Income Tax Appellate Tribunal - Cochin
Synthetic Industrial Chemicals Ltd. vs The Dy. Commissioner Of Incometax on 30 January, 2004
Equivalent citations: [2004]90ITD851(COCH), [2004]270ITR98(COCH), (2004)85TTJ(COCH)162
ORDER
O.K. Narayanan, Accountant Member
1. This appeal is filed by the assessee. The relevant assessment year is 1998-99. The appeal is filed against the revision order passed by the Commissioner of Incometax, Kochi dated 19.3.2003.
2. The assessee-company was assessed to tax for the impugned assessment year 1998-99 under Section 143(3) through the order dated 29.8.2000. A total income of Rs. 3,39,27,350 including long term capital gains of Rs. 11,97,930 was determined therein. The tax account has been worked out by the assessing officer as below:
Tax on income other than capital gain. Rs. 1,14,55,297
Tax on capital gains. 2,39,586
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Rs. 1,16,94,883
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Less: Tax credit available Under Section 115JAA for
carry forward from AY 1997-98. 82,74,895
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34,19,988
Less: TDS 25,79,802
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8,40,186
Add: Interest Under Section 234C 3,605
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8,43,791
Less: Advance Tax 31,50,000
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Refundable 23,06,209
Less: Refunded as per intimation
Under Section 143(1) dt.8.9.1999. 23,06,209
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Balance. NIL
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3. On verification of the records, it appeared to the Commissioner of Incometax, Kochi that the interest should have been levied under Section 234B on a such of Rs. 57,25,495. The said amount represented the assessed tax as reduced by the total of advance taxes paid by the assessee and the credit for tax deducted at source. The C.I.T. therefore observed that, an interest amounting to Rs. 28,91,375 has been omitted to be levied by the assessing officer, otherwise chargeable under Section 234B. According to the Commissioner, this omission has been caused for the reason that the assessing officer wrongly treated the tax credit carried forward under Section 115JAA as equalent to advance tax. It also appeared to the Commissioner that on the same footing, the assessing officer has short levied interest Under Section 234C to the extent of Rs. 3,91,336/-.
4. Therefore, the Commissioner of Incometax found that the assessment order has been erroneous and prejudicial to the interests of Revenue and accordingly proposed to set aside the assessment order under Section 263. Notice was issued calling for assessee's objections. The assessee submitted before the CIT that the tax on the total income of the impugned assessment year itself need to be arrived at after deducting the tax credit available to the assessee Under Section 115JAA, similar to the rebate available to an assessee under Sections 88B, 88C, etc. which are deductible from the tax payable on the total income. It is the argument of the assessee before the Commissioner that the tax credit carried forward under Section 115JAA is to be equated to the rebates available under Section 88, 88B, 88C, etc., for the purpose of determining the assessed tax, which is to be considered for invoking Section 244B and 234C. Therefore, the assessee submitted before the Commissioner of Incometax that the order of the assessing officer cannot be treated as erroneous and prejudicial to the interests of the Revenue on the grounds pointed out by the Commissioner.
5. The Commissioner of Incometax anyhow rejected the contentions of the assessee in the following manner:
"I have considered the assessee's contentions. Looking at the language used in Section 87 and that in Section 115JA, it appears that the rebates available under Chapter VIII and the tax credit carried forward Under Section 115JAA are not intended to be treated on the same footing. As per Section 87, various rebates available under Chapter VIII are to be allowed deduction in computing the amount of income tax on the total income whereas Section 115JAA(5) envasages only a set off of the eligible amount of tax credit against the tax on the total income. The tax credit Under Section 115JAA which is to be set off after determining the tax payable on total income cannot possibly be equated to the rebates under Chapter VIII which are deductible in computing the tax on the total income itself. Neither can it be said that such eligible tax credit qualifies for a deduction advance tax or tax deducted/collected at source, from the tax payable on the total income for arriving at the assessed tax Under Section 234B/234C. In any case, the AO has not applied his mind to all these legal considerations and given a finding. The assessee's argument in this regard is not therefore tenable."
Accordingly, the assessment order was set aside and direction was given to the assessing officer to redo the assessment afresh. The present appeal is against the above revision order.
6. Shri Thomson Thomas, the learned Chartered Accountant appearing for the assessee-company argued the case at length. His contentions were on the basis of the following effective grounds:
1. The learned Commissioner of Incometax ought to have considered the fact that interest Under Section 234B and 234C is chargeable only when tax is payable by the assessee to the Incometax Dept. and not when refund is due to the assessee by the department.
2. The ld.Commissioner ought to have considered the clarification given by the CBDT vide Circular No. 13 of 2001 dt.9.11.2001 which states that assessee are liable for payment of advance tax having regard to the provision contained in Section 115JB. Hence it is clear that when MAT credit is available Under Section 115JAA, assessees are not liable for payment of advance tax having regard to the provisions contained in Section 115JAA.
