COMMISSIONER OF INCOME TAX, CHENNAIversusTULSYAN NEC LTD.

                 [2010} 14 (ADDL.) S.C.R. 1114


A        COMMISSIONER OF INCOME TAX, CHENNAI
                               V.
                       TULSYAN NEC LTD.
              (Civil Appeal Nos.10677-79 of 2010)
                     DECEMBER 16, 2010
B
          [S.H. KAPADIA, CJI, K.S. PANICKER
     RADHAKRISHNAN AND SWATANTER KUMAR, JJ.]

       Income Tax Act, 1961: ss.115JAA, 234A, 2348, 234C -
C 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
D 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.

E      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
F 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
G prepared in accordance with Parts II and Ill 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.
H                             1114
  COMMISSIONER OF INCOME TAX, CHENNAI v.               1115
            TULSYAN NEC LTD.

Thus, Section 11 SJA enacts a deeming fiction by deeming        A
30% of book profits to be the "total income" chargeable
to tax. The amount of tax paid under Section 11 SJA is
held to be a "tax" payable under the Act, as defined in
Section 2(43). [Para 5] [1126-0-F]
                                                                8
     2. The relevant provisions under Section 11 SJAA 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 11 SJA,
show that when tax is paid by the assessee under                C.
Section 11 SJA, 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 11 SJA, as per the return of
income filed by that assessee for a previous year.              D
[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         E
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           F
 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
 11 SJAA "credit in respect of tax so paid" because the
 entire tax is not an automatic credit but has to be            G
 calculated in accordance with sub-section (2) of Section
 11 SJAA. Sub-section (4) to Section 11 SJAA allows "tax
 credit" in the year tax becomes payable. Thus, the
 amount of set off is limited to the tax payable on the
                                                                H
      1116 SUPREME COURT REPORTS [201 O] 14 (ADDL.) S.C.R.


 A    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 tho tax payable on book profits
      and the tax payable on income computed under the
 B    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
 c    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
 0
      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 taxi self-assessment
 E    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
· F   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.
 G    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]
 H
  COMMISSIONER OF INCOME TAX, CHENNAI v.              1117
            TULSYAN NEC LTD.

     3. The entire scheme of Sections 115JA(1) and A
11 SJAA 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 11 SJAA B
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 c
 provision under Section 11 SJAA 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 0
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 E
 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 provisionis of Chapter
 XVll-C. Although Section 209(1)(d) does not make any F
 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 G
 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
                                                               H
         1118 SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.


     A 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
     B 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,
     c 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
     0
       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
     E MAT liability in the subsequent years. [Para 9] [1131-A-H;
       1132-A-E]

            4. Under Section 2346, "assessed tax" means the
       tax on the total income determined under Section 143(1)
     F 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
     G 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
     H 115JAA but the same was not available for set off while


••
   COMMISSIONER OF INCOME TAX, CHENNAI v.              1119
             TULSYAN NEC LTD.

calculating advance tax. This dichotomy was more spelt A
out because Section 11 SJAA did not provide for payment
of interest on the MAT credit. To avoid this situation,
Parliament amended Explanation 1 to Section 2348 by
Finance Act, 2006 w.e.f. 1.4.2007 to provide along with tax
deducted or collected at source, MAT credit under B
Section 11 SJAA 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         C
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 2348 on the          D
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        E
Government under the proviso to Section 115JAA(2) and
that the assessee would be liable to pay interest under
Sections 2348 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          F
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    G
  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 2348. This was
  directly contrary to a plain reading of Section 115JAA(4).
                                                               H
    1120 SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.


A   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
B ITR 187 - approved.
                         Case Law Reference:
        192 ITR 187                  approved            Para 5

        CIVIL APPELLATE JURISDICTION : Civil Appeal No.
C   10677-10679 of 2010.

