The Judgment of the Court was delivered by
P.P.S Janarthana Raja, J.:— In this batch of cases, the questions raised for consideration are one and the same. Therefore, they are taken up together and disposed of by a common judgment.
2. The questions of law raised for consideration are as follows:
“1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the carry forward MAT credit available to the assessee was to be adjusted first before charging interest under sections 234B and 234C?
2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that rule 12(1)(a) which lays down that every company has to furnish a return of income in Form No. 1 and Schedule G to the said form clearly lays down the manner of computation of the total income and also the order in which TDS, advance tax and tax credit under section 115JAA should be given effect to, is against the intention of the legislation and hence not applicable?
3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in not considering the fact that Form No. 1 had been substituted by the Income-tax (19th Amendment) Rules, 2001, with effect from August 17, 2001, and as such interest chargeable under section 234B or 234C should be first deducted and thereafter tax credit under section 115JAA should be, given?”
3. In order to appreciate the bone of contention, it would suffice to state: he facts relevant to one of the assessees viz., Chemplast Sanmar Limited, Chennai's case in T.C (A) No. 887 of 2004, which are as follows:
The assessee is a company engaged in manufacture and sale of PVC resins, caustic soda, chioromethane, refringerant gases, promotion of new-ventures, undertakings companies and operation of ships, etc. The relevant assessment year is 2002–03 and the corresponding accounting year ended on March 31, 2002. The assessee filed its return of income on October 31, 2002, admitting a taxable income of Rs. 32,90,54,720 and the tax payable: hereon was determined at Rs. 11,76,77,896 including the interest under sections 234B and 234C of the Act. The Assessing Officer processed the return under section 143(1) by intimation dated February 21, 2003, accepting the income returned. While computing the tax, the Assessing Officer has not adjusted the carry forward MAT credit available to the assessee before charging interest under section 234B of Rs. 1,17,64,830 and under section 234C of Rs. 56,31,754 and consequently raised a tax demand of Rs. 1,64,86,519 and further, the Assessing Officer had not given credit for TDS of Rs. 4,49,527. Aggrieved by that order, the assessee has filed an appeal before the Commissioner of Income-tax (Appeals) contending that he provisions of section 115JAA had to be applied first as it is a tax credit or prepaid taxes with the Government available to the assessee for set off, before applying the provisions of sections 234B and 234C of the Act. The Commissioner (Appeals), while dismissing the appeal, held as follows:
“The appellant's submissions have been considered. The order of priority of adjustment of TDS, advance tax and tax credit under section 115JAA have not been spelt out in the Act. One has to take recourse to the Income-tax Rules, 1962, for this purpose. Rule 12(1)(a) of the Income-tax Rules, 1962, lays down that in the case of a company, the return of income required to be furnished shall be in Form No. 1. Schedule G to Form No. 1 lays down the manner of computing the total tax payable by the assessee. It also gives the order in which TDS, advance tax and tax credit under section 115JAA, shall be given effect to. Form No. 1 has been substituted by the Income-tax (19th Amendment) Rules, 2001, with effect from August, 17, 2001. Therefore, there is no ambiguity with effect from August 17, 2001, that interest under section 234B or 234C shall be first deducted and thereafter tax credit under section 115JAA shall be given.”
4. Aggrieved by that order, the assessee has filed further appeal before the Income-tax Appellate Tribunal. The Tribunal allowed the appeal and directed the Assessing Officer to give set off of the MAT credit of Rs. 8,64,72,445 first, before the charging of interest under sections 234B and 234C of the Income-tax Act, 1961. Aggrieved by that order, the Department preferred the present appeal. The learned counsel appearing for the Department submitted that the Tribunal is wrong in holding that the carry forward MAT credit available to the assessee was to be adjusted first before charging interest under section 234B and 234C of the Act. Further, she contended that the Income-tax Rules, viz., rule 12(1)(a) lays down that every company has to furnish a return of income in Form No. 1 and Schedule G of the said Form clearly lays down the manner of computation of the total income and also the order in which TDS advance tax and tax credit under section 115JAA should be given effect to. She also submitted that the Tribunal failed to note that Form No. 1 had been substituted by the Income-tax (19th Amendment) Rules, 2001, with effect from August 17, 2001, and as such, there was no ambiguity from that date and the interest chargeable under sections 234B and 234C has to be first deducted and thereafter, tax credit under section 115JAA has to be given effect to. The said Rules and Form are mandatory and the same is binding on the assessee. She further contended that these appeals are arising out of the assessment proceedings. In these batch of cases, the validity of Rules and Form No. 1 have not been challenged. The authorities working under the statute are bound by the Rules. She further contended that section 234B provides for charge of interest for defaults in payment of advance tax. The assessee is liable to pay advance tax under section 208 of the Act. When the assessee