7. The learned Chartered Accountant contended that interest under Section 234B is to be charged on the amount of "assessed tax". He pointed out that the term "assessed tax" is defined under Explanation 1 to Section 234B(1). As per the said Explanation, and for the purpose of this case, 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.
8. The learned Chartered Accountant therefore contended that in the light of the above definition, while determining the tax on the total income of the assessee, the assessing officer has necessarily to consider the provisions of Section 115JAA. He further explained the various provisions contained in the above Section 115JA.
9. According to the learned Chartered Accountant, where any tax in paid under Section 115JA, Sub-section (1) by an assessee for any assessment year, then the credit in respect of the tax so paid shall be allowed to him in a subsequent assessment year, subject to the other provisions of Section 115JA. As per the provisions of Section 115JAA(4), tax credit under Sub-section (1) has to be set off in an year when the tax becomes payable on the total income computed in accordance with the provisions of the Act, other than Sections 115JA or 115JB.
The learned Chartered Accountant contended that as far as the assessee is concerned, the tax payable on the total income has been determined under Section 143(3). At the same time, while computing the tax payable, the application of the provisions of Section 115JAA are mandatory, in view of the language used in Sub-section (1) thereof. Therefore, it is the contention of the learned Chartered Accountant that whenever tax becomes payable on the total income of an assessee, the assessing officer has necessarily to grant the benefit of set off of the tax credited as provided in Sub-section (4). The result is that the tax liability worked out on the total income has to be reduced first by the credit under Section 115JAA(4). It is from the remainder that credit is to be given towards the payment of advance tax and credits available under TDS.
10. The learned Chartered Accountant further explained the three steps involved in computing "assessed tax" under Section 234B, such as computation of total income at the first instance, computation of tax on total income at the second instance and thirdly, deduction of tax deducted at source and collected at source from the tax determined in the second step above. According to the learned Chartered Accountant, intervention of tax credit allowable under Section 115JAA is automatic by the operation of Sub-section (4). In the case of the assessee, the above steps have been correctly followed in the assessment order and therefore there is no error or prejudice caused, as pointed out by the Commissioner of Incometax.
11. As regards the computation of interest under Section 234C, the learned Chartered Accountant relied on the Explanation to Sub-section (1) thereof, and stated that tax chargeable on the total income means, the tax reduced by the amount of tax deducted or collected at source. Therefore, here also the assessing officer has to provide for the set off in respect of tax credit under Section 115JAA(1).
12. Section 115JAA comes under Chapter XII-B of the Incometax Act, 1961. The learned Chartered Accountant pointed out that the above chapter deals with special provisions relating to certain companies. Therefore, according to him, though these special provisions should prevail upon the general provision in the light of the decision of the Hon'ble Supreme Court in Union of India v. India Fisheries (P) Ltd. (57 ITR 331), if there is an apparent conflict between two independent provisions of law, the special provision must prevail. The learned Chartered Accountant further relied on the decision of the Hon'ble Supreme Court in the case of K. Govindan & Sons (247-ITR-192) to bring home the point that the interpretation of a statutory provision, which would result in an absurd situation, need to be avoided. He also relied on the decision of the Supreme Court in the case of Naga Kills Tea Co. Ltd. (89 ITR 236) to contend that where two views are possible, the one favourable to the assessee need to be followed. He also relied on the decisions reported in 77-ITR-519 and 258-ITR-761. The learned Chartered Accountant further relied on the decision of the Hon'ble Supreme Court in the case of Gwalior Rayon Silk Manufacturing Co.Ltd. (196-ITR-149) where it was held that a provision for deduction, exemption or relief should be construed reasonably and in favour of the assessee. The learned Chartered Accountant pointed out that the benefit of set provided Under Section 115JAA is a relief available to a corporate assessee and therefore it should be deployed in a reasonable manner.
13. The learned Chartered Accountant further contended that an order under Section 263 could be passed only if the order passed by the assessing officer is erroneous in so far as it is prejudicial to the interests of revenue. It was held in Malabar Industrial Company Ltd. v. CIT 243-ITR-83 that when two views are possible and the assessing officer has taken one view with which the Commissioner does not agree, it cannot be treated as erroneous or prejudicial to the interests of Revenue.
