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IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOs.10677-79 OF 2010 (arising out of S.L.P. (C) Nos. 25320-25322 of 2009)

Commissioner of Income Tax, Chennai … Appellant(s)

                     versus

Tulsyan NEC Ltd. …  Respondent(s)

with Civil Appeal Nos.10680-81/2010 (@ S.L.P. (C) Nos. 29672- 73/09), Civil Appeal No.10682/2010 (@ S.L.P. (C) No. 27584/09), Civil Appeal No.10683/2010 (@ S.L.P. (C) No. 29674/09), Civil Appeal No.10684/2010 (@ S.L.P. (C) No. 29675/09), Civil Appeal No.10685/2010 (@ S.L.P. (C) No. 25691/09), Civil Appeal No.10686/2010 (@ S.L.P. (C) No. 25850/09), Civil Appeal No.10687/2010 (@ S.L.P. (C) No. 26330/09), Civil Appeal No.10688/2010 (@ S.L.P. (C) No. 26523/09), Civil Appeal No.10689/2010 (@ S.L.P. (C) No. 27353/09), Civil Appeal No.10690/2010 (@ S.L.P. (C) No. 30207/09), Civil Appeal No.10691/2010 (@ S.L.P. (C) No. 30209/09), Civil Appeal No.10692/2010 (@ S.L.P. (C) No. 30212/09), Civil Appeal No.10693/2010 (@ S.L.P. (C) No. 30235/09), Civil Appeal No.10694/2010 (@ S.L.P. (C) No. 30217/09), Civil Appeal No.10695/2010 (@ S.L.P. (C) No. 30214/09), Civil Appeal No.10696/2010 (@ S.L.P. (C) No. 30213/09), Civil Appeal Nos.10697-98/2010 (@ S.L.P. (C) Nos. 30237- 38/09), Civil Appeal Nos.10699-10700/2010 (@ S.L.P. (C) Nos. 30240- 41/09), Civil Appeal No.10701/2010 (@ S.L.P. (C) No. 30242/09), Civil Appeal No.10702/2010 (@ S.L.P. (C) No. 32044/09), Civil Appeal No.10703/2010 (@ S.L.P. (C) No. 32045/09), Civil Appeal No.10704/2010 (@ S.L.P. (C) No. 31396/09), Civil Appeal No.10705/2010 (@ S.L.P. (C) No. 31782/09), Civil Appeal No.10706/2010 (@ S.L.P. (C) No. 31812/09), Civil Appeal No.10708/2010 (@ S.L.P. (C) No. 26265/09), Civil Appeal No.10709/2010 (@ S.L.P. (C) No. 30854/09), Civil Appeal No.10710/2010 (@ S.L.P. (C) No. 30254/09),

