Income Tax Act, 1961: ss.115JAA, 234A, 234B, 234C – Minimum Alternate Tax (MAT) credit admissible in terms of s.115JAA is to be set off against the tax payable before calculating interest u/ss. 234A, B and C of the Act. The question which arose for consideration in the instant appeals was whether MAT credit admissible in terms of Section 115JAA of the Income Tax Act, 1961 has to be set off against the tax payable (assessed tax) before calculating interest under Sections 234A, B and C of the Act. =Dismissing the appeals, the Court HELD: 1. As per the provisions of Section 115JA of Income Tax Act, 1961, a company is liable to pay tax on 30% of book profits, if the income computed under normal provisions of the Act is less than 30% of the book profits. Thus, the assessee is required to compute income chargeable to tax on two alternative basis – (i) income computed under normal provisions of the Act and (ii) 30% of book profits as disclosed in the P & L Account prepared in accordance with Parts II and III of Schedule VI to the Companies Act, 1956, subject to the adjustments specified in the Explanation to Section 115JA. The higher of the two computations is deemed to be the “total income” chargeable to tax and tax is payable accordingly. Thus, Section 115JA enacts a deeming fiction by deeming 30% of book profits to be the “total income” chargeable to tax. The amount of tax paid under Section 115JA is held to be a “tax” payable under the Act, as defined in Section 2(43). [Para 5] [1126-D-F] 2. The relevant provisions under Section 115JAA of the Act, introduced by Finance Act, 1997 w.e.f. 1.4.1997, i.e., applicable for assessment years 1997-98 and onwards, governing the carry forward and set off of credit available in respect of tax paid under Section 115JA, show that when tax is paid by the assessee under Section 115JA, then the assessee becomes entitled to claim credit of such tax in the manner prescribed. Such a right gets crystallized no sooner the tax is paid by the assessee under Section 115JA, as per the return of income filed by that assessee for a previous year. [Section 115JAA(1)]. The said credit gets limited to the tax difference between tax payable on book profits and tax payable on income computed under the normal provisions of the Act [Section 115JAA(2)] in year one. Such credit is, however, allowable for a period of five succeeding assessment years, immediately succeeding the assessment year in which the credit becomes available [Section 115JAA(3)]. However, MAT credit is available for set off against the tax payable in succeeding years where the tax payable on income computed under the normal provisions of the Act exceeds the tax payable on book profits computed for that year [Section 115JAA(4),(5)]. The statute envisages under Section 115JAA “credit in respect of tax so paid” because the entire tax is not an automatic credit but has to be calculated in accordance with sub-section (2) of Section 115JAA. Sub-section (4) to Section 115JAA allows “tax credit” in the year tax becomes payable. Thus, the amount of set off is limited to the tax payable on the income computed under the normal provisions of the Act less the tax payable on book profits for that year. [Section 115JAA(4) and Section 115JAA(5)]. The tax credit to be allowed is the function of the tax payable on book profits and the tax payable on income computed under the normal provisions of the Act, in year one. The difference of the two is the amount of tax credit to be allowed. The A.O. may vary the amount of tax credit to be allowed pursuant to completion of summary assessment under Section 143(1) or regular assessment under Section 143(3) for year one, in terms of Section 115JAA(6). As a consequence of such variation the tax credit to be allowed for year one is liable to change. With every change in the amount of tax payable on book profits and/ or tax payable on income computed under the normal provisions of the Act, the tax credit to be allowed would have to be changed by the A.O. by passing consequential orders, deriving authority from Section 115JAA(6) of the Act. Thus, the tax credit allowable can be set off by the assessee while computing advance tax/ self-assessment tax payable for years 2 to 6 limited to the difference between the tax payable on income computed under the normal provisions and tax payable on book profits in each of those years, as per assessee’s own computation. Although the right to avail tax credit gets crystallized in year one, on payment of tax under Section 115JA and the set off thereof follows statutorily, the amount of credit available and the amount of set off to be actually allowed as in all cases of deductions/ allowances under Sections 30-37, is fluid/ inchoate and subject to final determination only on adjudication of assessment either under Section 143(1) or under Section 143(3). The fact that the amount of tax credit to be allowed or to be set off is not frozen and is ambulatory, does not take away/ destroy the right of the assessee to the amount of tax credit. [Para 6] [1126-G-H; 1127-A-H; 1128-A-D] 3. The entire scheme of Sections 115JA(1) and 115JAA shows that if an assessee is entitled to a tax credit as a consequence of the assessee making payment of tax under Section 115JA(1) in the year one, then, the set off of such tax credit follows as a matter of course once the conditions mentioned in Section 115JAA are fulfilled and the grant of such credit is not dependent upon determination by the A.O. save and except that the ultimate amount of tax credit to be allowed will be dependent upon the final determination of the total income for the first assessment year. There is no