fails to pay such tax or advance tax paid by the assessee under section 210 is less than 90 per cent. of the “assessed tax”, the assessee shall be liable to pay interest at the prescribed rate on the “assessed tax” or on the difference between the “assessed tax” and the advance tax paid. The “assessed tax” is defined in Explanation 1 after section 234B(1) that the tax determined under section 143(1) or upon a regular assessment as reduced by the tax deducted at source (TDS). Prior to the amendment, the Explanation did not have any reference to MAT credit. In order to arrive at the figure of “assessed tax”, the only permissible deduction from the tax computed on the total income as determined under section 143(1) or upon a regular assessment is only the amount of tax deducted at source. As per section 234C, the interest payable under the provision is to be computed with reference to “tax due on returned income”. The said expression defined in the Explanation after section 234C(1) would mean the tax chargeable on the total income declared in the return of income furnished by the assessee for the assessment year commencing on the first day of April immediately following the financial year in which the advance tax is paid or payable, as reduced by the amount of TDS on any income which is subject to deduction or collection and which is taken into account in computing such total income. Here too, according to the Revenue, the only reduction permissible is TDS. It is only after the amendment of the provision with effect from April 1, 2007, the tax credit under section 115JAA has to be given before charging interest under sections 234A, 234B and 234C. The Revenue has also relied on a Circular No. 14 of 2006 ([2007] 288 ITR (St.) 9, 41) of the Central Board of Direct Taxes, which contains the “Explanatory Notes on provisions relating to Direct Taxes” under the Finance Act, 2006, and the relevant portion of the circular reads as follows [2007] 288 ITR (St.) 9:
“38.2 It has 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 alternate tax should be allowed against the tax liability determined on assessment. 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 to the taxes paid outside India. Accordingly, for calculating interest under sections 234A, 234B and 234C, the Finance Act, 2006, has provided for
(a) reduction of tax credit allowed to be set off under section 115JAA from the tax on the total income; and
(b) reduction of the amount of relief of tax allowed under sections 90 and 90A and deduction from the Indian income-tax before furnishing the return of income.
38.3 The credit for the above shall also be allowed under section 140A for calculating tax and interest before furnishing the return of income.
38.4 The above amendments will take effect from April 1, 2007, and will, accordingly, apply in relation to the assessment year 2007–08 and subsequent years.”
5. From a reading of the above, it is clear that there are representations from various quarters that tax credit should be allowed before charging interest under sections 234A, 234B and 234C of the Act. After considering the representation, law was amended with effect from April 1, 2007, and the same is applied from the assessment year 2007–08. It comes into effect only prospectively and not retrospectively. She further contended that section 140A deals with “self-assessment” and it speaks of deduction of only TDS amount. There is no mention of MAT credit. Therefore, she submitted that the order passed by the Tribunal is not in accordance with law and the same has to be set aside.
6. The learned counsel appearing for the assessee/respondent submitted that the liability to pay interest under section 234B can only be computed after the liability to pay advance tax is calculated, which in turn, depends on the tax payable on the current income. He further contended that the tax credit is a nature of advance tax with the Department and, hence, the same has to be set off against the tax payable only. It is also further contended that as per sub-section (4) of section 115JAA of the Act, tax credit shall be allowed at the stage at which the tax has become payable. It is further contended that the assessee is entitled to take into account the MAT credit under section 115JAA, when it computes the tax payable under section 209, i.e, the tax payable on the current income less the MAT credit available. It is vehemently contended that under sections 234B and 234C of the Act, the interest can only be computed after the tax credit under section 115JAA is set off against the tax payable. As per the provision of section 234B(2) of the Act, any tax paid by the assessee under section 140A or otherwise should be taken into consideration. The words “or otherwise” includes the tax credit available with the Department, i.e, whatever manner the tax is paid, shall be taken note of in calculating the interest. The learned counsel further contended that the interest leviable under sections 234A and 234B are only compensatory in nature and not a penal one and it is only by way of compensation in respect of the tax withheld and since the MAT credit was available at the beginning of the year and had to be set off against the tax payable, no loss has been caused to the Revenue, and, therefore, there is no question of charging any interest thereon by way of compensation. To support the above claim, the learned counsel has relied on the decision of the apex court in the case of CIT v. Pranoy Roy, [2009]309 ITR 231 (SC), wherein it has been held as follows (page 233):
“Since the tax due had already been paid which was not less than the tax payable on the returned income which was accepted, the question of levy of interest does not arise.”
