1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1036 OF 2009 The Commissioner of Income Tax Central – III, M.K. Road, Ayakar Bhavan, Mumbai – 400 020 ..Appellant. Versus Apar Industries Limited, Apart House, 5 Corporate Park, Chembur, Mumbai – 400 071 ..Respondent. Mr.B.M. Chatterjee with Ms.Padma Divakar for the appellant. Ms.A. Vissanji with Mr.S.J. Mehta for the respondent. CORAM : Dr.D.Y. Chandrachud & J.P. Devadhar, JJ. DATE : 6th April 2010. ORAL JUDGMENT (Per Dr.D.Y. Chandrachud, J.) : The question of law : 1. This appeal by the Revenue arises out of an order of the Income Tax Appellate Tribunal dated 20 June 2007. The Tribunal passed an order 2 that would govern appeals arising out of assessment years 1998-1999, 1999-2000 and 2000-2001. The appeal by the Revenue relates to assessment year 2000-2001. The questions of law which are raised in the appeal are as follows : a) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in holding that credit for brought forward MAT is to be given from gross demand before charging interest u/s.234B of the Income Tax Act, 1961 ? b) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in holding that interest u/s. 244A of the Income Tax Act, 1961 was allowable on the refundable taxes arrived after giving credit of brought forward MAT from the gross demand ? The issue : 2. The issue that arises for the determination of the Court is whether Minimum Alternative Tax (MAT) Credit, to which the assessee is undisputedly entitled, must be given before computing interest payable by the assessee under Section 234B of the Income Tax Act, 1961; or whether, as contended by the Revenue, the credit is allowable after the liability to pay interest under Section 234B is computed. For the purposes of this appeal, it would be necessary to note that there is no dispute before the Court either as regards the extent of the MAT credit or the tax that was paid by the assessee by way of Advance Tax or Tax Deductible at Source (TDS). 3. From the order passed by the Assessing Officer on 4th February 2004, while giving effect to the order passed by the Commissioner (Appeals), 3 it is evident that the total income of the assessee was computed at Rs.6.40 crores. The tax chargeable was Rs.2.46 crores. The assessee was entitled to a MAT credit of Rs.30.98 lakhs. The TDS worked out to Rs.37.47 lakhs, while the assessee paid an advance tax of Rs.3.35 crores and a self-assessment tax of Rs.21.37 lakhs. Hence, the total tax paid by the assessee was Rs.4.24 crores. The difference between the tax payable (Rs.2.46 crores) and the tax which was paid by the assessee (Rs.4.24 crores) was worked out at Rs.1.78 crores. The issue before the Court is whether in computing interest payable by the assessee for the purposes of Section 234B, MAT credit has or has not to be taken into account. The rival positions : 4. The Revenue contends that the liability of the assessee to pay interest under Section 234B has to be worked out after giving credit to the assessee of advance tax and TDS and the assessee would be liable to pay interest on the short fall between the assessed tax on the one hand and the tax paid by the assessee by way of advance tax and TDS on the other. On the other hand, the submission of the assessee is that MAT credit under the provisions of Section 115JAA is towards tax payable on assessment and consequently the liability to pay interest under Section 234B must be worked out after taking into account the component of MAT credit. 4 The statutory provisions : 5. In order to appreciate the canvass of the case and before we deal with the submissions which have been urged on behalf of the Revenue and the assessee, it would at the outset be necessary to advert to the relevant provisions, which would have a bearing on the appeal. Section 234B : 6. Sections 234A, 234B and 234C provide for the payment of interest in certain eventualities. Section 234A provides a liability to pay interest, for a default in furnishing the return of income; Section 234B for a default of payment of advance tax; and Section 234C for deferment of advance tax. Section 234B was inserted with effect from 1 April 1989 by the Direct Tax Laws (Amendment) Act, 1987. The provision as it stood at the material time was as follows : “Interest for defaults in payment of advance tax. 234B. (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 per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one and one fourth 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. 5 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 income. 2. ............ 3. ............ (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.” Section 115J : 7. Section 115J was introduced by the Finance Act of 1987 with effect from 1 April 1988, in order to provide for a levy of tax on the basis of book profits. The provision applied to previous years relevant to assessment years commencing on or after 1 April 1988 but before 1 April 1991. Section 115J was substituted by Section 115JA by the Finance (No.2) Act of 1996 with effect from 1 April 1997 and was applicable to previous years relevant to assessment years on or after 1 April 1997 but before 1 April 2001. Section 115JA which allowed a tax credit in respect of the tax paid on the deemed 6 income of certain companies came to be inserted by the Finance Act of 1997 with effect from 1 April 1998. Section 115JA was eventually replaced by Section 115JB by the Finance Act of 2000 with effect from 1 April 2001 and was applicable to the assessment year 2001-2002 onwards. Section 115JB stipulated that MAT was payable when the total income as computed under the Act was less than 7.5 per cent. of the book profits. Section 115JB was amended by the Finance Act of 2006 with effect from 1 April 2007 and the rate of 7.5 per cent. was altered to 10 per cent. for previous years commencing on or after 1 April 2007. The Finance Act of 2006 also amended the definition of the expression ‘assessed tax’ inter alia in the explanations to Sections 140A and 234B so as to mean, tax on total income as reduced by the amount of tax credit allowed to be set off, in accordance with the provisions of Section 115JAA. Minimum Alternative Tax (MAT) : 8. Section 115JAA provides for a tax credit in respect of tax paid on deemed income relating to certain companies. Sub-section (1) of Section 115JAA provides that, where any amount of tax is paid under Section 115JA(1) by an assessee which is a company for any assessment year, then credit in respect of the tax so paid shall be allowed in accordance with the provisions of the section. In other words, the credit which is available under Section 115JAA is in respect of tax paid by an assessee under Section 115JA though, the extent of the credit and the manner in which it would be utilized 7 shall be in accordance with the provisions of Section 115JAA. The provisions for the imposition of a Minimum Alternative Tax were brought into force by Parliament due to a rise in the number of zero-tax companies in view of the tax preferences granted in the form of exemptions, deductions and high rates of depreciation. Consequently, a minimum tax was provided by deeming a certain part of the book profits as total income. MAT Credit : 9. Section 115JAA (1) allows a credit to the company for tax paid under Section 115JA(1). The salient aspects of the deferred tax credit that is provided under Section 115JAA are as follows : (i) The quantum of tax credit allowed under Section 115JAA (1) is the difference between the tax paid for any assessment year under Section 115JA and the amount of tax payable on the total income computed in accordance with the provisions of the Act; (ii) The amount of tax credit determined under sub-section (2) of Section 115JAA could be carried forward and set off subject to certain conditions for five assessment years immediately succeeding the year in which the credit became allowable; (iii) The tax credit could be set off in a year in which tax became payable on the total income computed under the Act other than under the MAT provisions; 8 (iv) The set off of the brought forward tax credit was allowable for any assessment year to the extent of the difference between the tax on the total income and the tax that would have been payable under the MAT provisions. At this stage, what needs to be emphasized for the purposes of discussion in the appeal is that the tax credit under Section 115JAA is allowed “where any amount of tax is paid under sub-section (1) of Section 115JA”. The credit that is available to the assessee is in respect of tax paid. The credit represents, therefore, the entitlement of the assessee in respect of the excess tax which has been paid to the Government and to which Parliament has rendered an assessee entitled to claim a credit in the succeeding assessment years as regulated by Section 115JAA. 10. Section 234B as it stood at the material time provided a liability to pay interest in a situation where in a financial year, an assessee who is liable to pay advance tax had either failed to pay such tax or where the advance tax paid by the assessee was less than 90 per cent. of the assessed tax. In such an eventuality, the assessee became liable to pay simple interest as stipulated from the first day of April next following such financial year up to the date of determination of the total income under sub-section (1) of Section 143 and, where a regular assessment is made, to the date of such regular assessment. The interest was liable to be paid on an amount equal to 9 the assessed tax, where the assessee had failed to pay advance tax altogether or, as the case may be, on the amount on which advance tax fell short of the assessed tax. Explanation (1) to Section 234B, as it was substituted by the Finance Act of 2001 with effect from 1 April 1989, defined the expression “assessed tax”. The expression “assessed tax” was defined to mean the tax on the total income determined under Section 143(1) 