provision under Section 115JAA which postpones the right of the assessee to claim set off to the determination of the total income by the A.O. in the first assessment year. Entitlement/right to claim set off is different from the quantum/quantification of that right. Entitlement of MAT credit is not dependent upon any action taken by the Department. However, quantum of tax credit will depend upon the assessment framed by the A.O. Thus, the right to set off arises as a result of the payment of tax under Section 115JA(1) although quantification of that right depends upon the ultimate determination of total income for the first assessment year. Further, an assessee has a right to take into account the set off even while estimating its liability to pay advance tax on the “current income” in accordance with the provisions of Chapter XVII-C. Although Section 209(1)(d) does not make any specific provision either before or after the amendments carried out by the Finance Act, 2006 to the effect that an assessee is entitled to set off the tax credit that would be available in terms of Section 115JAA(1) while computing the quantum of advance tax that is to be paid it must follow that an assessee would be entitled to do so otherwise it results in absurdity, viz, that an assessee pays advance tax on the footing that it is not entitled (when in fact it is so entitled to the credit and thereafter claims a refund of such advance tax paid as a consequence of the set off. Moreover, when an A.O. makes an intimation under Section 143(1) he accepts the return filed by the assessee to which the A.O. may make an adjustment and consequently makes a demand or refund. Section 143(1) provides that where a return is made under Section 139 and if any tax or interest is found due on the basis of such return after adjustment of any TDS, any advance tax, any tax paid on self assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to provisions of sub-section (2), an intimation will be sent to the assessee specifying the amount so payable and such intimation shall be deemed to be a notice of demand under Section 156 and all the provisions of the Act shall apply thereto. This section itself makes it clear that whilst the A.O. determines the tax payable he has to give credit for all taxes paid either by way of deduction at source, advance tax, self assessment tax or tax paid otherwise which would include or which cannot exclude tax credit under Section 115JAA(1). The credit allowed is the excess of the normal tax liability over MAT liability in the subsequent years. [Para 9] [1131-A-H; 1132-A-E] 4. Under Section 234B, “assessed tax” means the tax on the total income determined under Section 143(1) or on regular assessment under Section 143(3) as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income. The definition, thus, at the relevant time excluded MAT credit for arriving at assessed tax. This led to immense hardship. The position which emerged was that due to omission on one hand MAT credit was available for set off for five years under Section 115JAA but the same was not available for set off while calculating advance tax. This dichotomy was more spelt out because Section 115JAA did not provide for payment of interest on the MAT credit. To avoid this situation, Parliament amended Explanation 1 to Section 234B by Finance Act, 2006 w.e.f. 1.4.2007 to provide along with tax deducted or collected at source, MAT credit under Section 115JAA also to be excluded while calculating assessed tax. [Para 11] [1133-D-G] 5. Any tax paid in advance/pre-assessed tax paid can be taken into account in computing the tax payable subject to one caveat, viz, that where the assessee on the basis of self computation unilaterally claims set off or MAT credit, the assessee does so at its risk as in case it is ultimately found that the amount of tax credit availed was not lawfully available, the assessee would be exposed to levy of interest under Section 234B on the shortfall in the payment of advance tax. The consequence of adopting the case of the Department would mean that MAT credit would lapse after five succeeding assessment years under Section 115JAA(3); that no interest would be payable on such credit by the Government under the proviso to Section 115JAA(2) and that the assessee would be liable to pay interest under Sections 234B and C on the shortfall in the payment of advance tax despite existence of MAT credit standing to the account of the assessee. Thus, despite MAT credit standing to the account of the assessee, the liability of the assessee gets increased instead of it getting reduced. [Para 12] [1134-H; 1134-A-E] 6. It is immaterial that the relevant form prescribed under Income Tax Rules, at the relevant time (i.e. before 1.4.2007), provided for set off of MAT credit balance against the amount of tax plus interest i.e. after the computation of interest under Section 234B. This was directly contrary to a plain reading of Section 115JAA(4). Further, a form prescribed under the rules can never have any effect on the interpretation or operation of the parent statute. [Para 13] [1134-E-F] National Thermal Power Corpn. Ltd. v. Union of India 192 ITR 187 – approved. Case Law Reference: 192 ITR 187 approved Para 5 CIVIL APPELLATE JURISDICTION : Civil Appeal No. 10677-10679 of 2010. With 10680-81 to 10706, 10708 to 10740, 10745-46 to 10760 of 2010. Biswajit Bhattacharya, ASG, R.P. Bhatt, Arijit Prasad, H.R. Rao, Manish Pushkarna, Syed Abdul Haseeb, Gautam Jha, Ajay Singh, Judy James, Md. Manan, A. Deb Kumar, B.V. Balaram Das for the Appellant. P.J. Pardiwalla, S. Ganesh Shekhar Nephade, Shyam Divan, R.K. Raghavan, K.V. Mohan, Rustom B. H