7. The learned counsel further relied on Circular No. 14 of 2006, dated December 28, 2006 ([2007] 288 ITR (St.) 9), and contended that the amendment in Explanation 1 after section 234B brought about by the Finance Act, 2006, with effect from April 1, 2007, is clarificatory in nature and, therefore, retrospectivity should be given. The learned counsel also placed reliance. On the decision of the apex court in the case of Allied Motors (P) Ltd. v. Commissioner Of Income Tax, Delhi reported in [1997]224 ITR 677 and Commissioner Of Income Tax, Central Ii v. Suresh N. Gupta reported in [2008]297 ITR 322 (SC). The learned counsel further contended that the expression under “sub-sections (4) and (5) of section 115JAA” is “set off” and not “deduction”. Therefore, the tax credit has to be set off against tax payable. By relying on the decision of the Delhi High Court in the case of Commissioner Of Income Tax v. M/S Jindal Exports Limited, [2009]314 ITR 137 (Delhi) : [2009] 222 CTR 8, learned counsel contended that all the points raised now before this court have already been raised before the Delhi High Court and the Delhi High Court has also considered the matter in detail and allowed in favour of the assessee. The said judgment squarely applies to the present case and, therefore, the same has to be followed. In such circumstances, the order passed by the Tribunal is in conformity with law and the same has to be confirmed.
8. Heard the learned counsel appearing on either side and perused the materials available on record.
9. In respect of the first question of law, the arguments advanced by the counsel on either side are the same as the one advanced before the Delhi High Court cited supra. The Delhi High Court has considered the relevant provisions and dealt with the matter in detail and held that the credit under sections 115JAA should be given effect to before charging of interest under sections 234A, 234B and 234C of the Act. We are in agreement with the reasoning given by the Delhi High Court. The learned counsel appearing for the Revenue has not produced any materials or given compelling reasons to take a contrary view with that of the Delhi High Court. In such circumstances, we answer the first question in favour of the assessee and against the Revenue.
10. In respect of questions Nos. 2 and 3, the learned counsel appearing for the Revenue vehemently contended that the Act does not prescribe the order of priority of adjustments of tax deducted at source, advance tax and tax credit under section 115JAA of the Income-tax Act. Therefore, one has to take recourse to the Income-tax Rules, 1962, for the said purpose. Rule 12(1)(a) of the Income-tax Rules, 1962, prescribed that in the case of a company, the return of income required to be furnished shall be in Form No. I. Schedule G of Form No. 1 lays down the manner of computing the total tax payable by the assessee. It also specified the order in which tax deducted at source, advance tax and tax credit under section 115JAA shall be given effect to. Later the Form was amended with effect from August 17, 2001. Therefore, there is no dispute that the tax credit under section 115JAA shall be given effect only after determining tax and interest. The Commissioner of Income-tax rightly rejected the contention of the assessee and dismissed the appeal. On appeal, the Income-tax Appellate Tribunal allowed the appeal which is not only inconsistent with the statutory rule but made the rule crippled and redundant in the absence of any challenge to the rule. The Tribunal held as follows:
“6.8 The well established rule of interpretation is that the same expression contained in the Act as well as in the Rules framed thereunder have to receive an identical construction (CWT v. Vasantha, [1973]87 ITR 17 (Mad)). Section 20 of the General Clauses Act, 1897, specifically provides that where, by any Central Act or Regulation, a power to issue any notification, order, scheme, rule, form or bye-law is conferred, then, expressions used in the notification, etc., shall, unless there is anything repugnant in the subject or context, have the same respective meanings as in the Act or Regulation conferring the power. A rule made by the rule-making authority cannot enlarge or expand the meaning of a word used in a section (CIT v. Aruna Sugars Ltd., [1980]123 ITR 619 (Mad) or the meaning of the section. If a rule goes beyond what the section contemplates, the rule must yield to the statute (see Central Bank Of India & Others v. Workmen, Etc, AIR 1960 SC 12, Chandra Kumar Sah v. District Judge, AIR 1976 All 328 [FB].
6.9 The rule-making authority is given to the end that the provision of the statute may be better carried out into effect and not with a view to neutralising or contradicting those provisions (East Asiatic Co. (India) Ltd. v. State of Madras, [1956] 7 STC 299, 314 (Mad), The rule-making authority cannot, in exercise of its rule-making power, destroy a substantive right created by a provision of the statute (A.H.M Allaudin v. Addl. ITO, [1964]52 ITR 900, 904 (Mad) or alter, affect or abrogate a legislative provision in any other statute (Revula Subba Rao (Rao Bahadur) v. CIT, [1951]20 ITR 337, 346 (Mad)) nor can give any greater power to an authority than what is granted in the Act itself (Basudeb Hota v. State of Orissa, [1958] 9 STC 663 (Orissa)
6.10 In this case on hand we have to first go through the provisions of section 115JAA regarding adjustment of tax credit. Sub-section (5) of section 115JAA reads as under:
‘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.’
