Dr. D.Y Chandrachud, J.:—This appeal by the Revenue arises out of an order of the Income Tax Appellate Tribunal dated 20 June 2007. The Tribunal passed an order that would govern appeals arising out of assessment years 1998-1999, 1999-2000 and 2000-2001. The appeal by the Revenue relates to assessment year 2000-2001. The questions of law which are raised in the appeal are as follows :
a) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in holding that credit for brought forward MAT is to be given from gross demand before charging interest u/s. 234B of the Income Tax Act, 1961 ?
b) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in holding that interest u/s. 244A of the Income Tax Act, 1961 was allowable on the refundable taxes arrived after giving credit of brought forward MAT from the gross demand ?
The issue :
2. The issue that arises for the determination of the Court is whether Minimum Alternative Tax (MAT) Credit, to which the assessee is undisputedly entitled, must be given before computing interest payable by the assessee under Section 234B of the Income Tax Act, 1961; or whether, as contended by the Revenue, the credit is allowable after the liability to pay interest under Section 234B is computed. For the purposes of this appeal, it would be necessary to note that there is no dispute before the Court either as regards the extent of the MAT credit or the tax that was paid by the assessee by way of Advance Tax or Tax Deductible at Source (TDS).
3. From the order passed by the Assessing Officer on 4th February 2004, while giving effect to the order passed by the Commissioner (Appeals), it is evident that the total income of the assessee was computed at Rs. 6.40 crores. The tax chargeable was Rs. 2.46 crores. The assessee was entitled to a MAT credit of Rs. 30.98 lakhs. The TDS worked out to Rs. 37.47 lakhs, while the assessee paid an advance tax of Rs. 3.35 crores and a self-assessment tax of Rs. 21.37 lakhs. Hence, the total tax paid by the assessee was Rs. 4.24 crores. The difference between the tax payable (Rs. 2.46 crores) and the tax which was paid by the assessee (Rs. 4.24 crores) was worked out at Rs. 1.78 crores. The issue before the Court is whether in computing interest payable by the assessee for the purposes of Section 234B, MAT credit has or has not to be taken into account.
The rival positions :
4. The Revenue contends that the liability of the assessee to pay interest under Section 234B has to be worked out after giving credit to the assessee of advance tax and TDS and the assessee would be liable to pay interest on the short fall between the assessed tax on the one hand and the tax paid by the assessee by way of advance tax and TDS on the other.
On the other hand, the submission of the assessee is that MAT credit under the provisions of Section 115JAA is towards tax payable on assessment and consequently the liability to pay interest under Section 234B must be worked out after taking into account the component of MAT credit.
The statutory provisions :
5. In order to appreciate the canvass of the case and before we deal with the submissions which have been urged on behalf of the Revenue and the assessee, it would at the outset be necessary to advert to the relevant provisions, which would have a bearing on the appeal.
Section 234B :
6. Sections 234A, 234B and 234C provide for the payment of interest in certain eventualities. Section 234A provides a liability to pay interest, for a default in furnishing the return of income; Section 234B for a default of payment of advance tax; and Section 234C for deferment of advance tax. Section 234B was inserted with effect from 1 April 1989 by the Direct Tax Laws (Amendment) Act, 1987. The provision as it stood at the material time was as follows :
“Interest for defaults in payment of advance tax.
234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one and one fourth per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.
Explanation 1. - In this section, “assessed tax” means the tax on the total income determined under sub-section (1) of section 143 or on regular assessment 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.
2. ………
3. ………
(2) Where, before the date of determination of total income under sub-section (1) of section 143 or completion of a regular assessment, tax is paid by the assessee under section 140A or otherwise, -
(i) interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section;
(ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax.”