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Civil Appeal No.10711/2010 (@ S.L.P. (C) No. 31785/09), Civil Appeal No.10712/2010 (@ S.L.P. (C) No. 31786/09), Civil Appeal No.10713/2010 (@ S.L.P. (C) No. 31787/09), Civil Appeal No.10714/2010 (@ S.L.P. (C) No. 33764/09), Civil Appeal No.10715/2010 (@ S.L.P. (C) No. 33991/09), Civil Appeal No.10716/2010 (@ S.L.P. (C) No. 33744/09), Civil Appeal No.10717/2010 (@ S.L.P. (C) No. 33747/09), Civil Appeal No.10718/2010 (@ S.L.P. (C) No. 33748/09), Civil Appeal No.10719/2010 (@ S.L.P. (C) No. 33148/09), Civil Appeal No.10720/2010 (@ S.L.P. (C) No. 34742/09), Civil Appeal No.10721/2010 (@ S.L.P. (C) No. 34743/09), Civil Appeal No.10722/2010 (@ S.L.P. (C) No. 34744/09), Civil Appeal No.10723/2010 (@ S.L.P. (C) No. 34740/09), Civil Appeal No.10724/2010 (@ S.L.P. (C) No. 34133/09), Civil Appeal No.10725/2010 (@ S.L.P. (C) No. 35671/09), Civil Appeal No.10726/2010 (@ S.L.P. (C) No. 35598/09), Civil Appeal No.10727/2010 (@ S.L.P. (C) No. 1149/10), Civil Appeal No.10728/2010 (@ S.L.P. (C) No. 668/10), Civil Appeal Nos.10729-30/2010 (@ S.L.P. (C) Nos. 1152- 53/10), Civil Appeal No.10731/2010 (@ S.L.P. (C) No. 1130/10), Civil Appeal No.10732/2010 (@ S.L.P. (C) No. 666/10), Civil Appeal No.10733/2010 (@ S.L.P. (C) No. 642/10), Civil Appeal No.10734/2010 (@ S.L.P. (C) No. 1702/10), Civil Appeal No.10735/2010 (@ S.L.P. (C) No. 2416/10), Civil Appeal No.10736/2010 (@ S.L.P. (C) No. 2971/10), Civil Appeal No.10737/2010 (@ S.L.P. (C) No. 2969/10), Civil Appeal No.10738/2010 (@ S.L.P. (C) No. 4542/10), Civil Appeal No.10739/2010 (@ S.L.P. (C) No. 5435/10), Civil Appeal No.10740/2010 (@ S.L.P. (C) No. 31394/09), Civil Appeal Nos.10745-46/2010 (@ S.L.P. (C) Nos. 8601- 02/10), Civil Appeal No.10747/2010 (@ S.L.P. (C) No. 8998/10), Civil Appeal No.10748/2010 (@ S.L.P. (C) No. 12310/10), Civil Appeal No.10749/2010 (@ S.L.P. (C) No. 13052/10), Civil Appeal No.10750/2010 (@ S.L.P. (C) No. 13053/10), Civil Appeal No.10751/2010 (@ S.L.P. (C) No. 9078/10), Civil Appeal No.10752/2010 (@ S.L.P. (C) No. 17875/10), Civil Appeal Nos.10753-55/2010 (@ S.L.P. (C) Nos. 20258-60  /10), Civil Appeal No.10756/2010 (@ S.L.P. (C) No. 22722/10), Civil Appeal No.10757/2010 (@ S.L.P. (C) No. 23576/10), Civil Appeal No.10758/2010 (@ S.L.P. (C) No. 30780 /10),

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Civil Appeal No.10759/2010 (@ S.L.P. (C) No. 31601/10) and Civil Appeal No.10760/2010 (@ S.L.P. (C) No. 638/10),

J U D G M E N T

S. H. KAPADIA, CJI

1. Leave granted.

2. The  issue  involved  in  this  batch of  civil  appeals,  by  

special leave, filed by the Department relates to the question  

whether MAT credit admissible in terms of Section 115JAA has  

to  be  set  off  against  the  tax  payable  (assessed  tax)  before  

calculating  interest  under  Sections  234A,  B  and  C  of  the  

Income Tax Act, 1961 (the Act).

3. At the outset, it may be stated that there is no dispute  

in regard to eligibility  of  the assessee for  set  off  of  tax paid  

under Section 115JA.  The dispute is only in regard to priority  

of adjustment for the MAT credit.

4. To answer the above, we set hereinbelow the provisions  

of Sections 115JA and 115JAA, which read as under:

“Deemed income relating to certain companies.

115JA. (1) Notwithstanding anything contained in any  other  provisions of  this  Act,  where in the case of  an  assessee,  being  a  company,  the  total  income,  as  computed  under  this  Act  in  respect  of  any  previous  year relevant to the assessment year commencing on or

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after the 1st day of April, 1997 but before the 1st day of  April, 2001 (hereafter in this section referred to as the  relevant previous year) is less than thirty per cent of its  book  profit,  the  total  income  of  such  assessee  chargeable to tax for the relevant previous year shall be  deemed to  be  an amount  equal  to  thirty  per  cent  of  such book profit.

(2)  Every  assessee,  being  a  company,  shall,  for  the  purposes  of  this  section  prepare  its  profit  and  loss  account for  the  relevant  previous year  in accordance  with the provisions of Parts II and III of Schedule VI to  the Companies Act, 1956(1 of 1956) :

Provided that while preparing profit and loss account,  the  depreciation  shall  be  calculated  on  the  same  method  and  rates  which  have  been  adopted  for  calculating  the  depreciation  for  the  purpose  of  preparing the profit  and loss account laid before  the  company at its annual general meeting in accordance  with the  provisions of  section 210 of  the  Companies  Act, 1956 (1 of 1956) :

Provided further that where a company has adopted or  adopts  the  financial  year  under  the  Companies  Act,  1956 (1 of 1956), which is different from the previous  year  under  the  Act,  the  method  and  rates  for  calculation  of  depreciation  shall  correspond  to  the  method  and  rates  which  have  been  adopted  for  calculating the depreciation for such financial year or  part of such financial year falling within the relevant  previous year.

