MAT Credit Cannot Precede Surcharge Calculation

The Tribunal held that surcharge and education cess should be computed before allowing MAT credit, contrary to the CIT(A)'s decision. Citing the Finance Act, 2010, the Tribunal found no provision allowing MAT credit before surcharge and education cess calculation. The Revenue's appeal was allowed, setting aside the CIT(A)'s order.

---

---

Issues Involved:
1. Computation of surcharge and education cess after reducing basic tax liability by MAT credit under Section 115JAA of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Computation of Surcharge and Education Cess after Reducing Basic Tax Liability by MAT Credit under Section 115JAA

Background:
The Revenue's appeal arises from the CIT(A)'s order directing to compute surcharge and education cess after reducing the basic tax liability by MAT credit under Section 115JAA. The assessee had filed a return of income declaring Rs. 84,89,14,760, and the total tax on this income was computed at Rs. 25,46,74,428. The tax liability as per Section 115JB was determined at Rs. 17,18,54,839. The assessee noticed a discrepancy in MAT credit provided and applied for rectification under Section 154, which was accepted by the Assessing Officer. However, the dispute arose over whether surcharge and education cess should be computed before or after allowing MAT credit.

CIT(A)'s Decision:
The CIT(A) allowed the assessee's appeal, directing that surcharge and education cess should be computed after reducing the basic tax liability by MAT credit. The CIT(A) referred to the computation format in ITR-6, which prescribes that gross tax payable should be reduced by MAT credit before computing surcharge and education cess.

Revenue's Argument:
The Revenue contended that the CIT(A) erred in holding that surcharge and education cess should be computed after MAT credit reduction. They referred to Sections 2(43) and 4 of the Income Tax Act and the Finance Act, arguing that surcharge is a part of income tax, citing the Supreme Court's decision in CIT vs. K. Srinivasan (83 ITR 346).

Assessee's Argument:
The assessee supported the CIT(A)'s order, arguing that surcharge and education cess are separate charges. They contended that if tax is inclusive of surcharge, then MAT credit should also include surcharge and education cess.

Tribunal's Analysis:
The Tribunal examined the provisions of the Finance Act, 2010, which stipulate that income tax shall be increased by a surcharge and education cess. The Supreme Court's decision in CIT vs. K. Srinivasan was cited, where it was held that surcharge is part of income tax. The Tribunal also referred to the Calcutta High Court's decision in Srei Infrastructure Finance Pvt. Ltd. vs. DCIT, which held that MAT credit should not be reduced before computing surcharge and education cess.

Conclusion:
The Tribunal concluded that the CIT(A)'s decision was incorrect. They held that surcharge and education cess should be computed before allowing MAT credit, as per the Finance Act, 2010. The Tribunal found no provision in the Income Tax Act that allows MAT credit to be provided before computing surcharge and education cess. The appeal of the Revenue was allowed, and the CIT(A)'s order was set aside.

Order:
The appeal of the Revenue is allowed. The order pronounced in the open court on 26-09-2017.

---