Section 115J :
7. Section 115J was introduced by the Finance Act of 1987 with effect from 1 April 1988, in order to provide for a levy of tax on the basis of book profits. The provision applied to previous years relevant to assessment years commencing on or after 1 April 1988 but before 1 April 1991. Section 115J was substituted by Section 115JA by the Finance (No. 2) Act of 1996 with effect from 1 April 1997 and was applicable to previous years relevant to assessment years on or after 1 April 1997 but before 1 April 2001. Section 115JA which allowed a tax credit in respect of the tax paid on the deemed income of certain companies came to be inserted by the Finance Act of 1997 with effect from 1 April 1998. Section 115JA was eventually replaced by Section 115JB by the Finance Act of 2000 with effect from 1 April 2001 and was applicable to the assessment year 2001-2002 onwards. Section 115JB stipulated that MAT was payable when the total income as computed under the Act was less than 7.5 per cent. of the book profits. Section 115JB was amended by the Finance Act of 2006 with effect from 1 April 2007 and the rate of 7.5 per cent. was altered to 10 per cent. for previous years commencing on or after 1 April 2007. The Finance Act of 2006 also amended the definition of the expression ‘assessed tax’ inter alia in the explanations to Sections 140A and 234B so as to mean, tax on total income as reduced by the amount of tax credit allowed to be set off, in accordance with the provisions of Section 115JAA.
Minimum Alternative Tax (MAT) :
8. Section 115JAA provides for a tax credit in respect of tax paid on deemed income relating to certain companies. sub-section (1) of section 115jaa provides that, where any amount of tax is paid under Section 115JA(1) by an assessee which is a company for any assessment year, then credit in respect of the tax so paid shall be allowed in accordance with the provisions of the section. In other words, the credit which is available under Section 115JAA is in respect of tax paid by an assessee under Section 115JA though, the extent of the credit and the manner in which it would be utilized shall be in accordance with the provisions of Section 115JAA.
The provisions for the imposition of a Minimum Alternative Tax were brought into force by Parliament due to a rise in the number of zero-tax companies in view of the tax preferences granted in the form of exemptions, deductions and high rates of depreciation. Consequently, a minimum tax was provided by deeming a certain part of the book profits as total income.
MAT Credit :
9. Section 115JAA (1) allows a credit to the company for tax paid under Section 115JA(1). The salient aspects of the deferred tax credit that is provided under Section 115JAA are as follows :
(i) The quantum of tax credit allowed under Section 115JAA (1) is the difference between the tax paid for any assessment year under Section 115JA and the amount of tax payable on the total income computed in accordance with the provisions of the Act;
(ii) The amount of tax credit determined under sub-section (2) of section 115jaa could be carried forward and set off subject to certain conditions for five assessment years immediately succeeding the year in which the credit became allowable;
(iii) The tax credit could be set off in a year in which tax became payable on the total income computed under the Act other than under the MAT provisions;
(iv) The set off of the brought forward tax credit was allowable for any assessment year to the extent of the difference between the tax on the total income and the tax that would have been payable under the MAT provisions.
At this stage, what needs to be emphasized for the purposes of discussion in the appeal is that the tax credit under Section 115JAA is allowed “where any amount of tax is paid under sub-section (1) of section 115ja” The credit that is available to the assessee is in respect of tax paid. The credit represents, therefore, the entitlement of the assessee in respect of the excess tax which has been paid to the Government and to which Parliament has rendered an assessee entitled to claim a credit in the succeeding assessment years as regulated by Section 115JAA.
10. Section 234B as it stood at the material time provided a liability to pay interest in a situation where in a financial year, an assessee who is liable to pay advance tax had either failed to pay such tax or where the advance tax paid by the assessee was less than 90 per cent. of the assessed tax. In such an eventuality, the assessee became liable to pay simple interest as stipulated from the first day of April next following such financial year up to the date of determination of the total income under sub-section (1) of section 143 and, where a regular assessment is made, to the date of such regular assessment. The interest was liable to be paid on an amount equal to the assessed tax, where the assessee had failed to pay advance tax altogether or, as the case may be, on the amount on which advance tax fell short of the assessed tax.