Explanation.—For the purposes of this section,  “book  profit” means the net profit as shown in the profit and  loss  account  for  the  relevant  previous  year  prepared  under sub-section (2), as increased by—

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(a) the amount of income-tax paid or payable, and the  provision therefor; or

(b)  the  amounts carried  to  any reserves by whatever  name called; or

(c) the amount or amounts set aside to provisions made  for meeting liabilities, other than ascertained liabilities;  or

(d)  the  amount  by  way  of  provision  for  losses  of  subsidiary companies; or

(e)  the  amount  or  amounts  of  dividends  paid  or  proposed; or

(f) the amount or amounts of expenditure relatable to  any income to which any of the provisions of Chapter  III applies;  

if any amount referred to in clauses (a) to (f) is debited  to the profit and loss account, and as reduced by,—

(i)  the  amount  withdrawn  from  any  reserves  or  provisions if any such amount is credited to the profit  and loss account :

Provided  that,  where  this  section is  applicable  to  an  assessee in any previous year (including the relevant  previous  year),  the  amount  withdrawn  from reserves  created or provisions made in a previous year relevant  to the assessment year commencing on or after the 1st  day  of  April,  1997  but  ending  before  the  1st  day  of  April, 2001 shall not be reduced from the book profit  unless the book profit of such year has been increased  by those reserves or provisions (out of which the said  amount was withdrawn) under this Explanation; or

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(ii) the amount of income to which any of the provisions  of Chapter III applies, if any such amount is credited to  the profit and loss account; or

(iii) the amount of loss brought forward or unabsorbed  depreciation, whichever is less as per books of account.

Explanation.—For the purposes of this clause, the loss  shall not include depreciation; or

(iv)  the  amount  of  profits  derived  by  an  industrial  undertaking  from  the  business  of  generation  or  generation and distribution of power; or

(v)  the  amount  of  profits  derived  by  an  industrial  undertaking located in an industrially backward State  or  district  as  referred to  in  sub-section  (4)  and sub- section (5) of section 80-IB, for the assessment years  such  industrial  undertaking  is  eligible  to  claim  a  deduction of hundred per cent of the profits and gains  under sub-section (4) or sub-section (5) of section 80- IB; or

(vi)  the  amount  of  profits  derived  by  an  industrial  undertaking  from  the  business  of  developing,  maintaining and operating any infrastructure facility as  defined as defined in the Explanation to sub-section (4)  of section 80-IA and subject to fulfilling the conditions  laid down in that sub-section; or

(vii) the amount of profits of sick industrial company for  the assessment year commencing from the assessment  year  relevant  to  the  previous  year  in  which the  said  company has become a sick industrial company under  sub-section  (1)  of  section  17  of  the  Sick  Industrial  Companies  (Special  Provisions)  Act,  1985 (1  of  1986)  and ending with the assessment year during which the  entire net worth of such company becomes equal to or  exceeds the accumulated losses.

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Explanation.—For  the  purposes  of  this  clause,  “net  worth” shall have the meaning assigned to it in clause  (ga) of sub-section (1) of section 3 of the Sick Industrial  Companies (Special Provisions) Act, 1985 (1 of 1986); or

(viii) the amount of profits eligible for deduction under  section 80HHC, computed under clause (a), (b) or (c) of  sub-section (3) or sub-section (3A), as the case may be,  of that section, and subject to the conditions specified  in sub-sections (4) and (4A) of that section;

(ix) the amount of profits eligible for deduction under  section 80HHE, computed under sub-section (3) of that  section.

(3) Nothing contained in sub-section (1) shall affect the  determination of the amounts in relation to the relevant  previous year to be carried forward to the subsequent  year or years under the provisions of sub-section (2) of  section 32 or sub-section (3) of section 32A or clause (ii)  of sub-section (1) of section 72 or section 73 or section  74 or sub-section (3) of section 74A.

