MAT Credit includes surcharge and cess for tax liability calculation

The Tribunal allowed the appeal of the assessee, holding that MAT credit includes surcharge and cess. The calculation of tax liability should first consider total tax payable, including surcharge and cess, before allowing MAT credit. The appeal was decided in favor of the assessee, aligning with precedent set by various ITAT decisions and the Supreme Court's ruling in CIT vs K. Srinivasan.

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Issues Involved:
1. Methodology adopted by CPC for computation of MAT credit.
2. Inclusion of surcharge and education cess in the computation of eligible MAT credit.
3. Calculation of tax liability on account of surcharge and education cess before or after allowing MAT credit.
4. Wrong charging of interest under sections 234B and 234C.

Detailed Analysis:

1. Methodology Adopted by CPC for Computation of MAT Credit:
The assessee contended that the methodology adopted by the Centralized Processing Centre (CPC) for computing MAT credit deviated from the provisions of sections 115JAA and 115JB of the Income Tax Act and the prescribed ITR 6 form. The Tribunal noted that this issue had been previously addressed in the case of ‘DCIT Ludhiana vs M/s Aarti Steels Ltd.’, where it was held that MAT credit includes surcharge and cess.

2. Inclusion of Surcharge and Education Cess in the Computation of Eligible MAT Credit:
The Tribunal examined whether the eligible MAT credit should include surcharge and education cess. The Tribunal referenced various judgments, including the Hon’ble Supreme Court’s decision in CIT vs K. Srinivasan, which held that the term "tax" includes surcharge and cess. It was concluded that the MAT credit allowable to the assessee should indeed include surcharge and cess, aligning with the decisions in cases like Virtusa (India) Pvt Ltd Vs. DCIT and Wyeth Ltd Vs. ACIT.

3. Calculation of Tax Liability on Account of Surcharge and Education Cess Before or After Allowing MAT Credit:
The Tribunal discussed whether the calculation of tax liability should consider surcharge and education cess before allowing MAT credit. It was determined that taxes payable under normal provisions, including surcharge and cess, should be calculated first, and then MAT credit, inclusive of surcharge and cess, should be allowed. This approach was supported by the Finance Act provisions and the Supreme Court’s interpretation in K. Srinivasan’s case.

4. Wrong Charging of Interest Under Sections 234B and 234C:
The assessee argued that interest under sections 234B and 234C was wrongly charged. However, since the primary issue of MAT credit computation was resolved in favor of the assessee, the Tribunal did not delve deeply into this matter. The interest charged under these sections was implicitly deemed incorrect due to the miscalculation of MAT credit.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the MAT credit allowable includes surcharge and cess. Consequently, the calculation of tax liability should first consider the total tax payable, including surcharge and cess, before allowing MAT credit. The appeal was decided in favor of the assessee, aligning with the precedent set by various ITAT decisions and the Supreme Court’s ruling in CIT vs K. Srinivasan.

Order Pronounced:
The appeal of the assessee stands allowed, with the order pronounced in the Open Court on 18.3.2020.

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