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 1

 IN THE SUPREME COURT OF INDIA
 CIVIL APPELLATE JURISDICTION
 CIVIL APPEAL NOs.10677-79 OF 2010
 (arising out of S.L.P. (C) Nos. 25320-25322 of 2009)

Commissioner of Income Tax, Chennai ... Appellant(s)

 versus

Tulsyan NEC Ltd. ...
Respondent(s)

 with
Civil Appeal Nos.10680-81/2010 (@ S.L.P. (C) Nos. 29672-
73/09),
Civil Appeal No.10682/2010 (@ S.L.P. (C) No. 27584/09),
Civil Appeal No.10683/2010 (@ S.L.P. (C) No. 29674/09),
Civil Appeal No.10684/2010 (@ S.L.P. (C) No. 29675/09),
Civil Appeal No.10685/2010 (@ S.L.P. (C) No. 25691/09),
Civil Appeal No.10686/2010 (@ S.L.P. (C) No. 25850/09),
Civil Appeal No.10687/2010 (@ S.L.P. (C) No. 26330/09),
Civil Appeal No.10688/2010 (@ S.L.P. (C) No. 26523/09),
Civil Appeal No.10689/2010 (@ S.L.P. (C) No. 27353/09),
Civil Appeal No.10690/2010 (@ S.L.P. (C) No. 30207/09),
Civil Appeal No.10691/2010 (@ S.L.P. (C) No. 30209/09),
Civil Appeal No.10692/2010 (@ S.L.P. (C) No. 30212/09),
Civil Appeal No.10693/2010 (@ S.L.P. (C) No. 30235/09),
Civil Appeal No.10694/2010 (@ S.L.P. (C) No. 30217/09),
Civil Appeal No.10695/2010 (@ S.L.P. (C) No. 30214/09),
Civil Appeal No.10696/2010 (@ S.L.P. (C) No. 30213/09),
Civil Appeal Nos.10697-98/2010 (@ S.L.P. (C) Nos. 30237-
38/09),
Civil Appeal Nos.10699-10700/2010 (@ S.L.P. (C) Nos. 30240-
41/09),
Civil Appeal No.10701/2010 (@ S.L.P. (C) No. 30242/09),
Civil Appeal No.10702/2010 (@ S.L.P. (C) No. 32044/09),
Civil Appeal No.10703/2010 (@ S.L.P. (C) No. 32045/09),
Civil Appeal No.10704/2010 (@ S.L.P. (C) No. 31396/09),
Civil Appeal No.10705/2010 (@ S.L.P. (C) No. 31782/09),
Civil Appeal No.10706/2010 (@ S.L.P. (C) No. 31812/09),
Civil Appeal No.10708/2010 (@ S.L.P. (C) No. 26265/09),
Civil Appeal No.10709/2010 (@ S.L.P. (C) No. 30854/09),
Civil Appeal No.10710/2010 (@ S.L.P. (C) No. 30254/09),
 2

