MAT credit computation includes surcharge and cess where tax is construed to cover those components.

Surcharge and cess are included in the tax amount for computing MAT credit under Section 115JAA, because the statutory scheme treats them as part of income tax for MAT purposes. The court also applied K. Srinivasan to confirm that "tax" includes surcharge, rejecting the Revenue's contention that the principle was confined to the Finance Act context. A CBDT circular noted as consistent with this approach reinforced the interpretation. The practical effect is that MAT credit computation cannot exclude surcharge and cess where the governing provisions indicate that they form part of tax.

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Issues: (i) Whether surcharge and cess form part of the tax amount for computing MAT credit under Section 115JAA of the Income-tax Act, 1961; (ii) Whether the principle in K. Srinivasan applies to the computation of MAT credit.

Issue (i): Whether surcharge and cess form part of the tax amount for computing MAT credit under Section 115JAA of the Income-tax Act, 1961.

Analysis: Section 2(43) defines tax, and Explanation (2)(iii) and (iv) to Section 115JB specifically include surcharge and education cess in the amount of income tax. The Finance Act also contemplates surcharge as an increase over income tax. The Court read these provisions together and accepted that MAT computation cannot ignore surcharge and cess.

Conclusion: Surcharge and cess are to be included while computing MAT credit, in favour of the assessee.

Issue (ii): Whether the principle in K. Srinivasan applies to the computation of MAT credit.

Analysis: The Court treated the earlier decision as laying down that the expression tax includes surcharge, and relied upon that understanding to reject the Revenue's contention that the decision was confined to the Finance Act context. The Board's circular stating that tax effect includes surcharge and cess was also noted as consistent with that approach.

Conclusion: K. Srinivasan applies to the present computation of MAT credit, in favour of the assessee.

Final Conclusion: The Revenue failed to show any error in the orders below, and the questions of law were answered against it, resulting in dismissal of the appeal.

Ratio Decidendi: For MAT computation, the term tax includes surcharge and cess where the governing provisions expressly or contextually so indicate, and the Revenue cannot exclude those components from MAT credit.

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