2011 (4) TMI 1312 - AT - Income Tax

ITAT Upholds CIT Decision on Rebate under Income Tax Act

DCIT, Circle 6 (1), Versus. M/s. MBL & Co. Limited,

The ITAT upheld the CIT (Appeals) decision, dismissing the revenue's appeal regarding the allowance of rebate under Section 88E before calculating book ... Claim for rebate u/s 88E - Securities Transaction Tax (STT) - HELD THAT:- the AO's interpretation implies that the appellant company is liable to tax of ₹ 2,43,83,654/- as per normal provisions of the Act, however, simply because after rebate u/s 88E on account of STT payment, there is no tax due and payable by the company it should be subjected to MAT at 10% of its books profits amounting to ₹ 81,76,903/- in addition to the normal tax payable and paid by the company. Taken together the tax payment by the company under normal provisions and under MAT totals up-to ₹ 3,25,60,557/- (Rs.2,43,83,654 + ₹ 81,76,903). It is my considered opinion that this was not the intent of the Legislature either with regard to provisions of section 115JB or with regard to imposition of STT. In light of the discussion, this ground of appeal is allowed and the AO is directed to delete the addition on account of MAT. disallowance u/s 14A - HELD THAT:- The total tax payable by the appellant under normal provisions is ₹ 2,43,83,654/- whereas STT paid by the appellant is ₹ 3,37,07,299/-. Since the appellant is to be allowed credit for STT payment against any tax liability, the levy of tax on the disallowance of ₹ 10,566/- is not in order. The A.O. is directed to adjust STT already paid by the appellant.” the issue involved in the grounds of appeal of the revenue is decided against the revenue and in favour of the assessee. Issues Involved:1. Allowance of rebate under Section 88E before calculating book profit under Section 115JB of the Income Tax Act.2. Adjustment of STT disallowance made under Section 14A of the Income Tax Act.Issue-wise Detailed Analysis:1. Allowance of rebate under Section 88E before calculating book profit under Section 115JB of the Income Tax Act:The revenue appealed against the CIT (Appeals) decision allowing rebate under Section 88E before calculating book profit under Section 115JB. The CIT (Appeals) held that the provisions of Section 115JB, a 'deeming provision', were introduced to ensure companies pay a minimum alternate tax (MAT) based on their book profits when their tax liability under normal provisions is less. The CIT (Appeals) emphasized that Section 115JB targets distributable profits and mandates preparation of profit and loss accounts as per the Companies Act, 1956. The CIT (Appeals) noted that the tax liability under Section 115JB arises only if the tax payable under normal provisions is less than the tax on book profits.The CIT (Appeals) disagreed with the Assessing Officer's interpretation that rebate under Section 88E is not allowable against MAT, arguing that such interpretation would result in the company paying higher taxes than intended by the legislature. The CIT (Appeals) referenced the Finance Minister's speech on the introduction of STT, which aimed to simplify the taxation of capital gains from securities transactions and allow rebate under Section 88E. The CIT (Appeals) concluded that the AO's interpretation would lead to an unfair tax burden on the company, contrary to legislative intent, and directed the deletion of the MAT addition.2. Adjustment of STT disallowance made under Section 14A of the Income Tax Act:The CIT (Appeals) also addressed the issue of tax levy on the disallowance of Rs. 10,566 under Section 14A. The CIT (Appeals) accepted the assessee's argument that since the tax was to be adjusted against STT, part of which remained unadjusted, there was no justification for the tax levy on the disallowance. The CIT (Appeals) directed the AO to adjust the STT already paid by the appellant against any tax liability.Conclusion:The ITAT upheld the CIT (Appeals) decision, rejecting the revenue's grounds of appeal. The ITAT referenced a similar case (M/s. Horizon Capital Limited vs. ITO) where it was held that rebate under Section 88E is allowable from the income tax computed against the total income under Section 115JB. The ITAT concluded that the rebate provisions under Sections 87 and 88E apply after computing total income under Section 115JB, thus entitling the assessee to the rebate for STT paid. Consequently, the appeal filed by the revenue was dismissed, and the CIT (Appeals) order was upheld.Order Pronouncement:The order was pronounced in the open court on April 21, 2011.