2017 (9) TMI 1807 - AT - Income Tax

MAT Credit Cannot Precede Surcharge Calculation

The DCIT, Central Circle-2 (1), Ahmedabad Versus Intas Pharmaceuticals Ltd.

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 ... MAT credit u/s 115JAA - compute surcharge and education cess after reducing basic tax liability by MAT credit u/s 115JAA - HELD THAT:- Crystal clear provision of levying surcharge as provided in the Finance Act . We have not discerned any other specific provision in the act which reads that the MAT credit u/s. 115JAA has to be provided before computing surcharge and cess on the taxable income of the assessee. Tax on the total income of the assessee for the assessment year under consideration is determined at ₹ 25,46,74,428/- as against the same the assessee claimed that the same should be determined at ₹ 19,47,11,533/- on the ground that MAT credit to be provided before charging of surcharge and education cess. There is no provision in the act which provide this kind of special incentive of ₹ 5,99,62,895/- in the cases wherein the assessee has paid MAT in the preceding years. We find that the MAT credit u/s. 115JAA is only a tax credit which shall be allowed to be set off in a year when tax become payable on the total income computed in subsequent year according to the rate of income tax including surcharge and education cess as per the provision of Finance Act which is a part of the Income Tax Act. We find there is no reason that surcharge and cess can be excluded from the determination of the tax in view of the specific provisions of the Finance Act, 2010 as elaborated supra in this order. CIT(A) to reduce credit u/s. 115JAA without including the surcharge and education cess simply on the basis of the ITR form no. 6 is erroneous. It was also mentioned that such nature of error occurred in the ITR form for assessment year 2008- 09 which was corrected in the subsequent year in the ITR form of assessment year 2012-13. It is held by the Hon’ble High Court that the wrong form of ITR-6 was wrong and naturally contrary to law. After considering we considered that in ascertaining the liability of tax for the year under consideration the amount of surcharge and cess have to be taken into account before providing MAT credit u/s. 115JAA of the act. In view of above we are not inclined with the decision of the CIT(A) and we also do not find any merit in the alternative plea of the assessee, therefore the appeal of the Revenue is allowed. 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 115JAABackground: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.