(4) Save as otherwise provided in this section, all other  provisions  of  this  Act  shall  apply  to  every  assessee,  being a company, mentioned in this section.

Tax credit in respect of tax paid on deemed income  relating to certain companies.

115JAA.  (1)  Where any amount of  tax is  paid under  sub-section (1) of section 115JA by an assessee being a  company  for  any  assessment  year,  then,  credit  in  respect  of  tax  so  paid  shall  be  allowed  to  him  in  accordance with the provisions of this section.

(2) The tax credit to be allowed under sub-section (1)  shall  be  the  difference  of  the  tax  paid  for  any

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assessment year under sub-section (1) of section 115JA  and the amount of tax payable by the assessee on his  total  income computed  in  accordance  with  the  other  provisions of this Act :

Provided that no interest shall  be payable on the tax  credit allowed under sub-section (1).

(3)  The  amount  of  tax  credit  determined  under  sub- section  (2)  shall  be  carried  forward  and  set  off  in  accordance with the provisions of sub-section (4) and  sub-section  (5)  but  such  carry  forward  shall  not  be  allowed beyond the fifth assessment year immediately  succeeding  the  assessment  year  in  which  tax  credit  becomes allowable under sub-section (1).

(4) 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 or section 115JB, as the case may be.

(5) 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.

(6) Where as a result of an order under sub-section (1)  or sub-section (3) of section 143, section 144, section  147, section 154, section 155, sub-section (4) of section  245D,  section 250,  section  254,  section  260,  section  262,  section  263  or  section  264,  the  amount  of  tax  payable under this Act is reduced or increased, as the  case may be, the amount of tax credit allowed under  this  section  shall  also  be  increased  or  reduced  accordingly.”

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5. As per provisions of Section 115JA, a company is liable  

to  pay  tax  on 30% of  book profits,  if  the  income computed  

under  normal  provisions of  the  Act  is  less  than 30% of  the  

book  profits.   Thus,  the  assessee  is  required  to  compute  

income chargeable to tax on two alternative basis - (i) income  

computed under normal provisions of the Act and (ii) 30% of  

book profits  as disclosed in the P & L Account prepared in  

accordance  with  Parts  II  and  III  of  Schedule  VI  to  the  

Companies Act, 1956, subject to the adjustments specified in  

the  Explanation  to  Section  115JA.   The  higher  of  the  two  

computations is deemed to be the “total income” chargeable to  

tax  and  tax  is  payable  accordingly.   Thus,  Section  115JA  

enacts a deeming fiction by deeming 30% of book profits to be  

the “total income” chargeable to tax.  The amount of tax paid  

under Section 115JA is held to be a “tax” payable under the  

Act, as defined in Section 2(43). [See National Thermal Power  

Corpn. Ltd. v. Union of India 192 ITR 187 (Delhi)]

6. The relevant provisions under Section 115JAA of the  

Act,  introduced  by  Finance  Act,  1997  w.e.f.  1.4.1997,  i.e.,  

applicable  for  assessment  years  1997-98  and  onwards,  

governing the carry forward and set off of credit available in  

respect of tax paid under Section 115JA, show that when tax is

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paid by the assessee under Section 115JA, then the assessee  

becomes entitled  to  claim credit  of  such tax  in  the  manner  

prescribed.  Such a right gets crystallized no sooner the tax is  

paid by the assessee under Section 115JA, as per the return of  

income filed  by that  assessee  for  a previous  year  (say,  year  

one). [See Section 115JAA(1)].  The said credit gets limited to  

the tax difference between tax payable on book profits and tax  

payable on income computed under the normal provisions of  

the Act [see Section 115JAA(2)]  in year one.  Such credit is,  

however, allowable for a period of five succeeding assessment  

years, immediately succeeding the assessment year in which  

the credit  becomes available  (say years 2 to 6)  [See  Section  

115JAA(3)].  However, MAT credit is available for set off against  

the tax payable in succeeding years where the tax payable on  

income  computed  under  the  normal  provisions  of  the  Act  

exceeds the tax payable on book profits computed for that year  

[See Section 115JAA(4),(5)].   At  this  stage,  we would like  to  

emphasize the word “allowed” in all the sub-sections of Section  

115JAA.  The statute envisages under Section 115JAA “credit  

in  respect  of  tax  so  paid”  because  the  entire  tax  is  not  an  

automatic credit but has to be calculated in accordance with  

sub-section (2) of Section 115JAA.  Sub-section (4) to Section

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115JAA allows “tax credit”  in the year tax becomes payable.  

