Ita/1203/2009 Of The Commissioner Of Income Tax, Cochin v. Metrolla Steels Ltd, Muvattupuzha

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN THURSDAY, THE 21ST JANUARY 2010 / 1ST MAGHA 1931 ITA.No. 1203 of 2009() ---------------------- ITA.244/COCH/2006 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT: ------------------------------ THE COMMISSIONE OF INCOME TAX, COCHIN. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): --------------- METROLLA STEELS LTD., MADAMPARAMBIL CHAMBERS, MUVATTUPUZHA-686 661. ADV. SRI.A.KUMAR FOR R THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 20/01/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C .N. RAMACHANDRAN NAIR &V.K. MOHANAN, JJ. -------------------------------------------- -------------------------------------------- Dated this the 21st day of January, 2010 JUDGMENT Ramachandran Nair, J. The question raised in the appeal filed by the revenue iswhether the Tribunal was justified in holding that respondent-assessee is entitled to interest under Section 244A of the IncomeTax Act on the refund amount equal to the tax credit given underSection 115JAA of the Act. We have heard standing counselappearing for the appellant-revenue and Sri. A. Kumar, counselappearing for the respondent-assessee. 2. The facts leading to the appeal are the following. The assessment for the assessment year 2002-03 was completed underSection 115JAA on book profit and the assessee had remitted taxliability computed for that year. Under the said assessment, theassessee gets a tax credit of Rs. 18,98,136/- to be carried over to thenext year, if that year's regular assessment leads to liability for tax.For the assessment year 2003-04 regular assessment was completed determining tax liability at Rs. 47.5 lakhs. After setting-offthe MAT credit carried from the immediately preceding year, 2002-03, and after adjusting the pre-paid taxes, a refund was granted tothe assessee. Though the assessee is entitled to interest on refundunder Section 244A of the Act, the assessing officer computedinterest payable to the assessee after excluding from the refundamount, the MAT credit adjusted towards tax liability. In other words,interest was granted on the net amount refunded after reducing fromthe total refund the amount of tax credit given to the assessee underthe MAT scheme. Since the assessment completed was anintimation under Section 143(1) of the Act, the assessee filedrectification application demanding interest under Section 244A onMAT credit also which was declined by the assessing officer. In theappeal filed against this order declining to grant interest underSection 244A on MAT credit adjusted against tax liability, the firstappellate authority allowed the assessee's claim directing granting ofinterest on the total refund including MAT credit as well. On secondappeal, the Tribunal confirmed the order of the CIT (Appeals),against which the department has filed this appeal. 3. Standing counsel appearing for the revenue has referred to 3. Standing counsel appearing for the revenue has referred to sub-section (2) of Section 115JAA and contended that under theproviso to the said sub-section, no interest could be granted on thetax credit allowed to the assessee under sub-section (1). Accordingto counsel for the revenue, interest referred to therein is the interestpayable under Section 244A of the Act and so much so the firstappellate authority as well as the Tribunal wrongly declaredassessee's eligibility for interest on refund of tax credit adjustedunder MAT scheme. Counsel for the respondent-assessee on theother hand contended that once tax credit is given the same partakesthe character of tax payment along with pre-paid taxes includingadvance tax paid, tax deducted at source, etc. and therefore theassessee is entitled to interest on entire refund amount underSection 244A of the Act. In order to consider the controversy wehave to necessarily refer to Section 115JAA of the Act, which isextracted hereunder with sub-section (2) and proviso thereof: 115JAA. Tax credit in respect of tax paid on deemedincome relating to certain companies. (1)....... (2) The tax credit to be allowed under sub-section (1)shall be the difference of the tax paid for any assessment year under sub-section (1) of Section 115JA and theamount of tax payable by the assessee on his totalincome computed in accordance with the other provisionsof this Act: Provided that no interest shall be payable on the taxcredit allowed under sub-section (1). ............ Admittedly assessee is entitled to interest on refund under Section244A of the Act. It is clear from the said provision that onassessment pre-paid taxes are adjusted which includes tax deductedat source, advance tax paid, etc., and if the pre-paid taxes exceedthe tax liability then refund is to be granted to the assessee withinterest in terms of Section 244A of the Act. The question to beconsidered is whether the proviso to Section 115JAA (2) is to bereckoned while granting interest under Section 244A of the Act. Taxpaid for an earlier year under MAT scheme is given credit foradjustment towards liability for the subsequent years to an assesseeonly by virtue of operation of Section 115JAA (1) of the Act. Sub-section (2) of Section 115JAA says that tax credit is the differencebetween the tax payable on book profit, i.e., under Section 115JAA(1) and the tax found as payable in the computation of income in accordance with the provisions of the Act. Therefore what is allowedto be carried over as tax credit is the tax paid on deemed incomewhich but for the specific provision the assessee was not liable topay. The benefit of carried forward and set off of tax so paid is abenefit available to the assessee by virtue of the specific provisioncontained in sub-section (2). It was upto the Legislature to denyinterest payable under Section 244A on tax credit adjustmentallowed leading to refund payable to the assessee. The proviso toSection 115JAA (2) expressly bars grant of interest on tax creditrefunded. The only provision for interest on refund is Section 244Aof the Act and so much so, in our view, the interest referred to in theproviso to Section 115JAA (2) can be only the interest on refund towhich the assessee is otherwise eligible under Section 244A of theAct. When there is express bar against granting of interest on taxcredit under the proviso to Section 115JAA (2) we do not find anyjustification for the Tribunal to declare the eligibility for interest on taxcredit under Section 244A of the Act. In fact, the period for whichinterest is granted on refund under Section 244A itself shows that taxcredit is not intended to be covered therein as part of refund becausetax under the MAT Scheme is paid in the earlier years and credit is worked out for each year and allowed to be carried over for limited worked out for each year and allowed to be carried over for limited number of years. We therefore hold that the proviso to Section115JAA (2) expressly prohibits reckoning of tax credit while grantinginterest on refund under Section 24A of the Act. In other words,interest on refund should be granted under Section 244A afterreducing MAT credit given from refund amount. 4. Appeal is therefore allowed by vacating the order of theTribunal and that of the first appellate authority and by restoring theorder of the Officer rejecting the claim. (C.N.RAMACHANDRAN NAIR) Judge. (V.K. MOHANAN) Judge. kk