Civil Appeal No.10711/2010 (@ S.L.P. (C) No. 31785/09),
Civil Appeal No.10712/2010 (@ S.L.P. (C) No. 31786/09),
Civil Appeal No.10713/2010 (@ S.L.P. (C) No. 31787/09),
Civil Appeal No.10714/2010 (@ S.L.P. (C) No. 33764/09),
Civil Appeal No.10715/2010 (@ S.L.P. (C) No. 33991/09),
Civil Appeal No.10716/2010 (@ S.L.P. (C) No. 33744/09),
Civil Appeal No.10717/2010 (@ S.L.P. (C) No. 33747/09),
Civil Appeal No.10718/2010 (@ S.L.P. (C) No. 33748/09),
Civil Appeal No.10719/2010 (@ S.L.P. (C) No. 33148/09),
Civil Appeal No.10720/2010 (@ S.L.P. (C) No. 34742/09),
Civil Appeal No.10721/2010 (@ S.L.P. (C) No. 34743/09),
Civil Appeal No.10722/2010 (@ S.L.P. (C) No. 34744/09),
Civil Appeal No.10723/2010 (@ S.L.P. (C) No. 34740/09),
Civil Appeal No.10724/2010 (@ S.L.P. (C) No. 34133/09),
Civil Appeal No.10725/2010 (@ S.L.P. (C) No. 35671/09),
Civil Appeal No.10726/2010 (@ S.L.P. (C) No. 35598/09),
Civil Appeal No.10727/2010 (@ S.L.P. (C) No. 1149/10),
Civil Appeal No.10728/2010 (@ S.L.P. (C) No. 668/10),
Civil Appeal Nos.10729-30/2010 (@ S.L.P. (C) Nos. 1152-
53/10),
Civil Appeal No.10731/2010 (@ S.L.P. (C) No. 1130/10),
Civil Appeal No.10732/2010 (@ S.L.P. (C) No. 666/10),
Civil Appeal No.10733/2010 (@ S.L.P. (C) No. 642/10),
Civil Appeal No.10734/2010 (@ S.L.P. (C) No. 1702/10),
Civil Appeal No.10735/2010 (@ S.L.P. (C) No. 2416/10),
Civil Appeal No.10736/2010 (@ S.L.P. (C) No. 2971/10),
Civil Appeal No.10737/2010 (@ S.L.P. (C) No. 2969/10),
Civil Appeal No.10738/2010 (@ S.L.P. (C) No. 4542/10),
Civil Appeal No.10739/2010 (@ S.L.P. (C) No. 5435/10),
Civil Appeal No.10740/2010 (@ S.L.P. (C) No. 31394/09),
Civil Appeal Nos.10745-46/2010 (@ S.L.P. (C) Nos. 8601-
02/10),
Civil Appeal No.10747/2010 (@ S.L.P. (C) No. 8998/10),
Civil Appeal No.10748/2010 (@ S.L.P. (C) No. 12310/10),
Civil Appeal No.10749/2010 (@ S.L.P. (C) No. 13052/10),
Civil Appeal No.10750/2010 (@ S.L.P. (C) No. 13053/10),
Civil Appeal No.10751/2010 (@ S.L.P. (C) No. 9078/10),
Civil Appeal No.10752/2010 (@ S.L.P. (C) No. 17875/10),
Civil Appeal Nos.10753-55/2010 (@ S.L.P. (C) Nos. 20258-60
/10),
Civil Appeal No.10756/2010 (@ S.L.P. (C) No. 22722/10),
Civil Appeal No.10757/2010 (@ S.L.P. (C) No. 23576/10),
Civil Appeal No.10758/2010 (@ S.L.P. (C) No. 30780 /10),
 3

Civil Appeal No.10759/2010 (@ S.L.P. (C) No. 31601/10) and
Civil Appeal No.10760/2010 (@ S.L.P. (C) No. 638/10),

 JUDGMENT

S. H. KAPADIA, CJI


1. Leave granted.

2. The issue involved in this batch of civil appeals, by

special leave, filed by the Department relates to the question

whether MAT credit admissible in terms of Section 115JAA has

to be set off against the tax payable (assessed tax) before

calculating interest under Sections 234A, B and C of the

Income Tax Act, 1961 (the Act).

3. At the outset, it may be stated that there is no dispute

in regard to eligibility of the assessee for set off of tax paid

under Section 115JA. The dispute is only in regard to priority

of adjustment for the MAT credit.

4. To answer the above, we set hereinbelow the provisions

of Sections 115JA and 115JAA, which read as under:


 "Deemed income relating to certain companies.


 115JA. (1) Notwithstanding anything contained in any
 other provisions of this Act, where in the case of an
 assessee, being a company, the total income, as
 computed under this Act in respect of any previous
 year relevant to the assessment year commencing on or
 4

after the 1st day of April, 1997 but before the 1st day of
April, 2001 (hereafter in this section referred to as the
relevant previous year) is less than thirty per cent of its
book profit, the total income of such assessee
chargeable to tax for the relevant previous year shall be
deemed to be an amount equal to thirty per cent of
such book profit.


(2) Every assessee, being a company, shall, for the
purposes of this section prepare its profit and loss
account for the relevant previous year in accordance
with the provisions of Parts II and III of Schedule VI to
the Companies Act, 1956(1 of 1956) :


Provided that while preparing profit and loss account,
the depreciation shall be calculated on the same
method and rates which have been adopted for
calculating the depreciation for the purpose of
preparing the profit and loss account laid before the
company at its annual general meeting in accordance
with the provisions of section 210 of the Companies
Act, 1956 (1 of 1956) :


Provided further that where a company has adopted or
adopts the financial year under the Companies Act,
1956 (1 of 1956), which is different from the previous
year under the Act, the method and rates for
calculation of depreciation shall correspond to the
method and rates which have been adopted for
calculating the depreciation for such financial year or
part of such financial year falling within the relevant
previous year.


