MAT-liable companies must pay advance tax under Section 207; default attracts interest under Sections 234B and 234C

SC held that companies liable to tax under the MAT provisions (Sections 115J/115JA/115JB) are required to pay advance tax under Section 207 and, if they default, are liable to interest under Sections 234B and 234C. The court treated Sections 115J/115JA/115JB as special, but not excluded from the definition of "assessed tax"; assessed tax for interest purposes includes tax determined by applying the MAT provisions. Consequently, interest for failure to pay advance tax on MAT liability is inescapable and CBDT Circular No.13/2001 is inapplicable.

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Issues Involved:
1. Whether interest under Section 234B can be charged on the tax calculated on book profits under Section 115JA.
2. Whether advance tax was at all payable on book profits under Section 115JA.

Issue-wise Detailed Analysis:

1. Interest under Section 234B on Tax Calculated on Book Profits under Section 115JA:

The primary question was whether interest under Section 234B could be charged on the tax calculated based on book profits as per Section 115JA. The court examined Sections 234B and 234C of the Income Tax Act, 1961, which deal with interest for defaults in payment of advance tax and deferment of advance tax, respectively. The court noted that these sections do not explicitly reference Section 115J/115JA. However, Section 234B applies when an assessee is liable to pay advance tax under Section 208 and fails to do so, or if the advance tax paid is less than 90% of the assessed tax. Similarly, Section 234C pertains to interest for deferment of advance tax if the advance tax paid is less than the specified percentages of the tax due on the returned income at various stages throughout the year.

The court emphasized that Sections 115J/115JA are special provisions that require companies to pay tax on book profits if their total income is less than 30% of the book profit. The court concluded that the assessee was bound to pay advance tax under this scheme, and thus, interest under Section 234B was applicable. The court held that the term "assessed tax" includes tax determined under Section 115J/115JA, and there is no exclusion of these sections in the levy of interest under Section 234B.

2. Advance Tax Payable on Book Profits under Section 115JA:

The court addressed whether advance tax was payable on book profits under Section 115JA. The court referred to the statutory scheme, which mandates payment of advance tax on current income as per Sections 208 to 219. The court noted that Section 115J was in force from 1.4.1988 to 31.3.1991, and after 1.4.1991, Section 115JA was inserted, followed by Section 115JB from 1.4.2001. The court observed that Sections 115JA and 115JB explicitly state that all other provisions of the Act, including those related to advance tax, apply to MAT companies.

The court also examined various High Court judgments, including the Karnataka High Court's decision in Kwality Biscuits Ltd., which held that interest under Sections 234B and 234C was not leviable on tax calculated under Section 115J as the computation could only be done at the end of the financial year. However, the court noted that this view was not shared by the Gauhati, Madhya Pradesh, and Bombay High Courts, which held that interest under Sections 234B and 234C was applicable to MAT companies. The court highlighted that the Karnataka High Court later distinguished its own decision in Kwality Biscuits Ltd. in the case of Jindal Thermal Power Company Ltd., holding that Section 115JB imposed liability for payment of advance tax on MAT companies.

The court concluded that interest under Sections 234B and 234C is payable on failure to pay advance tax in respect of tax payable under Sections 115JA/115JB. The court also dismissed the relevance of Circular No. 13/2001 issued by the CBDT, which clarified that all companies liable under Section 115JB must pay advance tax and are subject to interest under Sections 234B and 234C.

Conclusion:

The Supreme Court allowed the appeals filed by the CIT and held that interest under Sections 234B and 234C is applicable on tax calculated on book profits under Section 115JA. The court dismissed the appeals filed by the assessees, upholding the applicability of interest for defaults in payment of advance tax on book profits.

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