2025 (8) TMI 909 - AT - Income Tax

'Tax' under s.115JAA includes education cess, so MAT credit must include cess; DDT refund directed

Universal Trading Company Limited Versus DCIT, Circle-5 (1), Kolkata

Universal Trading Company Limited Versus DCIT, Circle-5 (1), Kolkata - TMI 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the education cess paid along with Minimum Alternate Tax (MAT) under section 115JB of the Income Tax Act, 1961, forms part of the MAT credit allowable under section 115JAA, and if denial of credit for the education cess component is justified. 2. Whether the excess Dividend Distribution Tax (DDT) paid under section 115-O, when the net DDT liability is nil due to dividend received from a subsidiary company that has already paid DDT, is refundable to the assessee. 3. Whether any additional or amended grounds raised by the assessee require consideration. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Allowability of Education Cess as Part of MAT Credit under Section 115JAA - Relevant Legal Framework and Precedents: Section 115JAA(2A) of the Income Tax Act provides that the MAT credit allowed shall be the difference between the tax paid under section 115JB and the tax payable under normal provisions. The term used is 'tax' and not 'income tax' specifically. The Hon'ble Supreme Court in K. Srinivasan held that 'tax' includes surcharge and cess. This principle was followed by the ITAT Kolkata in Bhagwati Oxygen Ltd. and by ITAT Hyderabad in Virtusa (India) Pvt. Ltd., which held that education cess and surcharge form part of tax for purposes of MAT credit under section 115JAA. Further, the CBDT's ITR-6 format includes surcharge and education cess in the computation of tax liability for both normal provisions and MAT, supporting the inclusion of cess in MAT credit calculation. - Court's Interpretation and Reasoning: The Tribunal examined the language of section 115JAA(2A), emphasizing that the word 'tax' is broad and includes cess and surcharge. The administrative bifurcation of tax, surcharge, and cess is for government accounting convenience and does not alter the nature of the payment as 'tax' from the assessee's perspective. The Tribunal also referred to the recent Supreme Court decision in Joint Commissioner of Income-tax vs. Sesa Goa Ltd. which clarified that education cess cannot be allowed as an expenditure and that the term 'tax' includes cess and surcharge. The Finance Act, 2022 amendment to section 40(a)(ii) further clarifies that 'tax' includes surcharge and cess for all purposes. - Key Evidence and Findings: The assessee's return showed tax liability including education cess. However, the Central Processing Centre (CPC) allowed MAT credit only on the income tax component, excluding education cess, resulting in short credit of Rs. 16,954/-. The CIT(A) rejected the claim relying on the literal reading of section 115JAA(2A) that does not expressly mention cess. - Application of Law to Facts: Applying the judicial precedents and legislative intent, the Tribunal held that education cess is part of tax and must be included in MAT credit. Denial of credit for education cess results in double payment of cess, once during tax payment and again by disallowing credit. - Treatment of Competing Arguments: The department's argument was based on the absence of explicit mention of cess in section 115JAA(2A). The Tribunal rejected this narrow interpretation, relying on broader judicial and legislative context. - Conclusion: The Tribunal allowed the MAT credit including education cess, reversing the CIT(A) order and directing the Assessing Officer (AO) to grant credit accordingly. Issue 2: Refund of Excess Dividend Distribution Tax (DDT) Paid under Section 115-O - Relevant Legal Framework and Precedents: Section 115-O(1) imposes additional income tax (DDT) on dividends declared, distributed, or paid by a domestic company. Section 115-O(1A) provides that the amount on which DDT is payable shall be reduced by the amount of dividend received from a subsidiary company, provided the subsidiary has paid DDT on such dividend and the company claiming the credit is not itself a subsidiary. Section 237 of the Act provides for refund of excess tax paid where the amount paid exceeds the amount properly chargeable. Judicial precedents, including the Gujarat High Court decision in Torrent (P.) Ltd., and ITAT Kolkata decisions, have held that excess DDT paid when no net liability exists is refundable with interest. The Supreme Court and various High Courts have recognized that excess tax paid inadvertently or by mistake is refundable under Article 265 of the Constitution, which mandates tax collection only as authorized by law. - Court's Interpretation and Reasoning: The Tribunal examined the facts that the assessee declared dividend of Rs. 1.38 crore and paid DDT of Rs. 22,38,770/-, but also received Rs. 2.62 crore dividend from its subsidiary, which had paid DDT on that amount. Since the dividend declared by the assessee was less than the dividend received from the subsidiary, the net DDT liability under section 115-O was nil. The Tribunal relied on section 115-O(1A) which reduces the DDT liability by the dividend received from the subsidiary on which DDT was paid, and on the confirmation and challans evidencing the subsidiary's payment of DDT. The Tribunal noted that the CIT(A) erred in denying refund on the ground that the assessee had itself paid the tax, as there is no estoppel in tax law to deny refund of excess tax paid. The Tribunal referred to the Torrent (P.) Ltd. case where the Gujarat High Court held that after amalgamation, dividend paid by a company to itself cannot be treated as dividend, and DDT paid on such dividend is refundable. The Tribunal also noted the constitutional principle under Article 265 that tax must be levied and collected only by authority of law, and excess tax paid must be refunded. - Key Evidence and Findings: Documents filed included dividend declarations, DDT challans of the subsidiary, shareholding details proving subsidiary relationship, audited financial statements, and confirmation letters. The assessee's return correctly reported NIL DDT liability and claimed refund of excess DDT paid. The CPC and AO failed to grant refund or credit of excess DDT. - Application of Law to Facts: Applying the statutory provisions and judicial precedents, the Tribunal concluded that the assessee was entitled to refund of excess DDT paid. The Tribunal directed the AO to verify evidence and grant refund with interest under section 244A. - Treatment of Competing Arguments: The department argued that once tax is paid, refund is not permissible. The Tribunal rejected this, citing the absence of estoppel in tax law and constitutional safeguards. The department's reliance on section 115-O as a charging provision was acknowledged but held not to override the right to refund excess tax paid. - Conclusion: The Tribunal allowed the refund claim of excess DDT paid, directing the AO to grant refund along with interest. Issue 3: Additional Grounds Raised by the Assessee The Tribunal noted that the third ground was general in nature and did not require separate adjudication. Therefore, no further analysis was undertaken on this point.