It can be seen from the above section that the statute intends to allow set off in respect of brought forward tax credit (MAT credit) and it has to be allowed to the extent of the difference between the tax on its total income and the tax which would have been payable under the provisions of sub-section (1) of section 115JA. It may be seen that in this section the Legislature has used the word ‘tax’ and not ‘tax and interest under sections 234B and 234C of the Act’. In such circumstances it is to be inferred that the intention of the Legislature is to allow set off of the MAT credit from the ‘tax’ and not from the total amount including ‘tax and interest’. Had it been the intention of the Legislature it would have been specifically stated in the section itself. By exercising the delegated authority the Central Board of Direct Taxes has framed the forms for filing the returns of income for the companies and while framing Form No. 1 the delegated authority, namely, the Central Board of Direct Taxes, has included Schedule G (statement of tax) to Form No. 1. While drafting this schedule the Board has given the order of preference of adjustment of TDS, advance tax and tax credit under section 115JAA. While doing so, the Board has first prescribed charging of interest under sections 234A and 234B and then has prescribed to give credit for MAT credit available under section 115JAA of the Act. In our considered view, this method of prescribing the order of priority of adjustment of TDS, advance tax and MAT credit is totally against the intention of the Legislature because the Legislature by insertion of sub-section (5) to section 115JAA has intended to give set off of MAT credit against the difference between the tax on total income of the assessee and the tax which would have been payable under the provisions of sub-section (1) of section 115JA and not on the total amount of tax and interest under sections 234B and 234C as understood by the rule-making authority. Hence, in our considered opinion, Schedule G to Form No. 1 is totally against the intention of the Legislature which has been clearly prescribed in section 115JAA. As has been already pointed out in the earlier paragraphs, rules cannot be contrary to the provisions of sections or the intention of the Legislature. Hence, as we have already held that Schedule G to Form No. 1 is contrary to the provisions of section 115JAA, we are inclined to allow the claim of the assessee by directing the Assessing Officer to give set off of the MAT credit of Rs. 8,64,72,445 first before the charging of interest under sections 234B and 234C of the Income-tax Act, 1961.”
11. Section 139(1) contemplates that the assessee being a company has to file return in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. Rule 12(1 (a) of the Income-tax Rules, 1962, prescribes that the assessee being a company should file a return of income in Form No. 1. The said Form No. 1 prescribes the manner in which the computation has to be made. Schedule G deals with statement of tax and the same is prescribed in the order in which the tax deduction at source, advance tax and credit under section 115JAA should be given effect to and same reads as follows:
SCHEDULE G.—STATEMENT OF TAXES
12. Section 295 of the Income-tax Act deals with power to make rules, which reads as follows:
“295.(1) The Board may, subject to the control, of the Central Government, by notification in the Gazette of India, make rules for the whole or any part of India for carrying out the purposes of this Act.
(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters:…
(p) any other matter which by this Act is to be, or may be, prescribed.”
13. From a reading of the above provision, it is clear that the section authorised the Central Board of Direct Taxes to make rules for whole of India or part of India for carrying out the purposes of this Act and also it is subject to the control of the Central Government. Sub-section (2) enumerates some of the important matters, which have been provided by the Rules. It is well accepted principle that the rule cannot affect, control, enlarge or detract or derogate from the full operative effect of the provision of the section. If any rule purports to do so, it would be void and ultra vires and further the rule must be consistent or in conformity with the Act. If there is conflict between rule and the substantial provision of the Act, the rule must pave the way to the provision of the Act. Further, the delegating authority must exercise power strictly within the limit of the authority. Even though the rule-making power is conferred on the said authority, and the rules made are in excess of such delegated power, the rules would be void even if the Act provides that they shall have effect as though enacted in the Act.
