TaxTMI 
TaxTMI 
2018 (10) TMI 1900
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....e Act, which was not considered in proper perspective. Plea was also raised that tax includes surcharge, cess so far as section 115JB and 115JAA is concerned and placed reliance upon the decision in the case of M/s Eastern Jewels Pvt. Ltd. vs ACIT (ITA No.163/Jp/2017) and CIT vs K. Srinivasan 83 ITR 346 (Supreme Court). On other hand, the ld. DR, Chaudhary Arun Kumar Singh, contended that assessee filed two applications under section 154 of the Act and defended the impugned orders. 2.1. We have considered the rival submissions and perused the material available on record. In view of the above arguments from both sides, we are reproducing hereunder the relevant portion from the order of the Jaipur Bench of the Tribunal in the case of M/s Eastern Jewels Pvt Ltd. vs ACIT for ready reference and analysis:- "This is an appeal filed by the assessee against the order of ld. CIT(A)- 01, Jaipur dated 14.12.2016 pertaining to assessment year 2011-12 wherein the assessee has challenged the action of ld. CIT(A) in confirming the action of the Assessing Officer in restricting the MAT credit of AY 2010-11 to Rs. 6,59,098/- as against Rs. 10,41,894/- claimed by the assessee company. 2. B....
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.... the earlier decision of the Hon'ble Allahabad High Court in case of CIT v. Vacment India [2014] 369 ITR 304 (All) has been distinguished and it has been held that both the surcharge and education cess are part of income tax. 5. The question of law which came up for consideration before the Hon'ble Calcutta High Court (supra) was whether on the facts and in the circumstances of the case and in law, the Tribunal was right in confirming the set-off of MAT Credit under section 115JAA brought forward from earlier years against tax on total income including surcharge and education cess instead of adjusting the same from tax on total income before charging such surcharge education cess" and the relevant findings are contained as under:- "...7. We have not been impressed by the submissions advanced by Mr. Khaitan for the following reasons:- (b) We are inclined to think that both surcharge and cess are part of the income tax though payable in addition to the Income Tax calculated at the rate provided in Section 115JB. 8. We are supported in our view by Sub-section (1), the second proviso to Sub-section (3); Sub-section (11) and Subsection (12) of Section (2) o....
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....he assessee....." 6. Further, the reliance was placed on the decisions of Coordinate Bench in the case of Virtusa (India) (P) Ltd. vs. DCIT (2016) 157 ITD 1160 (Hyd) and in the case of Bhagwati Oxegen Ltd. vs. ACIT (2017) 51 CCH 0368 Kol Trib. It was accordingly submitted that the assessee has rightly claimed the MAT credit well within the four corners of provisions of section 115JAA. The relief may kindly be granted by allowing the MAT credit to the extent of Rs. 10,41,894/- as against Rs. 6,59,098/- allowed by the Assessing Officer. 7. The ld. DR is heard who has relied on the order of the lower authorities. 8. We have heard the rival contentions and perused the material available on record. The limited issue under consideration is whether for the purposes of computing the MAT credit u/s 115JAA of the Act, whether tax include surcharge and education cess or not. 9. In this regard, we refer to the provisions of section 115JB of the Act and in particular Explanation - 2 wherein the amount of income tax has been defined to include surcharge and education cess and the same is reproduced as under:- "[Explanation 2.- For the purposes of clause (a) of Explanation 1,....
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....relevant to the assessment year commencing on or after the 1st day of April, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. (2) Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its 76[statement of profit and loss] for the relevant previous year in accordance with the provisions of 76[Schedule III] to the 76b[Companies Act, 2013 (18 of 2013)]; or (b) being a company, to which the 76c[second proviso to sub-section (1) of section 129] of the 76d[Companies Act, 2013 (18 of 2013)] is applicable, shall, for the purposes of this section, prepare its 76e[statement of profit and loss] for the relevant previous year in accordance with the provisions of the Act governing such company: Provided that while preparing the annual accounts including 76e[statement of profit and loss],- (i) the accounting policies; (ii) the accounting....