Explanation.--For the purposes of this section, "book
profit" means the net profit as shown in the profit and
loss account for the relevant previous year prepared
under sub-section (2), as increased by--
 5

(a) the amount of income-tax paid or payable, and the
provision therefor; or


(b) the amounts carried to any reserves by whatever
name called; or


(c) the amount or amounts set aside to provisions made
for meeting liabilities, other than ascertained liabilities;
or


(d) the amount by way of provision for losses of
subsidiary companies; or


(e) the amount or amounts of dividends paid or
proposed; or


(f) the amount or amounts of expenditure relatable to
any income to which any of the provisions of Chapter
III applies;


if any amount referred to in clauses (a) to (f) is debited
to the profit and loss account, and as reduced by,--


(i) the amount withdrawn from any reserves or
provisions if any such amount is credited to the profit
and loss account :


Provided that, where this section is applicable to an
assessee in any previous year (including the relevant
previous year), the amount withdrawn from reserves
created or provisions made in a previous year relevant
to the assessment year commencing on or after the 1st
day of April, 1997 but ending before the 1st day of
April, 2001 shall not be reduced from the book profit
unless the book profit of such year has been increased
by those reserves or provisions (out of which the said
amount was withdrawn) under this Explanation; or
 6

(ii) the amount of income to which any of the provisions
of Chapter III applies, if any such amount is credited to
the profit and loss account; or


(iii) the amount of loss brought forward or unabsorbed
depreciation, whichever is less as per books of account.


Explanation.--For the purposes of this clause, the loss
shall not include depreciation; or


(iv) the amount of profits derived by an industrial
undertaking from the business of generation or
generation and distribution of power; or


(v) the amount of profits derived by an industrial
undertaking located in an industrially backward State
or district as referred to in sub-section (4) and sub-
section (5) of section 80-IB, for the assessment years
such industrial undertaking is eligible to claim a
deduction of hundred per cent of the profits and gains
under sub-section (4) or sub-section (5) of section 80-
IB; or


(vi) the amount of profits derived by an industrial
undertaking from the business of developing,
maintaining and operating any infrastructure facility as
defined as defined in the Explanation to sub-section (4)
of section 80-IA and subject to fulfilling the conditions
laid down in that sub-section; or


(vii) the amount of profits of sick industrial company for
the assessment year commencing from the assessment
year relevant to the previous year in which the said
company has become a sick industrial company under
sub-section (1) of section 17 of the Sick Industrial
Companies (Special Provisions) Act, 1985 (1 of 1986)
and ending with the assessment year during which the
entire net worth of such company becomes equal to or
exceeds the accumulated losses.
 7

Explanation.--For the purposes of this clause, "net
worth" shall have the meaning assigned to it in clause
(ga) of sub-section (1) of section 3 of the Sick Industrial
Companies (Special Provisions) Act, 1985 (1 of 1986); or


(viii) the amount of profits eligible for deduction under
section 80HHC, computed under clause (a), (b) or (c) of
sub-section (3) or sub-section (3A), as the case may be,
of that section, and subject to the conditions specified
in sub-sections (4) and (4A) of that section;


(ix) the amount of profits eligible for deduction under
section 80HHE, computed under sub-section (3) of that
section.


(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 under the provisions of sub-section (2) of
section 32 or sub-section (3) of section 32A or clause (ii)
of sub-section (1) of section 72 or section 73 or section
74 or sub-section (3) of section 74A.


(4) Save as otherwise provided in this section, all other
provisions of this Act shall apply to every assessee,
being a company, mentioned in this section.


Tax credit in respect of tax paid on deemed income
relating to certain companies.


115JAA. (1) Where any amount of tax is paid under
sub-section (1) of section 115JA by an assessee being a
company for any assessment year, then, credit in
respect of tax so paid shall be allowed to him in
accordance with the provisions of this section.


(2) The tax credit to be allowed under sub-section (1)
shall be the difference of the tax paid for any
 8

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).


(3) The amount of tax credit determined under sub-
section (2) shall be carried forward and set off in
accordance with the provisions of sub-section (4) and
sub-section (5) but such carry forward shall not be
allowed beyond the fifth assessment year immediately
succeeding the assessment year in which tax credit
becomes allowable under sub-section (1).


(4) The tax credit shall be allowed set-off in a year when
tax becomes payable on the total income computed in
accordance with the provisions of this Act other than
section 115JA or section 115JB, as the case may be.


(5) Set off in respect of brought forward tax credit shall
be allowed for any assessment year to the extent of the
difference between the tax on his total income and the
tax which would have been payable under the
provisions of sub-section (1) of section 115JA or section
115JB, as the case may be for that assessment year.


