Income Tax Appellate Tribunal - Chennai
Chemplast Sanmar Ltd. vs Deputy Commissioner Of Income Tax on 22 March, 2004
Equivalent citations: (2004)83TTJ(CHENNAI)427
ORDER
N. Barathvaja Sankar, A.M.:
1. The assessee, M/s Chemplast Sanmar Ltd. Chennai, has filed this appeal for the asst yr 2002-03 against the order dt 23rd May, 2003, of the CIT(A)-III, Chennai, raising the following grounds of appeal:
"1. The learned CIT erred in upholding the action of the AO by not adjusting the carry forward MAT credit before calculating interest under Sections 234B and 234C.
2. The learned CIT has failed to appreciate the fact that as per Sub-section (4) of Section 115JAA (which is reproduced as below), tax credit shall be allowed to be set off in a year when tax becomes payable on normal computation.
'The tax credit shall be allowed set off in a year when tax becomes payable on the total income computed in accordance with the provisions of this Act other than Section 115J'
3. The learned CIT(A) erred in ignoring the submission that the logic behind Section 115JAA(3) clearly established that the tax paid under Section 115JA and provided right of set off under Section 115JAA shall be treated as tax paid ahead of advance tax Section 115JAA(3) stipulates that no interest shall be paid by the IT Department on credit available under Section 115JAA implying thereby the tax represented by it be considered similar to advance tax.
4. The learned CIT(A) ought to have appreciated that the interpretation of the Department upheld by him would lead to absurd consequences. The stand taken by the Department would require that a company wanting to avoid penal effects of interest under Sections 234B and 234C would first be called upon to pay advance tax without reckoning the credit available under Section 115JAA and claim refund of advance tax while filing the return. Further, it results in a situation where MAT credit get elapsed without being adjusted, which would lead to absurd consequences.
5. The learned CIT(A) ought to have appreciated that the Finance Minister in his Budget Speech (extract enclosed) had contemplated the relief by way of credit under Section 115JAA as part of change of method of charging and collecting tax Thus, the tax chargeable and collectible is itself to be determined net of credit under Section 115JAA.
6. The learned CI0T has failed to appreciate that the word 'shall be allowed' as provided in the Sub-section (4) of Section 115JAA means that the provision is mandatory. The meaning of the same has to be construed as such unless there is something in the context in which the word is used which would justify a departure from the meaning. As per Sub-section (4) of Section 115JAA the tax credit 'shall be allowed' set off in a year when tax becomes payable on the total income computed in accordance with the provisions of this Act other than Section 115JA. Hence, the provision of Section 115JAA has to be applied first before charging interest under Sections 234B & 234C.
7. The learned CIT has failed to appreciate that the provision of Section 115JAA is a special provision and has to be applied first as it is a tax credit or prepaid taxes with Government available to the appellant for set off before applying the provisions of Sections 234B and 234G."
2. The facts of the case are that the assessee is a company engaged in the manufacture and sale of PVC resins, caustic soda, chloromethane, refrigerant gases, promotion of new ventures, undertakings, companies and operation of ships, etc. For the asst yr 2002-03 the assessee filed its return of income on 31st Oct, 2002, admitting a taxable income of Rs. 32,90,54,720 and the tax payable thereon was determined at Rs. 11,76,77,896 including the interest under Section 234C of Rs. 2,05,361. The AO processed the return under Section 143(1) by intimation dt 21st Feb , 2003, accepting the income returned. While computing the tax, the AO has not adjusted the carry forward MAT credit available to the assessee before charging interest under Section 234B of Rs. 1,17,64,830 and under Section 234C of Rs. 56,31,754 and raised a tax demand of Rs. 1,64,86,519. Further, the AO had not given credit for IDS of Rs. 4,49,527. The assessee went in appeal before the CIT(A) contending that the AO has failed to appreciate the fact that as per Sub-section (4) of Section 115JAA tax credit shall be allowed to be set off in a year when tax becomes payable on normal computation and that the provision of Section 115JAA had to be applied first as it is a tax credit or prepaid taxes with the Government available to the assessee for set off, before applying the provisions of Sections 234B and 234C. The CIT(A) held that the order of priority of adjustment of TDS, advance tax and tax credit under Section 115JA had not been spelt out in the Act, that one had to take recourse to the IT Rules, 1962, for this purpose, that r 12(1)(a) of the IT Rules, 1962, lays down that in the case of a company the return of income required to be furnished shall be in Form No. 1, that Sch G to Form No.1 lays down the manner of computing the total tax payable by the assessee, that it also gives the order in which TDS, advance tax and tax credit under Section 115JAA, shall be given effect to, that Form No. 1 has been substituted by Income-tax (19th Amendment) Rules, 2001, w.e.f. 17th Aug., 2001, and that, therefore, there was no ambiguity w.e.f. 17th Aug., 2001, that interest under Sections 234B or 234C shall be first deducted and thereafter tax credit under Section 115JAA shall be given Regarding the claim that no credit was given for TDS of a sum of Rs. 4,49,527, the first appellate authority directed the AO to examine the claim of the assessee and to allow the same in accordance with law after verifying the certificates.
