2014 (9) TMI 547 - HC - Income Tax

Tax remission under Section 88E must be factored into MAT calculations

COMMISSIONER OF INCOME TAX-I Versus CNB FINWIZ LIMITED

The Delhi High Court held that the remission or rebate of tax under Section 88E of the Income Tax Act should be factored in when calculating the disparity ... Remission of tax u/s 88E – Computation of profit u/s 115JB - Whether remission/rebate of tax u/s 88E should be taken into consideration for computing difference between the tax payable on normal income and on book profits for invoking Section 115JB of the Act – Held that:- The Tribunal had rightly followed Delhi High Court in Commissioner of Income Tax Vs. MBL and Co. Ltd. [2013 (5) TMI 669 - DELHI HIGH COURT] - there is no reason why the remission of tax u/s 88E should not be available on tax as computed under the Minimum Alternative Tax scheme as both Section 115JB as well as normal provisions have been enacted to provide the machinery for computing total income of the assessee which is exigible to tax - There would be no rationale to limit the plain words of Section 88E and hold that remission in payment of tax is only applicable to the tax determined under the normal provisions of the Act. While computing the tax payable u/s 115JB, remission in form of Securities Transaction Tax (STT) in terms of Section 88E read with Section 87 would be available to the assessee – it would be the position while computing the tax payable under the normal provisions - the tax remission u/s 88E has to be and should be taken into consideration both under the normal provisions as well as book profits computed u/s 115JB - The amount of remission u/s 88E would get reduced from the tax payable under the two methods/manners of computing taxable income - The end result would be that the figure of STT would get balanced and not adversely affect either the Revenue or the assessee – revenue accepts that in case benefit of Section 88E is given under the two methods, the difference on the tax payable would be less than 10% - Section 115JB would not be applicable – Decided against revenue. Issues:1. Whether remission/rebate of tax under Section 88E of the Income Tax Act should be considered for computing the difference between the tax payable on normal income and on book profits for invoking Section 115JB of the ActRs.Analysis:The central issue in the present appeals before the Delhi High Court pertained to the interpretation of whether the remission or rebate of tax under Section 88E of the Income Tax Act, 1961 should be factored in while calculating the disparity between the tax payable on regular income and on book profits to trigger the application of Section 115JB of the Act. The Tribunal relied on a precedent set by the Delhi High Court in the case of Commissioner of Income Tax Vs. MBL and Co. Ltd. [2013] 358 ITR 0001, which emphasized that the remission of tax under Section 88E should be applicable to tax computed under the Minimum Alternative Tax (MAT) scheme. The Tribunal reasoned that both Section 115JB and the normal provisions are designed to compute the total income of the assessee subject to taxation, and therefore, the remission under Section 88E should not be restricted to tax determined under the regular provisions only.The Court further elaborated on the legislative intent behind Section 88E, highlighting that the rebate provided therein should extend to tax calculated under Section 115JB as well, as it aims to grant an assessee credit for the Securities Transaction Tax already paid. The Court referenced a judgment by the High Court of Karnataka in the case of Commissioner of Income Tax v. M/s Horizon Capital Ltd., supporting the view that the rebate under Section 88E should be available for tax payable under Section 115JB. The Court emphasized that the purpose of the rebate is to prevent double taxation on the same income, ensuring fairness and consistency in tax treatment.Consequently, the Court affirmed that Sections 87 and 88E of the Act are applicable to the total income computed under Section 115JB, entitling the assessee to a deduction equivalent to the Securities Transaction Tax borne during the relevant previous year. The Court concluded that the tax remission under Section 88E should be considered both under the normal provisions and the book profits computed under Section 115JB, ensuring a balanced outcome without prejudice to either party. It was acknowledged that granting the benefit of Section 88E under both methods would result in a marginal difference in the tax payable, rendering Section 115JB inapplicable when the difference is less than 10%.In light of the detailed analysis and the consistent legal interpretation provided, the appeal was deemed to lack merit and was consequently dismissed by the Delhi High Court.