Thus, the amount of set off is limited to the tax payable on the  

income computed under the normal provisions of the Act less  

the tax payable on book profits for  that year.  [Refer  Section  

115JAA(4)  and  Section  115JAA(5)].   The  tax  credit  to  be  

allowed is the function of the tax payable on book profits and  

the  tax  payable  on  income  computed  under  the  normal  

provisions of the Act, in year one.  As stated, the difference of  

the two is the amount of tax credit to be allowed.  The A.O.  

may vary the amount of tax credit to be allowed pursuant to  

completion of  summary assessment  under  Section 143(1)  or  

regular assessment under Section 143(3) for year one, in terms  

of Section 115JAA(6).  As a consequence of such variation the  

tax credit to be allowed for year one is liable to change.  With  

every  change  in  the  amount  of  tax  payable  on book profits  

and/ or tax payable on income computed under the normal  

provisions of the Act, the tax credit to be allowed would have to  

be  changed  by  the  A.O.  by  passing  consequential  orders,  

deriving authority from Section 115JAA(6) of the Act.  Thus,  

the tax credit allowable can be set off  by the assessee while  

computing advance tax/ self-assessment tax payable for years  

2  to  6  limited  to  the  difference  between the  tax payable  on

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income computed under the normal provisions and tax payable  

on book profits in each of those years, as per assessee’s own  

computation.   Although  the  right  to  avail  tax  credit  gets  

crystallized  in  year  one,  on  payment  of  tax  under  Section  

115JA and the set off thereof follows statutorily, the amount of  

credit available and the amount of set off to be actually allowed  

as in all cases of deductions/ allowances under Sections 30-

37, is fluid/ inchoate and subject to final determination only  

on adjudication of assessment either under Section 143(1) or  

under Section 143(3).  The fact that the amount of tax credit to  

be allowed or to be set off is not frozen and is ambulatory, does  

not take away/ destroy the right of the assessee to the amount  

of tax credit.

7. In the present batch of cases, it is not in dispute that  

the  assessees  are  entitled  to  set  off  of  MAT  credit  carried  

forward from year one.  In fact, the A.O. did set off the MAT  

credit while calculating the amount of tax payable for years 2  

to  6.   However,  while  calculating  interest  payable  under  

Sections 234B and C, the A.O. computed the shortfall of the  

tax  payable  without  taking  into  account  the  set  off  of  MAT  

credit.

8. The effect of the stand of the Department is as follows:

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In  Titan’s case, the assessee files its returns for assessment  

year 2001-02.   The total  income declared in the return was  

`23,48,68,460/-.   The  assessee  claimed  a  refund  of  

`10,60,394/-.   The A.O.  initially  processed the return under  

Section  143(1)  and  accepted  it.   Subsequently,  the  A.O.  

rectified  the  alleged  mistake  and  charged  interest  under  

Section  234B  of  `1,10,67,561/-.   The  A.O.  further  charged  

interest  under  Section  234C  of  `40,18,170/-.   This  levy  of  

interest took place because the A.O. took the view that credit of  

the tax paid under Section 115JA(1) was to be given in terms of  

Section 115JAA only after computing the interest to be charged  

under Sections 234B and C.  The result  was that claim for  

refund in favour of the assessee of an amount of `10,60,394/-  

having  regard  to  the  pre-paid  taxes  got  converted  into  the  

demand by Department of `1,50,58,707/- after giving full credit  

for the prepaid taxes only because the A.O. gave a set off of  

MAT credit in the sum of  `5,40,15,189/- not against the total  

tax payable of `7,75,03,252/- but against the total tax payable  

of  `7,75,03,252/-  minus  TDS and Advance Tax paid  by  the  

assessee  resulting  in  the  figure  of  `5,39,88,163/-  being  the  

balance  tax  payable  by  the  assessee  plus  interest  under  

Section  234B  and  under  Section  234C  in  all  amounting  to

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`6,90,73,894/- from which the A.O. deducts the MAT credit of  

`5,40,15,189/-.  Consequently, under the computation of the  

assessee no tax was payable whereas under the computation,  

assessee  became  liable  to  pay  tax  of  `1,50,58,707/-.   This  

conversion from refund to demand took place because while  

computing  interest  under  Sections  234B  and  C  the  A.O.  

computed the shortfall of the tax payable without taking into  

account the set off of MAT credit.