3. Still aggrieved, the assessee is in second appeal before us on the issue of adjustment of MAT credit against the tax payable before charging interest under Sections 234B and 234C, with the grounds of appeal extracted elsewhere in this order At the time of hearing the learned counsel for the assessee placed on record the following:
1. Xerox copy of CBDT Circular No.689 dt 24th Aug , 1994.
2 Xerox copy of the decision of the CIT(A) on similar issue in the case of Aban Lloyd Chiles Offshore Ltd., Chennai.
By placing the above materials on record the learned counsel for the assessee, apart from reiterating the grounds of appeal raised before us as his contentions, to say in brief, that 4.1 MAT credit, advance tax and TDS are sufficient to meet the tax liability. It is the contention of the Department that as the appellant has not paid sufficient sums by way of advance tax and interest under Sections 234B and 234C are leviable and for that purpose the MAT is not taken into account. In other words, it is the contention of the Department that the appellant should have paid advance tax to the full extent notwithstanding the availability of MAT credit and obtained refund.
4.2 Section 115JAA(1) provides for credit for tax paid under Section 115JA. Under Sub-section (2) of Section 115JAA the tax credit is the difference between the tax payable under MAT and the tax payable under the normal computation under the IT Act. Under the proviso to that section no interest shall be allowable on the credit Under Sub-section (3) the credit amount shall be carried forward and set off in accordance with Sub-section (4) and the carry forward will be for a period of four years. Under Sub-section (4) tax credit shall be set off in the year in which tax becomes payable under normal computation. Under Sub-section (5) carried forward tax credit is set off to the extent of the difference between the regular computation and the book profits. It does not contemplate set off after reduction of advance tax and TDS. Under Sub-section (6) if there is increase or decrease of the demand, the credit shall also be increased or decreased. Here again there is no question of setting off of the advance tax or TDS.
4.3 In the assessment year when an assessee is taxed under Section 115JA, then the difference between the tax on book profits and the tax under normal computation is treated as MAT credit and retained by the Department. This tax credit is to be carried forward and in the year when the assessee is taxable under the normal computation of the income-tax, carried forward tax credit is set off against the difference between the tax payable under normal computation and the tax payable on book profits. If the tax liability is increased or decreased on account of appeal, revision, rectification and reopening, then the amount of credit set off is also increased or decreased. The amount of unutilised credit is not to be repaid. When the credit is adjusted, no interest is payable from the date of payment to the date of adjustment on such adjusted credit. Therefore, under the scheme of things, tax paid under Section 115JA, as computed under Section 115JAA is advance tax retained by the Department itself for setting off against the tax liability of future years. Carry forward and set off of the tax credit is statutorily provided and is mandatory.
4.4 The set off of credit under Sub-section (5) is against the difference between the tax payable under normal computation and the tax payable on book profits. Again, under Sub-section (6) credit is to be increased or decreased on the basis of increase or decrease of the tax liability. Thus, the set off of credit is against the tax computed, or as the case may be increase or decrease thereof and not against the balance of tax payable after deducting the advance tax and TDS. Thus, the tax credit is the first amount to be set off against the tax payable and not after advance tax and TDS, Therefore, for the purpose of Section 234B also the tax credit is to be adjusted even before reducing the advance tax and TDS.
