C.N. Ramachandran Nair, J.@mdashThe question raised in the appeal filed by the revenue is whether the Tribunal was justified in holding that Respondent-Assessee is entitled to interest u/s 244A of the Income Tax Act on the refund amount equal to the tax credit given u/s 115JAA of the Act. We have heard standing counsel appearing for the Appellant-revenue and Sri A. Kumar, counsel appearing for the Respondent-Assessee.
2. The facts leading to the appeal are the following. The assessment for the assessment year 2002-03 was completed u/s 115JAA on book profit and the Assessee had remitted tax liability computed for that year. Under the said assessment, the Assessee gets a tax credit of Rs. 18,98,136 to be carried over to the next year, if that years regular assessment leads to liability for tax. For the assessment year 2003-04 regular assessment was completed determining tax liability at Rs. 47.5 lakhs. After setting-off the MAT credit carried from the immediately preceding year, 2002-03, and after adjusting the pre-paid taxes, a refund was granted to the Assessee.
Though the Assessee is entitled to interest on refund u/s 244A of the Act, the assessing officer computed interest payable to the Assessee after excluding from the refund amount, the MAT credit adjusted towards tax liability. In other words, interest was granted on the net amount refunded after reducing from the total refund the amount of tax credit given to the Assessee under the MAT scheme. Since the assessment completed was an intimation u/s 143(1) of the Act, the Assessee filed rectification application demanding interest u/s 244A on MAT credit also which was declined by the assessing officer. In the appeal filed against this order declining to grant interest u/s 244A on MAT credit adjusted against tax liability, the first appellate authority allowed the Assessees claim directing granting of interest on the total refund including MAT credit as well. On second appeal, the Tribunal confirmed the order of the Commissioner (Appeals), against which the department has filed this appeal.
3. Standing counsel appearing for the revenue has referred to Sub-section (2) of Section 115JAA and contended that under the proviso to the said sub-section, no interest could be granted on the tax credit allowed to the Assessee under Sub-section (1). According to counsel for the revenue, interest referred to therein is the interest payable u/s 244A of the Act and so much so the first appellate authority as well as the Tribunal wrongly declared Assessees eligibility for interest on refund of tax credit adjusted under MAT scheme. Counsel for the Respondent-Assessee on the other hand contended that once tax credit is given the same partakes the character of tax payment along with pre-paid taxes including advance tax paid, tax deducted at source, etc. and therefore, the Assessee is entitled to interest on entire refund amount u/s 244A of the Act. In order to consider the controversy we have to necessarily refer to Section 115JAA of the Act, which is extracted hereunder with Sub-section (2) and proviso thereof:
115JAA. Tax credit in respect of tax paid on deemed income relating to certain companies.
(1) ** ** **
(2) The tax credit to be allowed under Sub-section (1) shall be the difference of the tax paid for any assessment year under Sub-section (1) of Section 115JA and the amount of tax payable by the Assessee on his total income computed in accordance with the other provisions of this Act:
Provided that no interest shall be payable on the tax credit allowed under Sub-section (1).
Admittedly Assessee is entitled to interest on refund u/s 244A of the Act. It is clear from the said provision that on assessment pre-paid taxes are adjusted which includes tax deducted at source, advance tax paid, etc., and if the pre-paid taxes exceed the tax liability then refund is to be granted to the Assessee with interest in terms of Section 244A of the Act. The question to be considered is whether the proviso to Section 115JAA(2) is to be reckoned while granting interest u/s 244A of the Act. Tax paid for an earlier year under MAT scheme is given credit for adjustment towards liability for the subsequent years to an Assessee only by virtue of operation of Section 115JAA(1) of the Act. Sub-section (2) of Section 115JAA says that tax credit is the difference between the tax payable on book profit, i.e., u/s 115JAA(1) and the tax found as payable in the computation of income in accordance with the provisions of the Act. Therefore, what is allowed to be carried over as tax credit is the tax paid on deemed income which but for the specific provision the Assessee was not liable to pay. The benefit of carried forward and set off of tax so paid is a benefit available to the Assessee by virtue of the specific provision contained in Sub-section (2). It was up to the Legislature to deny interest payable u/s 244A on tax credit adjustment allowed leading to refund payable to the Assessee. The proviso to Section 115JAA(2) expressly bars grant of interest on tax credit refunded. The only provision for interest on refund is Section 244A of the Act and so much so, in over view, the interest referred to in the proviso to Section 115JAA(2) can be only the interest on refund to which the Assessee is otherwise eligible u/s 244A of the Act. When there is express bar against granting of interest on, tax credit under the proviso to Section 115JAA(2) we do not find any justification for the Tribunal to declare the eligibility for interest on tax credit u/s 244A of the Act. In fact, the period for which interest is granted on refund u/s 244A itself shows that tax credit is not intended to be covered therein as part of refund because tax under the MAT scheme is paid in the earlier years and credit is worked out for each year and allowed to be carried over for limited number of years. We therefore, hold that the proviso to Section 115JAA(2) expressly prohibits reckoning of tax credit while granting interest on refund u/s 244A of the Act. In other words, interest on refund should be granted u/s 244A after reducing MAT credit given from refund amount.
4. Appeal is therefore, allowed by vacating the order of the Tribunal and that of the first appellate authority and by restoring the order of the officer rejecting the claim.