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. The provisions of Explanation (1) came to be substituted by the Finance Act of 2006 with effect from 1 April 2007. As substituted, Explanation (1) reads as follows : “Explanation 1. - In this section, “assessed tax” means the tax on the total income determined under sub-section (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of, - (i) any 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; (ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India; (iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section; 10 (iv) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and (v) any tax credit allowed to be set off in accordance with the provisions of section 115JAA.” After the substitution of Explanation (1), the expression “assessed tax” has now been specifically defined to account for any tax credit allowed to be set off in accordance with the provisions of Section 115JAA. Submissions : (i) Revenue : 11. The submissions which have been urged on behalf of the Revenue are that : (i) The amendment made by the insertion of Explanation (1) to Section 234B by the Finance Act of 2006 is prospective with effect from 1 April 2007; (ii) The amendment is not clarificatory; (iii) Prior to the substitution of Explanation (1) to Section 234B by the Finance Act of 2006, assessed tax was defined to be the tax on total income determined under Section 143(1) or on regular assessment as reduced by the tax deducted or collected at source. Consequently, MAT credit could not be reckoned while computing the liability to pay interest under Section 234B; (iv) As a result interest under Section 234B would first have to be charged on the short fall between the assessed tax and the advance tax paid by the assessee, where an assessee had failed to pay at least 90 per cent. of the assessed tax and it was after computation of the liability to pay interest that credit under Section 11 115JAA could be granted; (v) The plain and literal meaning of the expression “assessed tax” in Explanation (1) to Section 234B prior to its substitution by the Finance Act of 2006 must prevail and there is no scope for equity in taxation; (vi) The statutory form which was prescribed under Rule 12 of the Income Tax Rules, 1962 clearly specified that MAT credit shall be reckoned after computing the liability to pay interest under Section 234B on the short fall between the assessed tax and the advance tax paid by the assessee. The statutory form was amended after the substitution of Explanation (1) with effect from 1 April 2007. In sum and substance, therefore, the submission which has been urged on behalf of the Revenue is that though the assessee is entitled to a credit under Section 115JAA on tax paid under Section 115JA and this credit has to be reckoned in determining the actual tax payable by the assessee, the credit available under Section 115JAA cannot be taken into account before the liability to pay interest under Section 234B is computed. (ii) The Assessee : 12. On the other hand, it has been urged on behalf of the assessee that : (i) Independent of the amendment which was made to Explanation (1) to Section 234B by the Finance Act of 2006, MAT credit has to be taken into account before charging interest under Section 234B; (ii) This conclusion would emerge on a plain reading of Sections 140A, 143(1) and 234B(2); 12 (iii) The interest payable under Section 234B has been held to be compensatory in nature so as to be payable by an assessee for depriving the Government of its dues. Upon an excess payment of the Minimum Alternative Tax, for which credit has been given, interest cannot be charged under Section 234B by disregarding the credit to which the assessee is entitled; (iv) The construction which has been suggested by the Revenue to the effect that interest under Section 234B would be liable to be charged without giving due consideration to the entitlement of the assessee to the credit available under Section 115JAA would result in unintended and absurd consequences. The task of interpretation must be to place a construction on a statutory provision which does not result in absurdity or a consequence which was not envisaged by Parliament; (v) In any event, the amendment to Explanation (1) to Section 234B is curative and clarificatory and would apply to preceding years; and (vi) It is a settled principle of law that a form which is prescribed under subordinate legislation cannot over-ride a statutory prescription. Our interpretation : The position of MAT credit prior to the amendment 13. Section 140A provides for self-assessment. Sub-section (1) enunciates that where any tax is payable on the basis of any return required to be furnished under Sections 139, 142, 148, 153A or 158BC, “after taking into account the amount of tax, if any, already paid under any provision of the Act”, the assessee shall be liable to pay such tax together with interest payable 13 under any provision of the 