4.5 The phrase used is 'set off and not 'deduction'. The tax credit is set off against the tax payable and hence the tax payable in any year is only the amount after set off of the credit under Section 115JAA. For the purpose of computing the interest the amount of tax payable after the set off only should be taken.
4.6 Under Sections 90 and 91 also tax paid in foreign country is set off before determining the tax liability as well as interest.
4.7 The Madras High Court in the case of CIT v. T.T. Investments & Tiades (P) Ltd. (1984) 148 ITR 347 (Mad) has held that any ad hoc amount paid before the end of the previous year and adjusted against the tax liability should be treated- as advance tax.
4.8 Computation of credit, carry forward and set off is mandatorily provided in the statute. It will lead to absurd result if the assessee is expected to pay advance tax to the extent of MAT credit and expected to get refund at the time of assessment. Such interpretation is to be avoided.
4.9 When a literal interpretation leads to absurd and unintended results, the language can be modified to accord with the intention of the Parliament and avoid absurdity. In this connection the ratio of the following case law may be looked into :
1. C.W.S. (India) Ltd. v. CIT (1994) 208 ITR 649 (SC)
2. K. Govindan and Sons v. CIT (2001) 247 JTR 192 (SC)
3. Dy. CIT v. Shaw Wallace and Co. Ltd. (2001) 248 ITR 81 (Cal).
Rational construction to achieve the intention of the legislature is a must. If strict construction leads to absurd results then if another construction is possible other than the strict construction the other construction should be followed. In this connection the following case law were cited :
1. CIT v. J.H. Gotia (1985) 156 ITR 323 (SC)
2. CIT v. Textool Co. Ltd. (2002) 257 ITR 39 (Mad)
3. CIT v. Smt. Bharati C. Kothari (2000) 244 ITR 352 (Cal)
4. ITO v. H.P. Vishweswaraiah (2001) 250 ITR 863 (Kar).
4.10 The provisions of the Act as a whole should be taken in interpreting a section and the decision of the Hon'ble Calcutta High Court in the case of West Bengal State Electricity Board v. Dy. CIT (2001) 248 ITR 152 (Cal) supports this view.
4.11 When two views are possible the construction which favours the assessee is to be preferred. In support of this proposition the following case law are relied on :
1. Union of India v. Onkar S. Kanwar (2002) 258 JTR 761 (SC)
2. Asstt. CIT v. Thanthi Trust, Etc. Etc. (2001) 247 ITR 785 (SC)
3. Vijay Omprakash Bansal v. CIT (2002) 257 JTR 649 (Bom)
4. CIT v. L.G. Balakrishnan (2002) 255 ITR 339 (Mad)
5. CIT v. Ouantas Airlines Ltd. (2002) 256 ITR 84 (Del)
6. Southern Roadways Ltd. v. CWT (2001) 251 ITR 213 (Mad).
4.12 Without prejudice, the following submissions are made. After 15th June, 1999, Section 143(1) has been amended, Even the adjustments permitted under erstwhile Section 143(1)(a) was withdrawn. The only action permitted is to demand tax due as per the return or grant refund based on the return. No adjustment is contemplated or permitted. Thereafter, the AO can only demand or refund tax as per the return of income. In this case he has made an addition which is not permissible even in the erstwhile Section 143(1)(a), as there are two opinions possible.
4.13 The CIT(A) had allowed other assessees' contention in similar cases. He has now held that in view of the changed form of the return from 17th Aug., 2001, the interpretation has changed. Sections cannot be interpreted on the basis of forms of return. In this connection the decision of the Kerala High Court in the case of CIT v. M.M. George (2001) 254 ITR 45 (Ker) is relied upon.
5. On the other hand, the learned Departmental Representative relied upon the order of the CIT(A) and reiterated the contents of the same as his submissions. His emphasis was mainly on Sch, G to Form 1 to the IT Rules, which has been discussed in the impugned order by the CIT(A).
6.1 We have heard the rival submissions and considered the facts and the materials on record including the case law cited by the learned counsel for the assessee and the Budget Speech for 1997-98 of the Finance Minister, copy of the relevant extract of which has been filed on record by the learned counsel for the assessee.