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....amounts of expenditure relatable to income accruing or arising to an assessee, being a foreign company, from,- (A) the capital gains arising on transactions in securities; or (B) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII, if the income-tax payable thereon in accordance with the provisions of this Act, other than the provisions of this Chapter, is at a rate less than the rate specified in sub-section (1); or (fc) the amount representing notional loss on transfer of a capital asset, being share of a special purpose vehicle, to a business trust in exchange of units allotted by the trust referred to in clause (xvii) of section 47 or the amount representing notional loss resulting from any change in carrying amount of said units or the amount of loss on transfer of units referred to in clause (xvii) ofsection 47; or 78[(fd) the amount or amounts of expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF; or] (g) the amount of depreciation, (h) the amount of deferred tax and the provision therefor, ....
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.... of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86, if any, such amount is credited to the 80[statement of profit and loss]; or (iid) the amount of income accruing or arising to an assessee, being a foreign company, from,- (A) the capital gains arising on transactions in securities; or (B) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII, if such income is credited to the 80[statement of profit and loss] and the income-tax payable thereon in accordance with the provisions of this Act, other than the provisions of this Chapter, is at a rate less than the rate specified in sub-section (1); or (iie) the amount representing,- (A) notional gain on transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust referred to in clause (xvii) of section 47; or (B) notional gain resulting from any change in carrying amount of said units; or (C) gain on transfer of units referred to in clause (xvi....
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....e amount of deferred tax, if any such amount is credited to the 85[statement of profit and loss]. Explanation 2.-For the purposes of clause (a) of Explanation 1, the amount of income-tax shall include- (i) any tax on distributed profits under section 115-O or on distributed income under section 115R; (ii) any interest charged under this Act; (iii) surcharge, if any, as levied by the Central Acts from time to time; (iv) Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and (v) Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time. Explanation 3.-For the removal of doubts, it is hereby clarified that for the purposes of this section, the assessee, being a company to which the 86[second proviso to sub-section (1) of section 129 of the Companies Act, 2013 (18 of 2013)] is applicable, has, for an assessment year commencing on or before the 1st day of April, 2012, an option to prepare its 87[statement of profit and loss] for the relevant previous year either in accordance with the provisions of 88[Schedule III to the Companies Act, 2013 ....
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.... profit and loss on distribution of non-cash assets to shareholders in a demerger in accordance with Appendix A of the Indian Accounting Standards 10; (d) decreased by all amounts or aggregate of the amounts credited to the statement of profit and loss on distribution of non-cash assets to shareholders in a demerger in accordance with Appendix A of the Indian Accounting Standards 10: Provided that nothing contained in clause (a) or clause (b) shall apply to the amount credited or debited to other comprehensive income under the head "Items that will not be re-classified to profit or loss" in respect of- (i) revaluation surplus for assets in accordance with the Indian Accounting Standards 16 and Indian Accounting Standards 38; or (ii ) gains or losses from investments in equity instruments designated at fair value through other comprehensive income in accordance with the Indian Accounting Standards 109: Provided further that the book profit of the previous year in which the asset or investment referred to in the first proviso is retired, disposed, realised or otherwise transferred shall be increased or decreased, as the case may be, by the amount o....
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....ccordance with the Indian Accounting Standards 16 and Indian Accounting Standards 38 adjusted on the convergence date; (C) gains or losses from investments in equity instruments designated at fair value through other comprehensive income in accordance with the Indian Accounting Standards 109 adjusted on the convergence date; (D) adjustments relating to items of property, plant and equipment and intangible assets recorded at fair value as deemed cost in accordance with paragraphs D5 and D7 of the Indian Accounting Standards 101 on the convergence date; (E) adjustments relating to investments in subsidiaries, joint ventures and associates recorded at fair value as deemed cost in accordance with paragraph D15 of the Indian Accounting Standards 101 on the convergence date; and (F) adjustments relating to cumulative translation differences of a foreign operation in accordance with paragraph D13 of the Indian Accounting Standards 101 on the convergence date.] (3) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years unde....