(6) Where as a result of an order under sub-section (1)
or sub-section (3) of section 143, section 144, section
147, section 154, section 155, sub-section (4) of section
245D, section 250, section 254, section 260, section
262, section 263 or section 264, the amount of tax
payable under this Act is reduced or increased, as the
case may be, the amount of tax credit allowed under
this section shall also be increased or reduced
accordingly."
 9

5. As per provisions of Section 115JA, a company is liable

to pay tax on 30% of book profits, if the income computed

under normal provisions of the Act is less than 30% of the

book profits. Thus, the assessee is required to compute

income chargeable to tax on two alternative basis - (i) income

computed under normal provisions of the Act and (ii) 30% of

book profits as disclosed in the P & L Account prepared in

accordance with Parts II and III of Schedule VI to the

Companies Act, 1956, subject to the adjustments specified in

the Explanation to Section 115JA. The higher of the two

computations is deemed to be the "total income" chargeable to

tax and tax is payable accordingly. Thus, Section 115JA

enacts a deeming fiction by deeming 30% of book profits to be

the "total income" chargeable to tax. The amount of tax paid

under Section 115JA is held to be a "tax" payable under the

Act, as defined in Section 2(43). [See National Thermal Power

Corpn. Ltd. v. Union of India 192 ITR 187 (Delhi)]

6. The relevant provisions under Section 115JAA of the

Act, introduced by Finance Act, 1997 w.e.f. 1.4.1997, i.e.,

applicable for assessment years 1997-98 and onwards,

governing the carry forward and set off of credit available in

respect of tax paid under Section 115JA, show that when tax is
 10

paid by the assessee under Section 115JA, then the assessee

becomes entitled to claim credit of such tax in the manner

prescribed. Such a right gets crystallized no sooner the tax is

paid by the assessee under Section 115JA, as per the return of

income filed by that assessee for a previous year (say, year

one). [See Section 115JAA(1)]. The said credit gets limited to

the tax difference between tax payable on book profits and tax

payable on income computed under the normal provisions of

the Act [see Section 115JAA(2)] in year one. Such credit is,

however, allowable for a period of five succeeding assessment

years, immediately succeeding the assessment year in which

the credit becomes available (say years 2 to 6) [See Section

115JAA(3)]. However, MAT credit is available for set off against

the tax payable in succeeding years where the tax payable on

income computed under the normal provisions of the Act

exceeds the tax payable on book profits computed for that year

[See Section 115JAA(4),(5)]. At this stage, we would like to

emphasize the word "allowed" in all the sub-sections of Section

115JAA. The statute envisages under Section 115JAA "credit

in respect of tax so paid" because the entire tax is not an

automatic credit but has to be calculated in accordance with

sub-section (2) of Section 115JAA. Sub-section (4) to Section
 11

115JAA allows "tax credit" in the year tax becomes payable.

Thus, the amount of set off is limited to the tax payable on the

income computed under the normal provisions of the Act less

the tax payable on book profits for that year. [Refer Section

115JAA(4) and Section 115JAA(5)]. The tax credit to be

allowed is the function of the tax payable on book profits and

the tax payable on income computed under the normal

provisions of the Act, in year one. As stated, the difference of

the two is the amount of tax credit to be allowed. The A.O.

may vary the amount of tax credit to be allowed pursuant to

completion of summary assessment under Section 143(1) or

regular assessment under Section 143(3) for year one, in terms

of Section 115JAA(6). As a consequence of such variation the

tax credit to be allowed for year one is liable to change. With

every change in the amount of tax payable on book profits

and/ or tax payable on income computed under the normal

provisions of the Act, the tax credit to be allowed would have to

be changed by the A.O. by passing consequential orders,

deriving authority from Section 115JAA(6) of the Act. Thus,

the tax credit allowable can be set off by the assessee while

computing advance tax/ self-assessment tax payable for years

2 to 6 limited to the difference between the tax payable on
 12

income computed under the normal provisions and tax payable

on book profits in each of those years, as per assessee's own

computation. Although the right to avail tax credit gets

crystallized in year one, on payment of tax under Section

115JA and the set off thereof follows statutorily, the amount of

credit available and the amount of set off to be actually allowed

as in all cases of deductions/ allowances under Sections 30-

37, is fluid/ inchoate and subject to final determination only

on adjudication of assessment either under Section 143(1) or

under Section 143(3). The fact that the amount of tax credit to

be allowed or to be set off is not frozen and is ambulatory, does

not take away/ destroy the right of the assessee to the amount

of tax credit.

7. In the present batch of cases, it is not in dispute that

the assessees are entitled to set off of MAT credit carried

forward from year one. In fact, the A.O. did set off the MAT

credit while calculating the amount of tax payable for years 2

to 6. However, while calculating interest payable under

Sections 234B and C, the A.O. computed the shortfall of the

tax payable without taking into account the set off of MAT

credit.