6.2 The simple point at issue awaiting our adjudication is whether the MAT credit available for set off against the tax payable for the asst. yr. 2002-03 is to be adjusted against the tax payable for the assessment year arrived at by the AO before charging of interest under Sections 234B and 234C of the Act or the same is to be adjusted against the total tax and interest due arrived at by the AO after charging interest under Sections 234B and 234C of the Act.
6.3 The fact remains that the AO while preparing the intimation under Section 143(1) of the Act (intimation dt. 21st Feb., 2003), has charged interest under Sections 234B and 234C on the tax payable by the assessee and then proceeded to adjust the MAT credit available from the total amount of tax plus interest under Sections 234B and 234C of the Act. The MAT credit available for the assessee was Rs. 8,64,72,445. This amount was adjusted against the total amount due towards tax and interest under Sections 234B and 234C as arrived at by the AO which has resulted in a demand of Rs. 1,64,86,519, for which a demand notice was issued by the AO. The assessee while filing the return has adjusted the MAT credit of Rs. 8,64,72,445 from the tax due for the assessment year and had arrived at a refund of Rs. 11,54,231. In effect, due to the change in the method of adjustment of MAT credit available for the assessee for the relevant assessment year in a sum of Rs. 8,64,72,445, the assessee is made liable to pay a further sum of Rs. 1,64,86,519, being interest under Sections 234B and 234C of the Act. In other words, if the method adopted by the assessee is accepted, the assessee is getting a refund of Rs. 11,54,231, whereas if the method adopted by the AO is adopted the assessee is liable to pay a further sum of Rs. 1,64,86,519 though the assessee is eligible for adjustment of MAT credit of Rs. 8,64,72,445 6.4 We have been called upon in this case to decide as to the point at which the MAT credit is to be adjusted from the tax due from the assessee for the relevant assessment year Let us approach this point at issue from two angles, namely, (i) logical and (ii) legal Let us first approach the point at issue from the logical angle. The fact remains that the assessee is eligible for adjustment of MAT credit to the extent of Rs. 8,64,72,445, which the assessee had already paid during the earlier years and which had been brought forward to this assessment year being eligible for adjustment against the tax on total income that would be payable for the asst yr 2002-03 When that is so the AO has not adjusted this MAT credit (tax credit) first before charging of interest under Sections 234B and 234C and has allowed this credit only after charging the interest under Section 234B and 234C from the resultant figure. The Department had already kept with it the tax already paid by the assessee in earlier years under Section 115JAA of the Act and enjoyed the benefit of the amount available with it. The Government has also promised the assessee that in the year in which the assessee is liable to pay tax under the normal provisions of the Act such MAT credit would be adjusted against the tax that would have to be paid in the assessment year in which the assessee is liable to pay the tax under the normal provisions of the Act. In other words, the Government has promised the assessee one thing but had not complied with such promise by charging interest under Sections 234B and 234C first before adjustment of such MAT credit From the Budget Speech delivered by the Finance Minister for the financial year 1997-98 (para 99 of that Budget Speech) it can be seen that the Finance Minister has expressed that there was case for review of the manner in which the tax is charged and collected and, therefore, he proposed to make certain changes in the provisions of MAT Pursuant to such decision the following change was made, which is found at para 99 of the Budget Speech:
"(ii) A system of credit will be introduced in respect of the payment of MAT. When a company pays MAT, the tax credit earned by it shall be allowed to be carried forward for a period of 5 assessment years and, in the assessment year when regular tax becomes payable, the difference between the regular tax and tax computed under MAT for that year will be set off against the MAT credit available. Thus, at the proposed new rate of corporate tax, every company including the zero tax companies, would have to pay income-tax of not less than 10 5 per cent on its book profits."
It can be seen from the above paragraph that the intention of the legislature was to adjust from the difference between the regular tax and the tax paid under the MAT from the relevant assessment years the MAT credit already available for the assessment. This would mean that the assessee is entitled to adjust the MAT credit first before charging of interest under Sections 234B and 234C. Even otherwise, keeping the assessee's money under the promise to adjust the same against the tax due in a particular assessment year and charging interest before making such adjustment seems to be very illogical in our view because, on the one hand, the Government is keeping the assessee's money with it in the form of MAT credit for the three previous assessment years without assigning the interest-bearing character and, on the other hand, the Government is charging interest on the whole of the tax for the present assessment year without adjusting such MAT credit. It is like putting the cart before the horse.