Explanation (1) to Section 234B, as it was substituted by the Finance Act of 2001 with effect from 1 April 1989, defined the expression “assessed tax” The expression “assessed tax” was defined to mean the tax on the total income determined under Section 143(1) or on regular assessment 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 provisions of Explanation (1) came to be substituted by the Finance Act of 2006 with effect from 1 April 2007. As substituted, Explanation (1) reads as follows :
“Explanation 1. - In this section, “assessed tax” means the tax on the total income determined under sub-section (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of, -
(i) any 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;
(ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India;
(iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section;
(iv) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and
(v) any tax credit allowed to be set off in accordance with the provisions of section 115JAA.”
After the substitution of Explanation (1), the expression “assessed tax” has now been specifically defined to account for any tax credit allowed to be set off in accordance with the provisions of Section 115JAA.
Submissions :
(i) Revenue :
11. The submissions which have been urged on behalf of the Revenue are that : (i) The amendment made by the insertion of Explanation (1) to Section 234B by the Finance Act of 2006 is prospective with effect from 1 April 2007; (ii) The amendment is not clarificatory; (iii) Prior to the substitution of Explanation (1) to Section 234B by the Finance Act of 2006, assessed tax was defined to be the tax on total income determined under Section 143(1) or on regular assessment as reduced by the tax deducted or collected at source. Consequently, MAT credit could not be reckoned while computing the liability to pay interest under Section 234B; (iv) As a result interest under Section 234B would first have to be charged on the short fall between the assessed tax and the advance tax paid by the assessee, where an assessee had failed to pay at least 90 per cent. of the assessed tax and it was after computation of the liability to pay interest that credit under Section 115JAA could be granted; (v) The plain and literal meaning of the expression “assessed tax” in Explanation (1) to Section 234B prior to its substitution by the Finance Act of 2006 must prevail and there is no scope for equity in taxation; (vi) The statutory form which was prescribed under Rule 12 of the Income Tax Rules, 1962 clearly specified that MAT credit shall be reckoned after computing the liability to pay interest under Section 234B on the short fall between the assessed tax and the advance tax paid by the assessee. The statutory form was amended after the substitution of Explanation (1) with effect from 1 April 2007.
In sum and substance, therefore, the submission which has been urged on behalf of the Revenue is that though the assessee is entitled to a credit under Section 115JAA on tax paid under Section 115JA and this credit has to be reckoned in determining the actual tax payable by the assessee, the credit available under Section 115JAA cannot be taken into account before the liability to pay interest under Section 234B is computed.
(ii) The Assessee :
12. On the other hand, it has been urged on behalf of the assessee that : (i) Independent of the amendment which was made to Explanation (1) to Section 234B by the Finance Act of 2006, MAT credit has to be taken into account before charging interest under Section 234B; (ii) This conclusion would emerge on a plain reading of sections 140a, 143(1) and 234b(2); (iii) The interest payable under Section 234B has been held to be compensatory in nature so as to be payable by an assessee for depriving the Government of its dues. Upon an excess payment of the Minimum Alternative Tax, for which credit has been given, interest cannot be charged under Section 234B by disregarding the credit to which the assessee is entitled; (iv) The construction which has been suggested by the Revenue to the effect that interest under Section 234B would be liable to be charged without giving due consideration to the entitlement of the assessee to the credit available under Section 115JAA would result in unintended and absurd consequences. The task of interpretation must be to place a construction on a statutory provision which does not result in absurdity or a consequence which was not envisaged by Parliament; (v) In any event, the amendment to Explanation (1) to Section 234B is curative and clarificatory and would apply to preceding years; and (vi) It is a settled principle of law that a form which is prescribed under subordinate legislation cannot over-ride a statutory prescription.