14. The learned Chartered Accountant therefore submitted that the revision order passed by the CIT may be set aside.
15. Smt. Sosamma Mathew, the learned Departmental Representative appearing for the Revenue, defended the revision order passed by the Commissioner of Incometax. The learned departmental representative submitted that as per the language used in Explanation 1 to Section 234B, "assessed tax" does not include any items other than the 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 learned departmental representative submitted that interest under Section 234B is levied for the deficiency in the payment of advance tax during the previous year. The said amount of advance tax could be reduced only by the tax deducted or collected at source in the said previous year. The benefit available to an assessee as a set off of tax credit under Section 115JAA(1) is not in the nature of tax deducted or collected at source. She contended that the same ratio applies to the levy of interest under Section 234C. She therefore submitted that the Commissioner of Incometax is justified in law in directing the assessing officer to work out the interest liability without first reducing the set off of credit from the tax computed on the total income of the assessee.
16. We heard both sides in detail and considered the matter. Interest under Section 234B is levied for the defaults in payments of advance tax. Interest under Section 234C is levied for the deferment of advance tax. The law has cast a duty on an assessee to make arrangements for the payment of advance tax at specified rates during the relevant previous year itself. It is the duty of an assessee to work out an estimate of its taxable income relevant for the previous year and compute the advance tax payable thereon. The law further permits and assessee to reduce the amounts deducted or collected at source to the credit of the assessee, from the said liability of advance tax.
17. A simple reading of the above provisions of law makes it clear that an assessee has to first work out its advance tax liability on the estimate basis and thereafter reduce the tax deducted or collected at source and make arrangements for paying the balance in specified instalments during the previous year.
18. The general rule apparent in the above scheme of payment of advance tax is that any amount collected or deducted to the credit of an assessee shall be reduced from the advance tax liability and the net amount alone need to be paid by the assessee. The interest is charged or chargeable either under Section 234B or under Section 234C only with reference to that "net liability towards advance tax". This is in tune with the principle that interest is "compensatory" in nature.
19. If the above principle is extended to the benefit of set off available to an assessee under Section 115JAA, we find that the contentions of the assessee-company need to be accepted. Sub-section (1) of Section 115JAA provides that where any amount of tax is paid under Sub-section (1) or Section 115JA, by an assessee being a company for any assessment year, then credit in respect of tax so paid shall be allowed to it in accordance with the provisions of the said section. Sub-section (2) deals with the quantification of the amount of tax credit. Sub-section (3) allows an assessee to carry forward the amount of tax credit. Sub-section (4) further provides for the set off of the carried forward tax credit in an year when tax becomes payable on the total income computed in accordance with the provisions of the Act other than Section 115JA.
20. Therefore, it could be seen that the benefit of carry forward and set off of tax credit available to an assessee under Section 115JA goes to reduce the tax liability of an assessee. The liability to pay advance tax is invariably linked to the liability for payment of the assessed tax. It is when the payment of advance tax is lesser than the specified limit when compared to the assessed tax, the question of non-payment of advance tax and the question of degarment of advance tax arise in. It is to be seen therefore that the carry forward tax credit available to the assessee goes to reduce the assessed tax of an assessee and thereby as a consequence also reduces the liability towards payment of advance tax. Therefore, even if the tax credit available to an assessee Under Section 115JAA is not specifically mentioned in Explanation 1 to Section 234B, it has to be necessarily seen that the tax credit need to be considered while quantifying the net amount of advance tax payable by an assessee during a particular previous year.
21. There is no doubt that the tax credit available to an assessee reduces the quantum of "assessed tax". It is to be seen that even the payment of advance tax is an advance payment of assessed tax. The final liability in an assessment is always the assessed tax. Therefore, if the tax credit available to an assessee under Section 115JAA reduces the liability of "assessed tax", it also, without any doubt, reduces the liability to advance tax also.
22. The benefit available to an assessee with reference to the tax credit is that of carry forward and set off. It is to be carried forward from the earlier assessment years. Therefore, that credit is available to the credit of an assessee from the beginning of the concerned previous year. In the present case, the assessment year is 1998-99. The relevant previous year is the period from 1st April 1997 to 31st March 1998. The tax credit under Section 115JAA is available to the assessee from 1st day of April 1997 onwards. The credit is available to the benefit of the assessee even before the due date for the payment of the first instalment of advance tax; because tax credit is carried forward and becomes operative from the beginning of the concerned previous year itself.
23. Therefore, there is no doubt that the tax credit available to an assessee under Section 115JAA is operative from the beginning of the previous year and amounts to constructive payment of advance tax to the extent available. Therefore, the assessing officer is justified in first giving the tax credit available to the assessee under Section 115JAA. Interest Under Section 234B and 234C can be levied only on that deficiency of tax resulting even after giving credit to the set off of the brought forward tax credit.
24. In view of this matter, we find that the order passed by the assessing officer is not erroneous or prejudicial to the interests of the Revenue. The order passed by the Commissioner of Incometax is therefore liable to be set aside.
25. In the result, the appeal filed by the assessee is allowed. Order accordingly.