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. Sub-section (1) of Section 140A, therefore, postulates that the assessee is liable to pay tax which is payable on the basis of the return of income, after taking into account the tax, if any, already paid under any provision of the Act. For the purposes of Section 140A, a tax which is paid under any provision of the Act must mean what it says, namely, that due account has to be taken of tax paid under any provision of the Income Tax Act, 1961. The tax which is paid under Section 115JA and the resulting credit to which an assessee may be entitled under Section 115JAA constitutes a tax which has already been paid under the provisions of the Act. Consequently, on the basis of a plain construction of sub-section (1) of Section 140A, it is abundantly clear that the tax which the assessee has paid under Section 115JA and in respect of which he became entitled to a credit under Section 115JAA is required to be taken into reckoning for the purposes of computing the liability of an assessee to pay tax under Section 140A. The expression “such tax” in Section 140A refers to a tax which is payable on the basis of the return required to be furnished by the assessee after taking into account the amount of tax, if any, already paid under the provisions of the Act. Sub-section (1B) of Section 140A stipulated that for the purposes of sub-section (1), interest payable under Section 234B shall be computed on 14 an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid falls short of the assessed tax. The expression “assessed tax” was originally defined in the Explanation in terms which were similar to Explanation (1) to Section 234B prior to its substitution by the Finance Act of 2006. By the Finance Act of 2006, the Explanation to Section 140A was also substituted in terms similar to the substitution which was effected to Explanation (1) to Section 234B. The effect of the substitution will be considered in a subsequent part of this judgment. At this stage, what is important to emphasize is that even prior to the substitution, in computing the liability of an assessee to pay tax under the self-assessment provisions of Section 140A, the tax paid under any provision of the Act was liable to be reckoned. The question of interest under Section 234B arose if there was a short fall but in determining as to whether there was a short fall in the first place, the entitlement of an assessee to avail off MAT credit could not be ignored. This was evidently the position on a plain construction of the provisions of sub-section (1) of Section 140A. 12. The next provision to which it would be necessary to refer is Section 143(1). Sub-section (1) of Section 143, prior to its amendment by the Finance Act of 2008 provided that where a return has been made under Section 139, or in response to a notice under Section 142(1), if any tax or interest is found due on the basis of such return, after adjustment of any tax 15 deducted at source, any advance tax paid, any tax paid on self-assessment and “any amount paid otherwise by way of tax or interest”, then an intimation would be sent to the assessee specifying the sum so payable which would be deemed to be a notice of demand under Section 156. If a refund was due on the basis of such return, it was liable to be granted to the assessee. Consequently, under Section 143(1) the tax or interest due on the basis of a return filed by the assessee had to be reckoned after adjustment not only of the tax deducted at source, the advance tax and the tax paid on self- assessment but also after taking into account any amount paid otherwise by way of tax or interest. The expression “any amount paid otherwise by way of tax” obviously would refer to any amount paid by way of tax under the provisions of the Act which would include the credit to which the assessee was entitled under the provisions of Section 115JAA. 14. Section 234B (1) provided for a liability to pay interest where an assessee had either failed to pay the advance tax in its entirety or where the advance tax paid was less than 90 per cent of the assessed tax. Sub-section (2) of Section 234B stipulated that where before the determination of total income under Section 143(1) or before completion of a regular assessment “tax is paid by the assessee under Section 140A or otherwise”, interest shall be calculated in accordance with the provisions of the Section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under Section 140A. The effect of sub-section (2) was that if the assessee paid tax 16 either under Section 140A or otherwise before his total income was determined under Section 143(1) or by the completion of a regular assessment, the liability to pay interest would be reckoned up to the date on which the tax so paid. Once the tax was paid either under Section 140A or otherwise, interest could no longer be attracted under sub-section (2) of Section 234B. Sub-section (2) of Section 234B refers to the payment of tax by the assessee