6.5 There is force in the contention of the assessee's counsel that the set off of credit under Sub-section (5) is against the difference between the tax payable under the normal computation and the tax payable on book profit, and that again under Sub-section (6) credit is to be increased or decreased on the basis of increase or decrease of the tax liability, and that thus the set off of credit is against the tax computed, or, as the case may be, increase or decrease thereof and not against the balance of tax payable after deducting the advance tax and TDS. There is also force in the contention of the learned counsel for the assessee that the phrase used is 'set off' and not 'deduction' and that the tax credit is set off against the tax payable and hence the tax payable in any year is only the amount after set off of the credit under Section 115JAA. The reliance of the learned counsel for the assessee on the decision of the Madras High Court in the case of T.T. Investments and Trades (P) Ltd. (supra), which had held that any ad hoc amount paid before the end of the previous year and adjusted against the tax liability should be treated as advance tax is also more relevant Even applying the ratio of this decision the MAT credit available for the assessee to set off against the tax payable during the relevant assessment year is to be atleast treated as advance tax and interest under Sections 234B and 234C is to be charged only after adjustment of such tax credit available.
6.6 Now, let us turn to the legal aspect of the issue. The learned CIT(A) has upheld the action of the AO under Section 143(1) of the Act merely for the reason that the order of priority of adjustment of TDS, advance tax and tax credit under Section 115JA has not been spelt out in the Act and that one has to take recourse to the IT Rules, 1962, for this purpose and that Rule 12(1)(a) of the IT Rules, 1962, laid down that in the case of a company the return of income required to be furnished shall be in Form No. 1 and that Schedule G to Form No. 1 laid down the manner of computing the total tax payable by the assessee, and that it also gives the order in which TDS, advance tax and tax credit under Section 115JAA shall be given effect to and that Form No. 1 had been substituted by the Income-tax (19th Amendment) Rules, 2001, w.e.f. 17th Aug. , 2001, and that therefore there was no ambiguity w.e.f. 17th Aug., 2001, that interest under Sections 234B and 234C shall be first deducted and thereafter tax credit under Section 115JAA shall be given. For the above reasons the CIT(A) has upheld the action of the AO.
6.7 Now, let us consider whether rule can prescribe order of priority of adjustment of TDS, advance tax and tax credit under Section 115JAA. The Act is silent about the same. The CBDT gets the power of making rules by virtue of Section 295 of the IT Act. Generally, while various provisions of the legislative enactments contain the law broadly, principles and the main policy of the legislature on the relevant subject, the minute details and procedural matter are delegated to some authority for making subordinate legislation. This is for the simple reason that procedural matters are best handled by the implementing authority and the Parliament can give its precious time for more important matters. Thus, the rule making power of the Board (Central Board of Direct Taxes) is the delegated or subordinate legislation only. In delegating powers to an administrative authority such authority cannot be given an arbitrary and uncontrolled discretion to make Rules. The Rules made under the rule making power should strictly conform to the intention of the main provisions of the statute and be consistent therewith. A delegate is not entitled to exercise powers in excess of or in contravention of the delegated powers. If the aforesaid principles are not followed such rules are illegal, void or ultra vires. The above views are supported by the following decisions:
1. V. Verghese and Anr. v. Dy. CIT (1994) 210 ITR 526 (Kar)
2. Asstt. CCE v. Ramakrishnan Kulwant Rai (1990) 184 ITR 387 (SC)
3. Supreme Court Employees Welfare Association AIR SC 334
4. Chittoor Traders Association 2 SCC 58
5. ITO v. M.C.T. Trust and Ors. (1976) 102 ITR 138 (Mad).
Since the Rules are meant to carry out the provisions of the Act, these cannot take away what is conferred by the Act or to whittle down its effect--see CIT v. Taj Mahal Hotel (1971) 82 ITR 44 (SC).