Our interpretation : The position of MAT credit prior to the amendment
13. Section 140A provides for self-assessment. Sub-section (1) enunciates that where any tax is payable on the basis of any return required to be furnished under sections 139, 142, 148, 153a or 158bc, “after taking into account the amount of tax, if any, already paid under any provision of the Act” the assessee shall be liable to pay such tax together with interest payable under any provision of the Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest. sub-section (1) of section 140a, therefore, postulates that the assessee is liable to pay tax which is payable on the basis of the return of income, after taking into account the tax, if any, already paid under any provision of the Act. For the purposes of Section 140A, a tax which is paid under any provision of the Act must mean what it says, namely, that due account has to be taken of tax paid under any provision of the Income Tax Act, 1961. The tax which is paid under Section 115JA and the resulting credit to which an assessee may be entitled under Section 115JAA constitutes a tax which has already been paid under the provisions of the Act. Consequently, on the basis of a plain construction of sub-section (1) of section 140a, it is abundantly clear that the tax which the assessee has paid under Section 115JA and in respect of which he became entitled to a credit under Section 115JAA is required to be taken into reckoning for the purposes of computing the liability of an assessee to pay tax under Section 140A. The expression “such tax” in Section 140A refers to a tax which is payable on the basis of the return required to be furnished by the assessee after taking into account the amount of tax, if any, already paid under the provisions of the Act.
Sub-section (1B) of Section 140A stipulated that for the purposes of sub-section (1), interest payable under Section 234B shall be computed on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid falls short of the assessed tax. The expression “assessed tax” was originally defined in the Explanation in terms which were similar to Explanation (1) to Section 234B prior to its substitution by the Finance Act of 2006. By the Finance Act of 2006, the Explanation to Section 140A was also substituted in terms similar to the substitution which was effected to Explanation (1) to Section 234B. The effect of the substitution will be considered in a subsequent part of this judgment.
At this stage, what is important to emphasize is that even prior to the substitution, in computing the liability of an assessee to pay tax under the self-assessment provisions of section 140a, the tax paid under any provision of the Act was liable to be reckoned. The question of interest under Section 234B arose if there was a short fall but in determining as to whether there was a short fall in the first place, the entitlement of an assessee to avail off MAT credit could not be ignored. This was evidently the position on a plain construction of the provisions of sub-section (1) of Section 140A.
12. The next provision to which it would be necessary to refer is Section 143(1). sub-section (1) of section 143, prior to its amendment by the Finance Act of 2008 provided that where a return has been made under Section 139, or in response to a notice under Section 142(1), if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and “any amount paid otherwise by way of tax or interest” then an intimation would be sent to the assessee specifying the sum so payable which would be deemed to be a notice of demand under Section 156. If a refund was due on the basis of such return, it was liable to be granted to the assessee. Consequently, under Section 143(1) the tax or interest due on the basis of a return filed by the assessee had to be reckoned after adjustment not only of the tax deducted at source, the advance tax and the tax paid on self-assessment but also after taking into account any amount paid otherwise by way of tax or interest. The expression “any amount paid otherwise by way of tax” obviously would refer to any amount paid by way of tax under the provisions of the Act which would include the credit to which the assessee was entitled under the provisions of Section 115JAA.
14. Section 234B (1) provided for a liability to pay interest where an assessee had either failed to pay the advance tax in its entirety or where the advance tax paid was less than 90 per cent of the assessed tax. Sub-section of Section 234B stipulated that where before the determination of total income under Section 143(1) or before completion of a regular assessment “tax is paid by the assessee under Section 140A or otherwise” interest shall be calculated in accordance with the provisions of the Section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under Section 140A. The effect of sub-section (2) was that if the assessee paid tax either under Section 140A or otherwise before his total income was determined under Section 143(1) or by the completion of a regular assessment, the liability to pay interest would be reckoned up to the date on which the tax so paid. Once the tax was paid either under Section 140A or otherwise, interest could no longer be attracted under sub-section (2) of section 234b. sub-section (2) of section 234b refers to the payment of tax by the assessee under Section 140A “or otherwise” The expression “or otherwise” must mean a payment of tax under any other provision of the Act. Like Section 140A which requires account to be taken of the tax, if any, paid under any provision of the Act, sub-section (2) of Section 234B similarly stipulates that the payment of tax under Section 140A or otherwise prior to the date of determination of total income under Section 143(1) or completion of a regular assessment would result in interest being calculated only up to the date on which the tax is so paid. This is to obviate the consequence which is provided by sub-section (1) of section 234b under which in the event of a short fall in the payment of tax, the liability to pay interest would arise and would continue to subsist up to the date of determination of total income under Section 143 or to the date of a regular assessment.