                                WITH

       10680-81 to 10706, 10708 to 10740, 10745-46 to 10760
D 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.
E
       P.J. Pardiwalla, S. Ganesh Shekhar Nephade, Shyam
  Divan, R.K. Raghavan, K.V. Mohan, Rustom B. Hathikhanawala,
  M.    Yogesh       Khanna,     Radtia    Rangaswamy,         V.
  Ramasubramanian, V. Balachandran, V.P. Gupta, Jagdish
F Kumar Chawla, Basant Kumar, Anuj Bansal, Aniruddha
  Agrawal, Satyen Sethi, A. Panda, Rameshwar Prasad Goyal,
  Sudhir Kamar Gupta, Ajay Vohra, Kavita Jha, Amit Sachdeva,
  Shubhangi Tuli, Vimal Chandra S. Dave, Subramonium Prasad,
  C.S. Agarwal Bhargava V. Desai, Rahul Gupta, Nikhil Sharma,
  V. Balaji, K. Ravi, Pravesh Thakur, C. Kannan, Narendra
G Kumar, Yashraj Singh Deora, Rajesh Kumar, Sarva Mitter (for
  Mitter & Mitter Co.) Mahua Kalra, Husnal Syali, Sumit K. Singh,
  Shekhar Prit Jha, Kannan Kapur, Rishi Kesh, V. Prabhakar, R.
  Chandrachud for the Respondents.

H
  COMMISSIONER OF INCOME TAX, CHENNAI v.                    1121
            TULSYAN NEC LTD.

    The Judgment of the Court was delivered by                       A

    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         B
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     C
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
                                                                     D
of Secticins 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,        E
    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 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
                                                                     F
    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              G
    purposes of this section prepare its profit and loss account
    for the relevant previous year in accordance with the
    provisions of Parts II and Ill of Schedule VI to the
    Companies Act, 1956(1 of 1956):
                                                                     H
    1122 SUPREME COURT REPORTS [2010) 14 (ADDL.) S.C.R.


A      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
8      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
c      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.
D
       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-
E
       (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
F
       (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
G
       (e) the amount or amounts of dividends paid or proposed;
       or

       (f) the amount or amounts of expenditure relatable to any
H      income to which any of the provisions of Chapter Ill applies;
COMMISSIONER OF INCOME TAX, CHENNAI v.                  1123
  TULSYAN NEC LTD. [S.H. KAPADIA, CJI.]
 if any amount referred to in clauses (a) to (f) is debited to   A
 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:
                                                                 8
 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          C
 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 amnunt was withdrawn)
 under this Explanation; or                                      D

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

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

 Explanation.-For the purposes of this clause, the loss
 shall not include depreciation; or                  '
                                                                 F
 (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 under-
 taking located in an industrially backward State or district    G
 as referred to in sub-section (4) and sub-section (5) of
 section 80-18, 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 80-18; or                                H
    1124 SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.


A      (vi) the amount of profits derived by an industrial under-
       taking 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-
B      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
c      (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.
D
       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
E
       (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;
F
       (ix) the amount of profits eligible for deduction under
       section 80HHE, comr · •ted under sub-section (3) of that
       section.

       (3) Nothing contained m sub-section (1) shall affect the
G
       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 Of
H
COMMISSIONER OF INCOME TAX, CHENNAI v.                  1125
  TULSYAN NEC LTD. [S.H. KAPADIA, CJI.]

 sub-section (3) of section 74A.                                 A

 (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 incoine              B
 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 c
 of tax so paid shall be allowed to him in accordance with 1
 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 assessment year
 under sub-section (1) of section 115JA and the amount of        ',D
 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 ).                                  E

 (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
                                                             F
 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             G
 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
                                                                  H
    1126- SUPREME COURT REPORTS [2010] 14 (ADDL) S.C.-R.


A       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
B
        sub-section (3) of section 143, section 144, section 147,
        section 154, section 155, sub-section (4) of section 2450,
        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
c       be, the amount of tax credit allowed under this section
        shall also be increased or reduced accordingly."

       5. As per provisions of Section 115JA, a company is liable
  to pay tax on 30% of book profits, if the income computed
o 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
E accordance with Parts II and Ill 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
F 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)]

G        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
H
   COMMISSIONER OF INCOME TAX, CHENNAI v.                1127
     TULSYAN NEC LTD. [S.H. KAPADIA, CJI.]

 is paid by the assessee under Section 115JA, then the A
 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 8
 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 C
  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 D
  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- E
  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. [Refer Section 115JAA(4) and Section 115JAA(5)]. F
  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 G
  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 fax payable on H
    1128 SUPREME COURT REPORTS [2010) 14 (ADDL.) S.C.R.

A 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
8 off  by the assessee while computing advance taxi 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
C 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
D under Section 143(1) or under Section 143(3). The fact that ttie
  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.