14. In the case of Assam Company Ltd. v. State of Assam reported in [2001]248 ITR 567 the Supreme Court has considered the scope of the rules and held as follows (page 574):
“It is an established principle that the power to make rules under an Act is derived from the enabling provision found in such Act. Therefore, it is fundamental that a delegate on whom such power is conferred has to act within the limits of the authority conferred by the Act and it cannot enlarge the scope of the Act. A delegate cannot override the Act either by exceeding the authority or by making provision which is inconsistent with the Act. Any rule made in exercise of such delegated power has to be in consonance with the provisions of the Act, and if the rule goes beyond what the Act contemplates, the rule becomes in excess of the power delegated under the Act, and if it does any of the above, the rule becomes ultra vires the Act. We have already noticed that none of the provisions of the Act has contemplated any power to be vested in the State officers to recompute the agricultural income from tea while proviso to rule 5 of the Rules in specific terms empowers the State officers to recompute the agricultural income from tea different from that which is computed by the Central officers under the Central Act. Thus, it is seen that this rule is not only made beyond the rule-making power of the State under section 50 of the Act but also runs counter to the object of the Act itself, and enlarges the scope of the Act. The same also suffers from the other vices pointed out by us hereinabove, hence such a rule, in our opinion, is ultra vires the Act. Therefore, proviso to rule 5 of the State Rules to the extent it empowers the State officers to recompute the agricultural income already computed by the Central officers is ultra vires the State Act.”
15. In the case of CIT v. Taj Mahal Hotel reported in [1971]82 ITR 44 also, the Supreme Court has considered the scope of rules and held as follows (page 49):
“It has been rightly observed that the Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect.”
16. In the case of Veena Kumari Tandon v. Neelam Bhalla reported in [2007] 13 Scale 26, the Supreme Court has held as follows:
“It is now a well settled principle of law that a legislative Act shall prevail over the subordinate legislation. Bye-laws must, therefore, conform to the provisions of the Act and cannot act in derogation thereof.”
17. In the case of Additional District Magistrate (Rev.) Delhi Admn. v. Siri Ram. reported in (2000) 5 SCC 451 : AIR 2000 SC 2143 : [2000] AIR SCW 2205, the Supreme Court has held as follows (page 2148):
“It is well recognised principle of interpretation of a statute that conferment of rule-making power by an Act does not enable the rulemaking authority to make rule which travels beyond the scope of the enabling Act or which is inconsistent therewith or repugnant thereto. From the above discussion, we have no hesitation to hold that by amending the Rules and Form P. 5, the rule-making authority have exceeded the power conferred on it by the Land Reforms Act.”
18. In the case of Ahmedabad Urban Development Authority v. Sharad-kumar Jayantikumar Pasawalla, (1992) 3 SCC 285 : AIR 1992 SC 2038, the Supreme Court has held as follows (page 2042):
“After giving our anxious consideration to the contentions raised by Mr. Goswami, it appears to us that in a fiscal matter it will not be proper to hold that even in the absence of express provision, a delegated authority can impose tax or fee. In our view, such power of imposition of tax and/or fee by delegated authority must be very specific and there is no scope of implied authority for imposition of such tax or fee. It appears to us that the delegated authority must act strictly within the parameters of the authority delegated to it under the Act and it will not be proper to bring the theory of implied intent or the concept of incidental and ancillary power in the matter of exercise of fiscal power.”
19. In the case of Kunj Behari Lal Butail v. State of H.P reported in (2000) 3 SCC 40 : AIR 2000 SC 1069, the Supreme Court has held as follows (page 1072):
“We are also of the opinion that a delegated power to legislate by making rules ‘for carrying out the purposes of the Act’ is a general delegation without laying down any guidelines; it cannot be so exercised as to bring into existence substantive rights or obligations or disabilities not contemplated by the provisions of the Act itself.”
20. In the case of Corporation Bank v. Saraswathi Abharansala reported in [2009] 19 VST 84 (SC) : (2009) 1 SCC 540, the apex court held that if the substantive provision of a statute provides for refund, the State by subordinate Legislature cannot lay down that the tax paid by mistake would not be refunded. The court further held that when a statute cannot be considered in such a manner as would defeat the object, the Legislature is presumed to be aware of the consequences following therefrom. The statute should be read in such manner as to do justice to the parties. In the present case, the intention of the Legislature is to give tax credit to tax and not to the tax and interest. Once the intention is clear, the Revenue cannot rely on Form No. 1 to say that the MAT credit under section 115JAA should be given only after tax and interest. Further, we have answered the first question of law in favour of the assessee, i.e, the MAT credit under section 115JAA should be given effect to before charging the interest under sections 234B and 234C. Rule 12(1)(a) and Form No. 1 cannot go beyond the provisions of the Act. Form No. 1 cannot lay down the order of priority of adjustment of TDS, advance tax, MAT credit under section 115JAA which is contrary to the provisions of the Act. The order passed by the Tribunal is in accordance with law and we do not find any error or illegality in the order of the Tribunal so as to warrant interference. Accordingly, we answer questions Nos. 2 and 3 also in favour of the assessee and as against the Revenue.
21. In view of the above, these tax case appeals are liable to be dismissed and accordingly the same are dismissed.