15. The provisions of Section 140A, Section 143(1) and Section 234B(2) leave no manner of doubt that the payment of tax by the assessee under Section 115JA would, where an assessee is entitled to a credit under the provisions of Section 115JAA, have to be reckoned in computing the liability to pay interest under Section 234B. Undoubtedly, Explanation (1) to Section 234B defined the expression “assessed tax” to mean the tax on the total income determined under Section 143(1) or on regular assessment as reduced by the amount of tax deducted or collected at source. However, to read the provisions of explanation (1) to section 234b, in isolation, by ignoring the provisions of sub-section (2) would obviously lead to an unintended consequence. The credit to which an assessee is entitled under Section 115JAA is in respect of tax which has been paid prior to the due date. Consequently, MAT credit available under Section 115JAA represents tax paid by the assessee before determination of the total income under Section 143(1) or the completion of a regular assessment, within the meaning of subsection (2) of Section 234B. Both the advance tax, or as the case may be, the component of MAT credit available under Section 115JAA are towards tax payable on assessment. The consequence of the interpretation which has been suggested by the Revenue would lead to unintended results. Even though there is no short fall on the part of an assessee, as in the present case, in the payment of tax, having due regard to the advance tax paid, the tax deducted at source, and the MAT credit available under Section 115JAA, the Revenue would nevertheless assert that the assessee would be liable to pay interest under Section 234B only by reason of the fact that there is a short fall between the advance tax paid and the tax assessed beyond the extent specified in Section 234B. This would be unintelligible.
The compensatory nature of Section 234B interest :
16. MAT credit under Section 115JAA comprises of that portion of MAT which was not actually payable by the assessee but which nevertheless was collected by the exchequer. Interest under Section 234B is leviable on the short fall of advance tax paid during the previous year. The provisions of Section 234B are compensatory. They have been held to be compensatory in nature by the judgment of the Supreme Court in Commissioner of Income Tax v. Pranay Roy 2009 309 ITR 231 S.C The same view was expressed in a judgment of a Division Bench of this Court in Commissioner Of Income-Tax v. Kotak Mahindra Finance Ltd. 2004 265 ITR 119 Bom The Division Bench held as follows :
“…. It is well settled that interest under section 234B is compensatory in character. It is not penal in nature. So also, interest under section 234C is compensatory in character. It is for this reason that section 234B does not envisage grant of hearing in so far as levy of interest is concerned. The levy is automatic on it being proved that the assessee has committed a default as governed by section 234B.”
17. Interest under Section 234B being compensatory in nature, the object underlying the levy of interest under the provision is to provide compensation to the exchequer for being deprived of the payment of advance tax, to which it was legitimately entitled. In a case such as present where an assessee has paid the minimum alternative tax and is in fact entitled to a credit under Section 115JAA in respect of excess tax collected by the exchequer, the basis and foundation for the levy of compensatory interest would not exist. Consequently, the submission which has been urged on behalf of the Revenue cannot be accepted, both having regard to the nature and purpose of the levy of interest under Section 234B and the unintelligible consequence that follow, if that interpretation were to be accepted.
Clarificatory Amendment :
18. Parliament substituted Explanation (1) to Section 234B by the Finance Act of 2006. The amendment which was brought into force with effect from 1 April 2007 now specifically contemplates that for the purposes of the Section “assessed tax” would be reckoned after taking due account of a tax credit allowed to be set off in accordance with the provisions of Section 115JAA. The contention of the Revenue is that this amendment has been brought into force with prospective effect from 1 April 2007 and cannot, therefore, apply to earlier assessment years.
