1 of 44 * 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 COMMISSIONER OF INCOME TAX … Appellant ITA Nos. 402/2005 & Others Page No.2 of 44 - 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 – NOKIA INDIA LIMITED ... Respondent ITA Nos. 402/2005 & Others Page No.3 of 44 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 COMMISSIONER OF INCOME TAX … Appellant ITA Nos. 402/2005 & Others Page No.4 of 44 - 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 CORPORATION LIMITED ... Respondent ITA Nos. 402/2005 & Others Page No.5 of 44 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 COMMISSIONER OF INCOME TAX … Appellant ITA Nos. 402/2005 & Others Page No.6 of 44 - 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 AND ITA Nos. 402/2005 & Others Page No.7 of 44 + 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, 791/2007, 829/2007, 271/2008, 476/2008, 546/2008, 893/2008] ITA Nos. 402/2005 & Others Page No.8 of 44 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 1. Whether Reporters of local papers may be allowed to see the judgment ? YES 2. To be referred to the Reporter or not ? YES 3. Whether the judgment should be reported in Digest ? YES BADAR DURREZ AHMED, J The Questions: 1. In these appeals two sets of substantial questions of law have been formulated. They are:- 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 ? ITA Nos. 402/2005 & Others Page No.9 of 44 2. Question A has been formulated in ITA Nos. 402/2005, 407/2007, 907/2007, 914/2007, 969/2007, 989/2007, 1350/2007, 546/2008, 701/2008, and 893/2008. Question B has been framed in ITA Nos. 1474/2006, 708/2007, 719/2007, 791/2007, 829/2007, 986/2007, 992/2007, 1063/2007, 271/2008, 272/2008, 295/2008, 344/2008, 453/2008, 456/2008, 462/2008, 476/2008, 477/2008, 801/2008 and 802/2008. Essentially, these questions raise the common issue as to whether interest under sections 234B and 234C is to be charged before the tax credit (commonly referred to as MAT credit) available under section 115JAA is set off against tax payable on total income or after it is so set off? The additional issue is whether this question was debateable and therefore the provisions of section 154 could not have been invoked ? The latter issue arises only in the first set of appeals. 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 Tribunal erred in holding that interest under sections 234B and 234C ITA Nos. 402/2005 & Others Page No.10 of 44 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. 4. The learned counsel who appeared for the assessees / respondents submitted that the provisions of sections 234B and 234C were compensatory in nature. On the basis of this premise they contended that since the tax credit (MAT credit) was available with the revenue, no loss was caused to the revenue and, therefore, the question of compensation itself would not arise. It was also contended that the amendments to the said Explanation 1 after section 234B(1) and the Explanation after section 234C(1) were merely curative and clarificatory of the legal position that applied even before 01.04.2007. As regards the cases which involved the issue of section 154, it was submitted, without prejudice to the aforesaid, that in any event the position was not clear-cut and was highly debateable and therefore could not be sought to be corrected by way of rectification proceedings under section 154 of the said Act. 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 advance tax. Where an assessee, who is liable to pay advance tax under ITA Nos. 402/2005 & Others Page No.11 of 44 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. 6. Similarly, it was contended, in respect of section 234C that it stipulated charging of interest for deferment of payment of advance tax. It was submitted that the interest payable under this provision is to be computed with reference to ―tax due on returned income‖, which expression is defined in the Explanation after section 234C(1) to mean the tax chargeable on the total income declared in the return of income furnished by the assessee for the assessment year commencing on the 1st day of April immediately following the financial year in which the advance tax is paid or payable, as reduced by the amount of TDS on any income which is subject to such deduction or collection and which is taken into account in computing such total income. Here, too, according to the revenue, the only reduction permissible is in respect of TDS. 7. It was further contended that this was the position in law prior to 01.04.2007. Since this was causing hardship, various ITA Nos. 402/2005 & Others Page No.12 of 44 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). 8. In this context, the learned counsel for the revenue drew our attention to Circular No.14/2006 which contains the ―Explanatory Notes on provisions relating to Direct Taxes‖ under the Finance Act, 2006. The relevant portions of the said circular are as under:- “38. Credit for payment of Minimum Alternate Tax (MAT) and tax paid in a country or specified territory outside India for the purposes of charge of interest under sections 234A, 234B and 234C 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 payment of advance tax. ITA Nos. 402/2005 & Others Page No.13 of 44 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.‖ 9. On the strength of this Circular, it was contended that reduction of MAT credit prior to computation of interest under sections 234B and 234C is permissible only after 01.04.2007, that is, for assessment year 2007-2008 onwards. Since all these appeals relate to prior assessment years, MAT credit cannot be set off prior to the computation of interest under sections 234B and 234C. 10. Referring to the provisions of chapter XVII-C relating to advance tax, it was submitted by the learned counsel for the revenue that section 207 imposes the liability for payment of advance tax and that section 208 stipulates that the advance tax must be paid in the ITA Nos. 402/2005 & Others Page No.14 of 44 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. 11. The learned counsel for the revenue referred to the Supreme Court decision in Commissioner of Income-tax v. Xpro India Ltd: 300 ITR 337 wherein, while setting aside the order passed by the Calcutta High Court that no substantial question of law arose, it held that the question of interpretation of section 234B in the context of short payment of interest on advance tax arose for determination before the High Court which warranted interpretation of section 115JAA read with sections 234B and 234C. Reference was then made to the decision in Commissioner of Income-tax v. Anjum M.H. Ghaswala: 252 ITR 1 wherein the Supreme Court held that the provisions of sections 234A, 234B and 234C were mandatory in nature and that the Income Tax Settlement Commission, in exercise of its power under section 245D(4) and (6), did not have the power to reduce or waive interest statutorily payable under sections 234A, 234B and 234C except to the extent of granting relief under the circulars issued by the Board under section 119 of the Act. 12. Reliance was also placed by the learned counsel for the revenue on the Bombay High Court decision in CIT v. Kotak ITA Nos. 402/2005 & Others Page No.15 of 44 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.‖ 13. It must be pointed out that this decision was in the context of section 115J, the question being – ―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. 14. With regard to the issue of rectification proceedings, it was submitted that the provisions are clear. There is no scope for debate. Moreover, the provisions being mandatory and automatic, there is no question of waiver. That being the position, it was submitted, if ITA Nos. 402/2005 & Others Page No.16 of 44 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). 15. Lastly, it was argued that hardship or inequity is no ground for not charging interest under sections 234B and 234C before allowing MAT credit. It was contended that it is a well established principle that equity has no place in tax laws. It was therefore urged that the questions be answered in favour of the revenue and the appeals be allowed. 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 by a company under section 209 is the tax payable on the current ITA Nos. 402/2005 & Others Page No.17 of 44 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. 17. Reliance was placed on paragraph 45 of Circular No. 763 (230 ITR 54 [St], 81) which contained the Explanatory Notes on provisions relating to Direct Taxes in the Finance Act, 1997. The relevant portions of the said paragraph 45 are as under:- ―Minimum alternative tax on companies 45.1 The minimum alternative tax (MAT) on companies was introduced by the Finance (No.2) Act, 1996, with effect from the 1st April, 1997. This was necessary due to a rise in the number of zero-tax companies in view of tax preferences granted in the form of exemptions, deductions and high rates of depreciation. The rate of minimum tax was kept at a modest figure deeming 30 per cent of book profits as total income. This modest amount is likely to go down further with the downward revision of corporate tax rate to 35 per cent and abolition of surcharge. 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 MAT and the regular tax. The regular tax in this ITA Nos. 402/2005 & Others Page No.18 of 44 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