6.8 The well-established rule of interpretation is that the same expressions contained in the Act as well as in the Rules framed thereunder have to receive an identical construction [CWT v. Vasantha (1973) 87 ITR 17, 21 (Mad)]. Section 20 of the General Clauses Act, 1897, specifically provides that where, by any Central Act or Regulation, a power to issue any notification, order, scheme, rule, form or bye-law is conferred, then, expression used in the notification, etc., shall, unless there is anything repugnant in the subject or context, have the same respective meanings as in the Act or Regulation conferring the power. A rule made by the rule making authority cannot enlarge or expand the meaning of a word used in a section [CIT v. Aruna Sugars Ltd. (1980) 123 ITR 619, 624 (Mad)], or the meaning of the section. If a rule goes beyond what the section contemplates, the rule must yield to the statute [see Central Bank of India v. Their Workmen AIR 1960 SC 12, Chandra Kumar Sah v. District Judge, AIR 1976 All 328(FB)].
6.9 The rule-making authority is given to the end that the provisions of the statute may be better carried out into effect and not with a view to neutralizing or contradicting those provisions [East Asiatic Co. (India) Ltd. v. State of Madras (1956) 7 STC 299, 314 (Mad)). The rule-making authority cannot, in exercise of its rule making power, destroy a substantive right created by a provision of the statute [A.H.M. Allaudin v. Addl. ITO (1964) 52 ITR 900, 904 (Mad)], or alter, affect or abrogate a legislative provision in any other statute [Revula Subba Rao v. CIT (1951) 20 ITR 337, 346 (Mad,)]nor can give any greater power to an authority than what is granted in the Act itself [Basudeb Hota v. State of Orissa (1958) 9 STC 663 (Ori)].
6.10 In this case on hand we have to first go through the provisions of Section 115JAA regarding adjustment of tax credit. Sub-section (5) of Section 115JAA reads as under:
"Set off in respect of brought forward tax credit shall be allowed for any assessment year to the extent of the difference between the tax on his total income and the tax which would have been payable under the provisions of Sub-section (1) of Section 115JA (or Section 115JB, as the case may be) for that assessment year."
It can be seen from the above section that the statute intends to allow set off in respect of brought forward tax credit (MAT credit) and it has to be allowed to the extent of the difference between the tax on its total income and the tax which would have been payable under the provisions of Sub-section (1) of Section 115JA. It may be seen that in this section the legislature has used the word 'tax' and not 'tax and interest under Sections 234B and 234C of the Act'. In such circumstances it is to be inferred that the intention of the legislature is to allow set off of the MAT credit from the 'tax' and not from the total amount including 'tax and interest'. Had it been the intention of the legislature it would have been specifically stated in the section itself. By exercising the delegated authority, the CBDT has framed the forms for filing the returns of income for the companies and while framing Form No. 1, the delegated authority, namely, the CBDT, has included Schedule G (statement of tax) to Form No. 1. While drafting this Schedule the Board has given the order of preference of adjustment of TDS, advance tax and tax credit under Section 115JAA. While doing so the Board has first prescribed charging of interest under Sections 234A and 234B and then has prescribed to give credit for MAT credit available under Section 115JAA of the Act. In our considered view this method of prescribing the order of priority of adjustment of TDS, advance tax and MAT credit is totally against the intention of the legislature because the legislature by insertion of Sub-section (5) to Section 115JAA has intended to give set off of MAT credit against the difference between the tax on total income of the assessee and the tax which would have been payable under the provisions of Sub-section (1) of Section 115JA, and not on the total amount of tax and interest under Sections 234B and 234C as understood by the rule-making authority. Hence in our considered opinion, Schedule G to Form No. 1 is totally against the intention of the legislature which has been clearly prescribed in Section 115JAA. As has been already pointed out in the earlier paragraphs, rules cannot be contrary to the provisions of sections or the intention of the legislature. Hence, as we have already held that Schedule G to Form No. 1 is contrary to the provisions of Section 115JAA, we are inclined to allow the claim of the assessee by directing the AO to give set off of the MAT credit of Rs. 8,64,72,445 first, before the charging of interest under Sections 234B and 234C of the IT Act, 1961.
6.11 Thus, looking the point at issue, both from logical and legal angles, we are unable to uphold the orders of the first appellate authority in denying the claim of the assessee.
7. In the result, the appeal filed by the assessee is allowed.