19. The background in which the amendment was brought into force has been explained in a Circular issued by the Central Board of Direct Taxes (CBDT) (Circular No. 14 of 2006) on 28 December 2006. The circular notes that it had been represented from several quarters that the tax credit allowed under Section 115JAA is no different from the tax paid in advance and credit for having paid the Minimum Alternative Tax should be allowed against the tax liability determined on assessment. The circular states that on a similar analogy, credit for taxes paid in a country outside India has also been recommended to be allowed so that interest is not charged on an amount that equals the taxes paid outside India. The circular issued by the CBDT binds the Revenue and no contention to the contrary has been urged. Be that as it may, the circular furnishes an explanation of the circumstance that led to the substitution of Explanation (1) by the Finance Act of 2006. Evidently representations were received to the effect that the tax credit allowed under Section 115JAA is no different from the tax paid in advance and consequently credit for the payment of MAT should be allowed. The substance of these representations was evidently accepted and Parliament stepped in to substitute Explanation (1) so as to specifically provide for account being taken of the tax credit allowed to be set off under Section 115JAA.
20. Having regard to the background in which the amendment was brought into force, it must be regarded as being clarificatory in nature. The amendment clearly removes a cause of ambiguity in the interpretation of Section 234B. As interpreted by us in the earlier part of this judgment, the provisions of Section 234B, more particularly sub-section (2) as well as the entire scheme envisaged in Sections 140A and 143(1) clearly require due account being taken of the MAT credit to which the assessee was entitled under Section 115JAA. Consequently, even prior to the amendment the credit to which the assessee was entitled under Section 115JAA could not be ignored in determining the liability to pay interest under Section 234B. There was a certain element of ambiguity in the Explanation to Sections 140A and 234B. Parliament considered it appropriate to step in and and resolve an area of ambiguity, particularly having regard to the circumstance that representations were received from several quarters, as noticed in the circular issued by the CBDT. An amendment which is intended to remove an ambiguity in the interpretation of a Section must of necessity be regarded as clarificatory. If it is clarificatory in nature, it is expressive of a position in law which Parliament intended to hold the field at all material times and must consequently be regarded as operating with retrospective effect. The fact that Parliament has brought the provision into effect from 1 April 2007 by the Finance Act of 2006 would not be dispositive of the question as to whether the amendment is clarificatory. If the amendment is clarificatory as we hold it is, it must apply in respect of the previous years as well.
21. In Commissioner of Income Tax v. Podar Cement Private Limited 3, the Supreme Court considered the provisions of Section 27 of the Income Tax Act, 1961 under which certain persons who were not otherwise legal owners are deemed to be owners for certain purposes. The Finance Bill of 1987 contained in its Memorandum a statement that as a measure of rationalisation, the Bill sought to enlarge the meaning of the expression “owner of house property” in clause (iii) of section 27 by providing that a person who comes to have control over the property by virtue of such transactions as are referred to in Section 269UA(f) will also be deemed to be the owner of the property. The Supreme Court held that from the Memorandum explaining the Finance Bill of 1987, it was crystal clear that the amendment was intended to supply an obvious omission or to clear up doubts as to the meaning of the word “owner” in Section 22 and it was, therefore, declaratory or clarificatory.
In Allied Motors (P) Limited v. Commissioner of Income Tax,4 the Supreme Court held that a proviso which is resorted to remedy unintended consequences and to make a provision workable or one which supplies an obvious omission in the Section and is required to be read into the section to give it a reasonable interpretation has to be treated as retrospective in operation.
In Keshavji Ravji and Company v. Commissioner of Income Tax,5 the Supreme Court held that while there is no general theory as to the effect and intendment of an Explanation, it is true that an Explanation may “be introduced by way of abundant caution in order to clear any mental cobwebs surrounding the meaning of a statutory provision spun by interpretative errors and to place what the Legislature considers to be the true meaning beyond any controversy or doubt” The same principle has been recently applied by the Supreme Court in Commissioner Of Income Tax v. Alom Extrusions Limited, 6 where the second proviso to Section 43B was held to be curative in nature, having regard to the fact that it was intended to bring about a degree of uniformity and to obviate problems in implementation. The principle has been recognised in the judgment of the Supreme Court in Commissioner of Income Tax v. Gold Coin Health Food P. Limited,7 while construing the provisions of Section 271(1)(C).