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....reign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999) and the rules made thereunder.] 2.3. If the aforesaid section is analyzed, explanation-2 inserted by the Finance Act, 2008, w.r.e.f. 01/04/2001 clarifies that for the purposes of clause (a) of explanation-1, the amount of income tax shall include (i) any tax on distributed profits under section 115-O or on distributed income under section 115R; (ii) any interest charged under this Act; (iii) surcharge, if any, as levied by the Central Acts from time to time; (iv) Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and (v) Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time. 2.4. The Ld. DCIT in his order under section 154 says that section 115JAA stipulates that such book profit shall be deemed to be the total income of the assessee and tax payable by the assessee on such total income shall be the amount of income tax at specified rate of tax, which was 7.5% for Assessment Year 2006-07. Thus, section 115JAA does not talk about the income tax as increased ....
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....shall be charged at the rates specified in Parts I and II of the First Schedule respectively and that in cases to which certain paragraphs of those Parts apply these taxes shall be increased for surcharge for the purpose of the Union. According to sub-section (2) where the total income of an assessee not being a company includes any income chargeable under the head "Salaries" income-tax and supertax payable by the assessee on the salary portion of the total income shall be the proportionate amount payable according to the rates provided in the Finance Act, 1963. Under section 2 of the Finance Act, 1963, income-tax was to be charged at the rates specified in Part I of the First Schedule and super-tax at the rates specified in Part II of that Schedule. The income-tax was to be increased in the cases mentioned by a surcharge and additional surcharge for the purpose of the Union and a special surcharge. The super-tax was, however, to be increased by a surcharge for the purpose of the Union and a special surcharge. It will be noticed that section 2(2) of the Finance Act, 1964, did not contain mention of any of the surcharges. This led to the controversy which resulted in the reference. ....
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....137 the federal legislature was empowered to increase at any time any of the duties or taxes leviable under that section by a surcharge for federal purposes and the whole proceeds of any such surcharge were to form part of the revenues of the federation. Subsection (3) of section 138 which dealt with taxes on income related to imposition of a surcharge. Under the Government of India Act, 1935, the surcharge was levied for the first time by the Indian Finance No. 2 Act, 1940. Section 3(1) of that Act read : "Subject to the provisions of this section, the rates of income-tax and rates of super-tax . . . imposed by sub-section (1) of section 7 of the Indian Finance Act, 1940, shall, in respect of the year beginning onthe first day of April, 1940, be increased by a surcharge for the purposes of the Central Government . "Similar phraseology was employed in respect of surcharge on supertax. The provisions relating to surcharge were omitted in the Finance Acts of 1946 to 1950. It was reintroduced in the Finance Act of 1951 and the same has been continued in the Finance Acts of subsequent years. Special surcharge came to be levied in the Finance Acts of 1958 to 1964 and 1....
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....ncome-tax which was to be charged was to be increased by a surcharge for the purposes of the Union. The word "surcharge" has thus been used to either increase the rates of income-tax and super-tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the term "income-tax" as used in section 2 includes surcharge. According to article 271, notwithstanding anything in articles 269 and 270, Parliament may at any time increase any of the duties or taxes referred to in those articles by a surcharge for the purposes of the Union and the whole proceeds of any such surcharge shall form part of the consolidated fund of India. Article 270 provides for taxes levied and collected by the Union and distributed between the Union and the States. Clause (1) says that taxes on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the States in the manner provided in clause (2). Article 269 deals with taxes levied and collected by the Union but assigned to the States. The provisions of article 268 which is the first one under the heading "Distribution of revenue b....
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....ncome-tax and super-tax were to be charged in four different ways or at four different rates which may be described as : (i) the basic charge or rate (In Part I of the First Schedule); (ii) surcharge ; (iii) special surcharge ; and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way, the additional charges form a part of the income-tax and super-tax. It is possible to argue, and that argument has been commended on behalf of the revenue, that the word "surcharge" has been used in article 271 for the purpose of separating it from the basic charge of a tax or duty for the purpose of distributing the proceeds of the same between the Union and the States. The proceeds of the surcharge are exclusively assigned to the Union. Even in the Finance Act itself it is expressly stated that the surcharge is meant for the purpose of the Union. It would appear that, since the Finance Act, 1943, up to the Finance Act, 1967, a provision was made for taxing the income under the head "Salaries" according to the provisions of the Finance Act of the preceding year rather than of the current year if the assessee had any income in addition to his income by....