For sake of clarity, we set out the above facts in the case of  

M/s. Titan Industries Limited in the form of a Chart:

Particulars Return of Income 154 Order Business income 163,486,461 163,486,461 Capital gains-short 14,937 14,937 Capital gains-long 90,780,066 90,780,066 Gross Total Income 254,281,464 254,281,464 Less  deduction  under Chapter VI-A 80G-Donation 80HHC-profits 80-1A new industrial  unit

1,500,000 6,590,600

11,322,409

1,500,000 6,590,600

11,322,409

Net Income 234,868,455 234,868,455 Tax payable  Surcharge  on  the  above at 13%

68,586,949 8,916,303

68,586,950 8,916,304

Total tax payable 77,503,252 77,503,254 Less:  Set-off  of  MAT  credit Less: TDS Less: Advance Tax

54,015,189

5,231,557 19,316,900

4,198,191 19,316,900

Balance tax payable 1,060,394 53,988,163 Interest under 234B 11,067,561

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Interest under 234C 4,018,170 Less:  Set-off  of  MAT  credit

54,015,189

Net tax payable 1,060,394 15,058,707      

9. We have discussed hereinabove the scheme of Section  

115JA(1) and Section 115JAA. The entire scheme of Sections  

115JA(1) and 115JAA shows that if an assessee is entitled to a  

tax credit as a consequence of the assessee making payment of  

tax under Section 115JA(1) in the year one, then, the set off of  

such  tax  credit  follows  as  a  matter  of  course  once  the  

conditions mentioned in Section 115JAA are fulfilled and the  

grant of such credit is not dependent upon determination by  

the A.O. save and except that the ultimate amount of tax credit  

to be allowed will be dependent upon the final determination of  

the  total  income  for  the  first  assessment  year.  There  is  no  

provision under Section 115JAA which postpones the right of  

the assessee to claim  set off to the determination of the total  

income  by  the  A.O.  in  the  first  assessment  year.  

Entitlement/right  to  claim  set  off  is  different  from  the  

quantum/quantification  of  that  right.  Entitlement  of  MAT  

credit  is  not  dependent  upon  any  action  taken  by  the  

Department. However, quantum of tax credit will depend upon  

the assessment framed by the A.O. Thus, the right to set off

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arises as a result of the payment of tax under Section 115JA(1)  

although quantification of that right depends upon the ultimate  

determination  of  total  income  for  the  first  assessment  year.  

Further, an assessee has a right to take into account the set off  

even while estimating its  liability  to pay advance tax on the  

“current income” in accordance with the provisions of Chapter  

XVII-C. Although Section 209(1)(d) does not make any specific  

provision either before or after the amendments carried out by  

the Finance Act, 2006 to the effect that an assessee is entitled  

to  set  off  the  tax credit  that  would be available  in  terms of  

Section 115JAA(1)  while  computing the quantum of  advance  

tax that is to be paid it must follow that an assessee would be  

entitled to do so otherwise it results in absurdity, viz, that an  

assessee pays advance tax on the footing that it is not entitled  

(when in fact it is so entitled as discussed above) to the credit  

and thereafter claims a refund of such advance tax paid as a  

consequence of the set off. Moreover, when an A.O. makes an  

intimation under Section 143(1) he accepts the return filed by  

the assessee to which the A.O. may make an adjustment and  

consequently  makes  a  demand  or  refund.  Section  143(1)  

provides that where a return is made under Section 139 and if  

any tax or interest is found due on the basis of such return

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after adjustment of any TDS, any advance tax, any tax paid on  

self assessment and any amount paid otherwise by way of tax  

or interest, then, without prejudice to provisions of sub-section  

(2),  an intimation will  be sent to the assessee specifying the  

amount so payable and such intimation shall be deemed to be  

a notice of demand under Section 156 and all the provisions of  

the Act shall apply thereto. This section itself  makes it clear  

that whilst the A.O. determines the tax payable he has to give  

credit for all taxes paid either by way of deduction at source,  

advance tax, self assessment tax or tax paid otherwise which  

would  include  or  which  cannot  exclude  tax  credit  under  

Section  115JAA(1).  However,  the  question  before  us  is  of  

priority of adjustment for the MAT credit. In this connection, it  

is  important  to  bear  in  mind  that  the  credit  allowed  is  the  

excess  of  the  normal  tax  liability  over  MAT  liability  in  the  

subsequent years. In this connection the following illustration  

on MAT credit be seen:

Particulars Amount Rs. Year 1 115JB liability 1,600 Normal tax liability 400 Credit which can be  carried forward – I

1200

Year 2 115JB liability (A) 600 Normal tax liability (B) 1400

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Tax liability = (B) [since B is higher than A]

1400

MAT credit available for set off in Year 2 [(A) – (B)] – II

800

Net tax liability for Year 2 [B-II] 600 MAT credit to be carried Forward [I-II]

400

[See The Chartered Accountant,  Vol.  57,  No.  09,  March,  2009,  page 1584]

10. The issue which crops up for decision is – how should  

the  advance tax be calculated when the Company has MAT  

credit?

11. To answer,  we need to  look at  Section  234B.  Under  

that section, “assessed tax” means the tax on the total income  

determined  under  Section  143(1)  or  on  regular  assessment  

under Section 143(3) 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 definition,  thus,  at  the relevant time  

excluded MAT credit  for arriving at assessed tax. This led to  

immense hardship. The position which emerged was that due  

to omission on one hand MAT credit was available for set off for  

five  years  under  Section  115JAA  but  the  same  was  not  

available  for  set  off  while  calculating  advance  tax.  This

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dichotomy was more spelt out because Section 115JAA did not  

provide for payment of interest on the MAT credit. To avoid this  

situation, Parliament amended Explanation 1 to Section 234B  

by Finance Act, 2006 w.e.f. 1.4.2007 to provide along with tax  

deducted  or  collected  at  source,  MAT  credit  under  Section  

115JAA also to be excluded while calculating assessed tax.

12. From  the  above,  it  is  evident  that  any  tax  paid  in  

advance/pre-assessed tax paid can be taken into account in  

computing  the  tax  payable  subject  to  one  caveat,  viz,  that  

where the assessee on the basis of self computation unilaterally  

claims set off or MAT credit, the assessee does so at its risk as  

in  case  it  is  ultimately  found that  the  amount of  tax  credit  

availed  was  not  lawfully  available,  the  assessee  would  be  

exposed to levy of interest under Section 234B on the shortfall  

in the payment  of  advance tax.  We reiterate  that  we cannot  

accept the case of the Department because it would mean that  

even if the assessee does not have to pay advance tax in the  

current  year,  because  of  his  brought  forward  MAT  credit  

balance, he would nevertheless be required to pay advance tax,  

and  if  he  fails,  interest  under  Section  234B  would  be  

chargeable.   The  consequence  of  adopting  the  case  of  the  

Department would mean that MAT credit would lapse after five

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succeeding assessment years under Section 115JAA(3); that no  

interest would be payable on such credit by the Government  

under the proviso to Section 115JAA(2) and that the assessee  

would be liable to pay interest under Sections 234B and C on  

the shortfall in the payment of advance tax despite existence of  

MAT credit  standing to  the  account  of  the  assessee.   Thus,  

despite MAT credit standing to the account of the assessee, the  

liability  of  the  assessee  gets  increased  instead  of  it  getting  

reduced.

13. Lastly,  it  is  immaterial  that  the  relevant  form  

prescribed under Income Tax Rules, at the relevant time (i.e.  

before  1.4.2007),  provided  for  set  off  of  MAT  credit  balance  

against  the  amount  of  tax  plus  interest  i.e.  after  the  

computation of interest under Section 234B. This was directly  

contrary to a plain reading of  Section 115JAA(4).  Further,  a  

form prescribed under the rules can never have any effect on  

the interpretation or operation of the parent statute.

14. For  the above reasons,  there  is  no merit  in the  civil  

appeals filed by the Department and the same are dismissed  

with no order as to costs.

……..……………………….CJI               (S. H. Kapadia)

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……..……………………………..J. (K.S. Panicker Radhakrishnan)

……..……………………………..J. (Swatanter Kumar)

New Delhi;  December 16, 2010