22. Counsel appearing on behalf of the Revenue, however, sought to submit, by placing reliance on the judgment of the Supreme Court in Deputy Commissioner of Income Tax v. Core Health Care Limited, that since Explanation (1) to Section 234B was inserted by the Finance Act of 2006 with effect from 1 April 2007, retrospectivity cannot be read into the provision. Now, the decision in Core Health Care Limited dealt with an amendment to Section 36(1)(iii) of the Income Tax Act, 1961 by which Parliament had sought to restrict the area of interest allowable, by way of a proviso. Section 36(1) provided for a deduction in computing the income referred to in Section 28 of the interest paid in respect of capital borrowed for the purposes of business or profession. The proviso stipulated that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of an existing business or profession for any period beginning from the date on which the capital was borrowed for acquisition till the date on which such asset was first put to use, shall not be allowed as deduction. The Supreme Court observed that interest on moneys borrowed for the purposes of business is a necessary item of expenditure in a business. In order to allow a claim for deduction of interest under the section, all that was necessary is that the money should have been borrowed by the assessee; that it should have been borrowed for business; and that the assessee ought to have paid interest on the borrowed amount. The Supreme Court noted that its earlier view was that even though the machinery was not actually used in the business, at the time when the assessment was made, it was treated as a business asset and was purchased only for business purposes. Consequently interest paid on the amount borrowed for the purchase of the machinery was a deductible amount. It is in this background that the Supreme Court observed that the proviso which had been inserted by the Finance Act of 2003 with effect from 1 April 2004 would operate prospectively and not with retrospective effect. The basis of the decision of the Supreme Court in Core Health Care is, therefore, that a proviso which was inserted by Parliament could not be regarded as clarificatory in nature, when it brought about an alteration of the position in law as it then stood.
23. Similarly, the judgment of the Supreme Court in Vikrant Tyres Ltd. v. First Income Tax Officer, Mysore 2001 247 ITR 821 S.C on which reliance was placed by the Revenue, dealt with the question as to whether interest could be levied on an amount which was refunded to the assessee and on which there was no provision to levy interest. The Supreme Court held that on a literal construction of Section 220(2), the Department had no right to demand interest for the period commencing from the date of refund of the tax upon the appellate order till the taxes were finally paid after disposal of the reference. The case was, therefore, clearly distinguishable on facts. Similarly, the judgment of the Delhi High Court in Commissioner of Income Tax v. Rajasthan Mercantile Co. Limited,10 dealt with the insertion of Explanation (2) to Section 37(2A) of the Income Tax Act, 1961. The provision widened the scope of the concept of entertainment expenditure by including in its scope such expenditure, which was otherwise traditionally understood as routine business expenditure in connection with business hospitality. Consequently, the widened meaning could not be extended to past periods when the amended Explanation was not in operation. The judgment of the Delhi High Court, therefore, dealt with a situation where an amended provision of an Explanation was not obviously clarificatory because it widened the definition of the expression “entertainment expenditure” beyond its ordinary connotation.
24. For the reasons aforesaid, we are of the view that the amendment brought about by Parliament by the Finance Act of 2006 by substituting Explanation (1) to Section 234B was clarificatory or curative in nature.
Forms do not override Legislation :
25. On behalf of the Revenue reliance was sought to be placed on the provisions of the Form appended to the Income Tax Rules, as it obtained prior to the amendment to Section 234B. Schedule G which deals with the statement of taxes inter alia provided for the computation of interest under Section 234B after adjusting tax deducted/collected at source and advance tax from the tax payable. Under the form, the tax credit to be allowed under Section 115JAA was to be reckoned after computing the interest liability under Section 234B. The form has since been amended after the amendment brought about by the insertion of substituted Explanation (1) to Section 234B. As amended the form now requires credit under Section 115JAA to be taken into account prior to computing the interest leviable under Section 234B.