8. The effect of the stand of the Department is as follows:
 13

In Titan's case, the assessee files its returns for assessment

year 2001-02. The total income declared in the return was

`23,48,68,460/-. The assessee claimed a refund of

`10,60,394/-. The A.O. initially processed the return under

Section 143(1) and accepted it. Subsequently, the A.O.

rectified the alleged mistake and charged interest under

Section 234B of `1,10,67,561/-. The A.O. further charged

interest under Section 234C of `40,18,170/-. This levy of

interest took place because the A.O. took the view that credit of

the tax paid under Section 115JA(1) was to be given in terms of

Section 115JAA only after computing the interest to be charged

under Sections 234B and C. The result was that claim for

refund in favour of the assessee of an amount of `10,60,394/-

having regard to the pre-paid taxes got converted into the

demand by Department of `1,50,58,707/- after giving full credit

for the prepaid taxes only because the A.O. gave a set off of

MAT credit in the sum of `5,40,15,189/- not against the total

tax payable of `7,75,03,252/- but against the total tax payable

of `7,75,03,252/- minus TDS and Advance Tax paid by the

assessee resulting in the figure of `5,39,88,163/- being the

balance tax payable by the assessee plus interest under

Section 234B and under Section 234C in all amounting to
 14

`6,90,73,894/- from which the A.O. deducts the MAT credit of

`5,40,15,189/-. Consequently, under the computation of the

assessee no tax was payable whereas under the computation,

assessee became liable to pay tax of `1,50,58,707/-. This

conversion from refund to demand took place because while

computing interest under Sections 234B and C the A.O.

computed the shortfall of the tax payable without taking into

account the set off of MAT credit.

For sake of clarity, we set out the above facts in the case of

M/s. Titan Industries Limited in the form of a Chart:

Particulars Return of Income 154 Order
Business income 163,486,461 163,486,461
Capital gains-short 14,937 14,937
Capital gains-long 90,780,066 90,780,066
Gross Total Income 254,281,464 254,281,464
Less deduction
under Chapter VI-A
80G-Donation 1,500,000 1,500,000
80HHC-profits 6,590,600 6,590,600
80-1A new industrial 11,322,409 11,322,409
unit
Net Income 234,868,455 234,868,455
Tax payable 68,586,949 68,586,950
Surcharge on the 8,916,303 8,916,304
above at 13%
Total tax payable 77,503,252 77,503,254
Less: Set-off of MAT 54,015,189
credit
Less: TDS 5,231,557 4,198,191
Less: Advance Tax 19,316,900 19,316,900
Balance tax payable 1,060,394 53,988,163
Interest under 234B 11,067,561
 15

Interest under 234C 4,018,170
Less: Set-off of MAT 54,015,189
credit
Net tax payable 1,060,394 15,058,707


9. We have discussed hereinabove the scheme of Section

115JA(1) and Section 115JAA. The entire scheme of Sections

115JA(1) and 115JAA shows that if an assessee is entitled to a

tax credit as a consequence of the assessee making payment of

tax under Section 115JA(1) in the year one, then, the set off of

such tax credit follows as a matter of course once the

conditions mentioned in Section 115JAA are fulfilled and the

grant of such credit is not dependent upon determination by

the A.O. save and except that the ultimate amount of tax credit

to be allowed will be dependent upon the final determination of

the total income for the first assessment year. There is no

provision under Section 115JAA which postpones the right of

the assessee to claim set off to the determination of the total

income by the A.O. in the first assessment year.

Entitlement/right to claim set off is different from the

quantum/quantification of that right. Entitlement of MAT

credit is not dependent upon any action taken by the

Department. However, quantum of tax credit will depend upon

the assessment framed by the A.O. Thus, the right to set off
 16

arises as a result of the payment of tax under Section 115JA(1)

although quantification of that right depends upon the ultimate

determination of total income for the first assessment year.

Further, an assessee has a right to take into account the set off

even while estimating its liability to pay advance tax on the

"current income" in accordance with the provisions of Chapter

XVII-C. Although Section 209(1)(d) does not make any specific

provision either before or after the amendments carried out by

the Finance Act, 2006 to the effect that an assessee is entitled

to set off the tax credit that would be available in terms of

Section 115JAA(1) while computing the quantum of advance

tax that is to be paid it must follow that an assessee would be

entitled to do so otherwise it results in absurdity, viz, that an

assessee pays advance tax on the footing that it is not entitled

(when in fact it is so entitled as discussed above) to the credit

and thereafter claims a refund of such advance tax paid as a

consequence of the set off. Moreover, when an A.O. makes an

intimation under Section 143(1) he accepts the return filed by

the assessee to which the A.O. may make an adjustment and

consequently makes a demand or refund. Section 143(1)

