2023 (7) TMI 374 - AT - Income Tax

Tribunal directs deletion of demand, allows assessee's appeal on tax credit exclusion, emphasizing statutory compliance.

Kerala Feeds Limited Versus Asstt. CIT, CPC, Bangalore

The Tribunal resolved the issue by directing the deletion of the demand, allowing the assessee's appeal. It clarified that tax credit under Section 115JAA ... Minimum alternate Tax (MAT) - Tax credit in respect of tax paid on deemed income relating to certain companies u/s 115JAA - Non-reference to surcharge and cess - manner in which tax credit u/s. 115JAA, of the tax paid u/s. 115JB, or the analogous sec. 115-JA, is to be allowed - whether inclusive or exclusive of the surcharge (and education cess), for the years for which sec.115JAA, reading as under, becomes applicable? - Special provisions relating to certain companies - HELD THAT:- Surcharge and cess, both levies on tax, could not be levied on the tax paid earlier, the credit in respect of which is being allowed, i.e., on the tax becoming payable under the regular provisions of the Act. There is, further, no question of set off of the surcharge/cess, as in the case of tax, in the absence of specific provisions in its respect. Accordingly, the tax credit is to be allowed against the tax per se, paid earlier. Surcharge and cess would therefore, if at all, become payable only on the balance tax. No amount of tax would accordingly suffer surcharge/cess twice. In fact, proceeding in the manner in which we have, i.e., allowing set off of tax strictly against the tax per se, is not only consistent with the relevant provision of the Act (sec.115JAA), as indeed the decision in Tulsyan NEC Ltd. [2010 (12) TMI 23 - SUPREME COURT] it also renders irrelevant the payment of surcharge/cess on the tax paid earlier. That is, it would be of no consequence inasmuch as the same stands suffered in relation to the tax paid for an earlier year, in which the same was attracted and, besides, there would be no occasion for the same being paid again. This, incidentally, also provides an answer to the complete non-reference to surcharge and cess, i.e., even by way of proviso or Explanation, in the provision allowing tax credit. Succinctly stated, surcharge and cess, irrespective of whether the same stand paid along with tax on ‘book-profit’ and, further, irrespective of the variation in its rate subsequently, would stand to be paid only for the year for which the tax is payable under the regular provisions of the Act, i.e., at an amount net of tax credit, and at the rate applicable for that year. Revenue (CPC) has admittedly applied surcharge and education cess on a tax credit u/s. 115JAA i.e., at 9.062%, or at a higher than applicable rate of 8.15%, resulting in an additional charge. As it appears, the levy of surcharge/cess while allowing tax credit, has not been on the amount of credit, but on Rs. 259.07 lacs, the tax payable under the regular provisions of the Act. Not only, thus, the issue cannot be said to be, as projected, one of tax credit at inclusive or exclusive of surcharge, the Revenue’s stand is inexplicable as the levy has to necessarily be at that obtaining for the current year, i.e., 8.15% or, as apparent, on a sum other than for which credit is being allowed. If it was required to, that where the same rate is adopted, the manner of allowing credit with reference to surcharge and cess incident thereon, becomes academic and of no consequence, a non-issue, as exhibited at para 2.8 of this order (Case 3A & 3B). A perfect example of much ado about nothing. The impugned demand is accordingly directed for deletion. Issues Involved:1. Manner of allowing tax credit under Section 115JAA.2. Applicability of surcharge and education cess on tax payable under Section 115JB.3. Determination of tax credit inclusive or exclusive of surcharge and cess.4. Resolution of judicial conflict on the matter.Summary:1. Manner of Allowing Tax Credit under Section 115JAA:The core issue is the manner in which tax credit under Section 115JAA for tax paid under Section 115JB should be allowed, i.e., whether it should be inclusive or exclusive of surcharge and education cess. The tax credit provisions under Section 115JAA are designed to allow credit for tax paid on book profits, ensuring a uniform basis for taxation as tax incentives phase out.2. Applicability of Surcharge and Education Cess on Tax Payable under Section 115JB:The Tribunal examined whether surcharge and education cess are payable on the tax payable under Section 115JB. It concluded that these levies are indeed applicable for the assessment year 2012-2013, as prescribed by the relevant Finance Act.3. Determination of Tax Credit Inclusive or Exclusive of Surcharge and Cess:The Tribunal observed that there is a judicial conflict on whether tax credit should include surcharge and cess. It noted that surcharge and cess cannot be levied twice on the same tax. The tax credit under Section 115JAA should be allowed against the tax per se, exclusive of surcharge and cess, to avoid double taxation and ensure consistency with statutory provisions.4. Resolution of Judicial Conflict:The Tribunal acknowledged conflicting decisions from various High Courts and the Tribunal itself. It emphasized that taxing statutes must be strictly construed and aligned with the correct legal position. The Tribunal resolved the issue by stating that tax credit should be allowed against the tax amount only, without including surcharge and cess, consistent with the provisions of Section 115JAA and Supreme Court rulings. This approach ensures that surcharge and cess are not levied twice and maintains uniformity in tax determination.Conclusion:The Tribunal directed the deletion of the impugned demand, allowing the assessee's appeal. The decision clarified that tax credit under Section 115JAA should be exclusive of surcharge and cess, and any surcharge or cess should be applied only on the net tax payable for subsequent years. The appeal was allowed, and the order was pronounced on June 30, 2023.