26. A form provided by a rule-making authority which is a delegate of the legislature cannot over-ride a statutory provision. Forms are subservient to legislation. Forms are intended to facilitate the implementation of legislation. Forms cannot supplant legislation. The principle of law was stated in felicitous language in the judgment of the Supreme Court in Life Insurance Corporation of India v. Escorts Limited and others 11 The Court observed as follows :
“………Surely, the Form cannot control the Act, the Rules or the directions. As one learned judge of the Madras High Court was fond of saying ‘it is the dog that wags the tail and not the tail that wags the dog’. We may add what this Court had occasion to say in Vasudev Ramchandra Shelat v. Pranlal Fayanand Thakar.
The subservience of substance of a transaction to some rigidly prescribed form required to be meticulously observed, savors of archaic and outmoded jurisprudence.
27. A Division Bench of the Madras High Court has taken the same view as we have taken in respect of the form on which reliance was placed by the Revenue in Commissioner of Income Tax v. Chemplast Sanmar Limited 2009 314 ITR 231 Mad..
The Delhi High Court's judgment in Jindal Exports :
28. The attention of the Court has been drawn to the judgment of the Delhi High Court in Commissioner Of Income Tax v. M/S Jindal Exports Limited . The Division Bench of the Delhi High Court has held that (i) MAT credit under Section 115JAA is credit for tax paid under Section 115JA; (ii) The sum represented by the available MAT credit would fall within the expression “tax … already paid under any provision of this Act” in Section 140A(1); (iii) The expression “such tax” in Section 140A(1) would mean the tax payable on the return, minus, the available MAT credit which represents the tax already paid under a provision (section 115JA) of the Act; (iv) The expression tax paid “otherwise” in Section 234B(2) would take within its sweep any tax paid under a provision of the Act including the MAT credit which is available under Section 115JAA; (v) The amendment to Explanation (1) of Section 234B by the Finance Act of 2006 is clarificatory; (vi) The tax credit which is allowed to the assessee and obtained in a particular year is a part of the Minimum Alternative Tax of that year. It represents tax paid by the assessee to the exchequer. In the year in which such tax credit is sought to be set off in terms of Section 115JA, the tax credit is available on the first day of that year and hence the tax deducted to the extent it can be set off represents tax already paid and available as credit at the beginning of the year; (vii) The assessee cannot, therefore, be charged interest on something which he has already paid; (viii) The provisions of section 234a are compensatory. Since the tax due to the extent of available MAT credit stands paid, the levy of interest under Section 234A thereon would not arise.
We are in respectful agreement with the view expressed by the Delhi High Court in Jindal Exports (Supra).
Our conclusions :
25. In view of the aforesaid discussion, the first question of law as framed would have to be answered in favour of the assessee and against the Revenue.
29. In so far as the second question is concerned, Counsel appearing on behalf of the Revenue has conceded before the Court that it would be consequential to the determination of the first question. As already noted earlier in this judgment, as against the tax payable of Rs. 2.46 crores, the tax paid by the assessee amounted to Rs. 4.24 crores after giving due adjustment for MAT credit, TDS, advance tax and self-assessment tax. The assessee was, therefore, entitled to a refund of excess tax paid for assessment year 2000-2001 over and above the tax which was computed as being due and payable. Interest under Section 244A was allowable. As we have already noted, it has been stated on behalf of the Revenue during the course of the hearing that the answer to the second question would be consequential to the determination of the first question. Consequently, the second question shall stand answered in favour of the assessee and against the Revenue.
30. For the reasons stated earlier, the Appeal filed by the Revenue shall stand dismissed and the questions of law as framed would stand answered against the Revenue. In the circumstances of the case, there shall be no order as to costs.
J.P DEVADHAR, J.
DR. D.Y CHANDRACHUD, J.
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