E       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
F 2348 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:

       In Titan's case, the assessee files its returns for
G assessment year 2001-02. The total income declared in the
  return was Rs.23,48,68,460/-. The assessee claimed a refund
  of Rs.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
H Section 2348 of Rs.1,10,67,561/-. The A.O. further charged
   COMMISSIONER OF INCOME TAX, CHENNAI v.                1129
     TULSYAN NEC LTD. [S.H. KAPADIA, CJI.]

interest under Section 234C of Rs.40, 18, 170/-. This levy of A
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 2348 and C. The result was that claim
for refund in favour of the assessee of an amount of B
Rs.10,60,394/- having regard to the pre-paid taxes got
converted into the demand by Department of Rs.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 Rs.5,40, 15,189/
- not against the total tax payable of Rs.7,75,03,252/- but c
 against the total tax payable of Rs.7,75,03,252/- minus TDS
 and Advance Tax paid by the assessee resulting in the figure
 of Rs.5,39,88, 163/- being the balance tax payable by the
 assessee plus interest under Section 2348 and under Section
 234C in all amounting to Rs.6,90,73,894/- from which the A.O. D
 deducts the MAT credit of Rs.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 Rs.1,50,58,707/-. This conversion from refund to
 demand took place because while computing interest under E
 Sections 2348 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:
                                                                  F
  Particulars             Return of Income 154 Order

  Business income            163,486,461         163,486,461

  Capital gains-short              14,937              14,937     G


  Capital gains-long           90,780,066         90,780,066

  Gross Total Income         254,281,464         254,281,464      H
    1130 SUPREME COURT REPORTS (2010] 14 (ADDL.) S.C.R.


A
     Less deduction
     under Chaoter VI-A
     BOG-Donation                1,500,000        1,500,000
     80HHC-profits               6,590,600        6,590,600
B
     80-1A new industrial       11,322,409       11,322,409
     unit

     Net Income               234,868,455       234,868,455
c    Tax payable               68,586,950        68,586,950

     Surcharge on the            8,916,303        8,916,304
     above at 13%
D    Total tax payable          77,503,252       77,503,254


     Less:. Set-off of MAT      54,015,189
     credit
E    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
F    Interest under 234                          11,067,561
     Interest under 234C                          4,018,170
     Less: Set-off of MAT                        54,015,189
     credit

G    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
H a tax credit as a consequence of the assessee making
  COMMISSIONER OF INCOME TAX, CHENNAI v.                      1131
    TULSYAN NEC LTD. [S.H. KAPADIA, CJI.]
payment of tax under Section 115JA(1) in the year one, then,           A
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                  8
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/      C
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         D
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 XVll-C. Although
 Section 209(1)(d) does not make any specific provision either         E
 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            F
 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            G
 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    H
    1132 SUPREME COURT REPORTS (2010] 14 (ADDL.) S.C.R.


A 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 tc the assessee specifying the amount
  so payable and such intimation shall be deemed to be a notice
B 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
C 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
D seen:

       Particulars                                 Amount Rs.
      Year1
      115JB liability                              1,600
E     Normal tax liability                         400
      Credit which can be                          1200
      carried forward - I
      Year2
F     115J B liability (A)                         600
      Normal tax liability (B)                     1400
      Tax liability=
      (B) [since B is higher than A]               1400
      MAT credit available for                     800
G     set off in Year 2 [(A) - (B)] - II
      Net tax liability for Year 2 [B-11]      .   600
      MAT credit to be carried                     400
      Forward [1-11]

H
   COMMISSIONER OF INCOME TAX, CHENNAI v.                  1133
     TULSYAN NEC LTD. [S.H. KAPADIA, CJI.]

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

     10. The issue which crops up for decision is - how should
the advance tax be calculated when the Company has MAT
credit?                                                             8
      11. To answer, we need to look at Section 2348. 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         C
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       D
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     E
amended Explanation 1 to Section 2348 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.
                                                                    F
      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   G
was not lawfully available, the assessee would be exposed to
levy of interest under Section 2348 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     H
    1134 SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.


A 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 2348 would be chargeable. The
  consequence of adopting the case of the Department would
  mean that MAT credit would lapse after five succeeding
B 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 2348 and C on the shortfall
  in the payment of advance tax despite existence of MAT credit
c 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
D 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 2348. 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
E 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.
F
    D.G.                                       Appeals dismissed.