provides that where a return is made under Section 139 and if

any tax or interest is found due on the basis of such return
 17

after adjustment of any TDS, any advance tax, any tax paid on

self assessment and any amount paid otherwise by way of tax

or interest, then, without prejudice to provisions of sub-section

(2), an intimation will be sent to the assessee specifying the

amount so payable and such intimation shall be deemed to be

a notice of demand under Section 156 and all the provisions of

the Act shall apply thereto. This section itself makes it clear

that whilst the A.O. determines the tax payable he has to give

credit for all taxes paid either by way of deduction at source,

advance tax, self assessment tax or tax paid otherwise which

would include or which cannot exclude tax credit under

Section 115JAA(1). However, the question before us is of

priority of adjustment for the MAT credit. In this connection, it

is important to bear in mind that the credit allowed is the

excess of the normal tax liability over MAT liability in the

subsequent years. In this connection the following illustration

on MAT credit be seen:

 Particulars Amount Rs.
 Year 1
 115JB liability 1,600
 Normal tax liability 400
 Credit which can be 1200
 carried forward - I
 Year 2
 115JB liability (A) 600
 Normal tax liability (B) 1400
 18

 Tax liability = 1400
 (B) [since B is higher than A]
 MAT credit available for 800
 set off in Year 2 [(A) - (B)] - II
 Net tax liability for Year 2 [B-II] 600
 MAT credit to be carried 400
 Forward [I-II]

 [See The Chartered Accountant, Vol. 57, No. 09, March, 2009,
 page 1584]

10. The issue which crops up for decision is - how should

the advance tax be calculated when the Company has MAT

credit?

11. To answer, we need to look at Section 234B. Under

that section, "assessed tax" means the tax on the total income

determined under Section 143(1) or on regular assessment

under Section 143(3) as reduced by the amount of tax deducted

or collected at source in accordance with the provisions of

Chapter XVII on any income which is subject to such deduction

or collection and which is taken into account in computing

such total income. The definition, thus, at the relevant time

excluded MAT credit for arriving at assessed tax. This led to

immense hardship. The position which emerged was that due

to omission on one hand MAT credit was available for set off for

five years under Section 115JAA but the same was not

available for set off while calculating advance tax. This
 19

dichotomy was more spelt out because Section 115JAA did not

provide for payment of interest on the MAT credit. To avoid this

situation, Parliament amended Explanation 1 to Section 234B

by Finance Act, 2006 w.e.f. 1.4.2007 to provide along with tax

deducted or collected at source, MAT credit under Section

115JAA also to be excluded while calculating assessed tax.

12. From the above, it is evident that any tax paid in

advance/pre-assessed tax paid can be taken into account in

computing the tax payable subject to one caveat, viz, that

where the assessee on the basis of self computation unilaterally

claims set off or MAT credit, the assessee does so at its risk as

in case it is ultimately found that the amount of tax credit

availed was not lawfully available, the assessee would be

exposed to levy of interest under Section 234B on the shortfall

in the payment of advance tax. We reiterate that we cannot

accept the case of the Department because it would mean that

even if the assessee does not have to pay advance tax in the

current year, because of his brought forward MAT credit

balance, he would nevertheless be required to pay advance tax,

and if he fails, interest under Section 234B would be

chargeable. The consequence of adopting the case of the

Department would mean that MAT credit would lapse after five
 20

succeeding assessment years under Section 115JAA(3); that no

interest would be payable on such credit by the Government

under the proviso to Section 115JAA(2) and that the assessee

would be liable to pay interest under Sections 234B and C on

the shortfall in the payment of advance tax despite existence of

MAT credit standing to the account of the assessee. Thus,

despite MAT credit standing to the account of the assessee, the

liability of the assessee gets increased instead of it getting

reduced.

13. Lastly, it is immaterial that the relevant form

prescribed under Income Tax Rules, at the relevant time (i.e.

before 1.4.2007), provided for set off of MAT credit balance

against the amount of tax plus interest i.e. after the

computation of interest under Section 234B. This was directly

contrary to a plain reading of Section 115JAA(4). Further, a

form prescribed under the rules can never have any effect on

the interpretation or operation of the parent statute.

14. For the above reasons, there is no merit in the civil

appeals filed by the Department and the same are dismissed

with no order as to costs.


 ....................................CJI
 (S. H. Kapadia)
 21




 ...........................................J.
 (K.S. Panicker Radhakrishnan)



 ...........................................J.
 (Swatanter Kumar)

New Delhi;
December 16, 2010