MAT CREDIT AVAILABLE FOR 6 YEARS INSTEAD OF 5

[pawansingla]

2009-TIOL-404-ITAT-MAD OR 126  ITD 442
( Also see analysis of the Order )
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'B' CHENNAI
ITA No.1602/Mds/2008
Assessment Year : 2003-04
THE INCOME TAX OFFICER (OSD)
COMPANY CIRCLE-1(4)
CHENNAI-600034
Vs
M/s DATA SOFTWARE RESEARCH COMPANY (INTERNATIONAL) PVT LTD
NO 6, SMITH ROAD, CHENNAI-600002
PAN NO : AAACD1285B
U B S Bedi, JM and Ahmad Fareed, AM
Dated : April 16, 2009
Appellant Rep by : Shri R Vijayaraghavan
Respondent Rep by : Shri P R More, Addl CIT
Minimum Alternative Tax (MAT) - carry forward is available for a total of six (1+5) years: There is no ambiguity in the language of sub-section (3) of 115JAA. The carry forward is available for a total of six (1+5) years. It appears that the confusion has arisen because of the language used in the CBDT Circular No.763 dated 18.2.1998.
It is trite law that statutory provisions prevail over a Circular in case of a contradiction between the two: The period of 'five assessment years', mentioned in sub-paragraph (2) contradicts with what is stated in sub-section (3) of section 115JAA. It is trite law that statutory provisions prevail over a Circular in case of a contradiction between the two. This position was reiterated by the Supreme Court in the case of Commissioner of Central Excise vs. Ratan Melting & Wire Industries (2008-TIOL-194-SC-CX-CB).
ORDER
Per : Ahmad Fareed :
This appeal by the department is directed against the order of CIT(A) dated 21.04.2008 for AY 2003-04.
2. The grounds raised by the department in this appeal are as under.
1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case.
2.1 The learned CIT(A) erred in holding that the assessee is entitled for MAT credit for the assessment year under consideration.
2.2 The learned CIT(A) ought to have seen that circular no.763 dated 18.2.98 has made the intention of the statute very clear that the benefit of carry forward of MAT credit is restricted to only five assessment years immediately succeeding the assessment year in which the MAT was paid.
2.3 The learned CIT(A) erred in accepting the assessee's contention in this case that the assessment year 1998-99 should be counted as zero and assessment year 1999-00 as the first assessment year etc. to come to the conclusion that the MAT credit would be available to the assessee for the assessment year under consideration also in that method of accounting.
3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.
3. The assessee was a private limited company engaged in the business of software development and consultancy activity. The return for AY 2003-04 was filed by the assessee-company on 28.11.2003 showing income of Rs.54,24,662. The assessment order was passed by the AO u/s 143(3) on 30.11.2005 which was subsequently revised u/s 154 of the Act on 30.04.2007 as under.
"The assessee company filed its Return of Income in 28.11.2003 admitting a net income of Rs.54,24,663. The return of income was processed u/s 143(1) on 09.02.2005 and later taken up for scrutiny and completed u/s 143(3) on 30.12.2005. While finalizing the assessment, the adv. Tax paid was given credit and the interest as applicable was levied. Then only the credit for MAT u/s 115JAAwas granted.
Further, it was noticed from the Memo of income that out of the MAT credit available u/s 115JAA for the AY 1997-98 to the tune of Rs.59,04,340, the balance sum of Rs.14,69,706 was set off during the AY 2003-04. As per sec 115JAA(3) the amount of tax credit determined under rule section (2) shall be carried forward and set off in accordance with the provisions of sub sec (4) and (5) but such c/f will not be allowed beyond the 5th AY immediately succeeding the AY in which the tax credit becomes allowable under sub-sec (1).
According to the above provision, the tax credit on account of 115JAA for the AY 1997-98 will be available for set off upto AY 2002-03 only and after that it can't be set off. Hence, tax credit of Rs.14,69,706 claimed and allowed for AY 2003-04 should be disallowed and brought to tax.
Hence, in order to withdraw the claim of MAT credit for AY 2003-04, a notice u/s 154 was issued to the assessee. The assessee company in its reply filed claimed that the tax credit shall be allowable for set off from the AY 1998-99 which succeeds AY 1997-98 in which tax credit was allowed for the succeeding 5 years i.e., from the AY 1999-00 upto the AY 2003-04.
But as per the provision stated above, the set off of tax credit can't be allowed beyond the 5th AY immediately succeeding the AY in which tax credit becomes allowable. In this case the 1st AY in which the tax credit was allowable was AY 1998-99 and as such including the AY 1998-99 the assessee was entitled for set off only till the AY 2002-03. Hence, the claim of tax credit u/s 115JAA for the AY 2003-04 to the tune of Rs.14,69,706 is disallowed.--------"
4. The CIT(A) allowed the assessee's appeal and his order has been challenged by the department in the present appeal.
5. Shri P.R.More, the learned DR, supported the order of the AO. He vehemently argued saying that the order of the CIT(A) be reversed and that of the AO be restored.
6. Shri R.Vijayaraghavan, the learned AR reiterated the arguments which were put forward on behalf of the assessee before AO and the CIT(A). He contended that under sub-section (3) of section 115JAA the carry forward of tax-credit is available upto the fifth assessment year immediately succeeding the assessment year in which tax credit became allowable under sub-section (1), that there was no ambiguity in the language of the statute, and that a circular which was contrary to statutory provisions had no existence in law.
7. We have considered the rival submissions in the light of material on record and the precedent cited. The short issue for adjudication in this case is: 'for how many years the carry forward is allowable u/s 115 JAA(3) of the Act'.
7.1 The scheme of levying Minimum Alternative Tax (MAT) on zero-tax companies was introduced by the Finance Act 1996 w. e. f. 01.04.1997. A new section 115JAA was also inserted to provide for a tax-credit scheme by which the MAT paid can be carried forward for set-off against regular tax payable during the subsequent years, subject to certain conditions. The sub-sections (1), (2) and (3) of section 115JAA read as under.
"115JAA (1) Where any amount of tax is paid under sub-section (1) of section 115JA by an assessee being a company for any assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section.
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(2) The tax credit to be allowed under sub-section (1) shall be the difference of the tax paid for any assessment year under sub-section (1) of section 115JA and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of this Act:
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(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-sections (4) and (5) but such carry forward shall not be allowed beyond the fifth assessment year immediately succeeding the assessment year in which tax credit becomes allowable under sub-section (1).
8. In the present case the tax credit was allowed for the first time for AY 1998-99. The AO, in his rectification order passed u/s 154 on 30.04.2007, held that such a tax credit could be allowed only upto AY 2002-03, and that it was not allowable for AY 2003-04. The CIT(A) allowed the assessee's claim for the reasons given in paragraph 5 of his order as under.
"5. I have gone through the facts of the case and the submissions made by the appellant on this issue. The details of tax credit allowed as per the letter filed by the appellant on 14-08-06 with the Assessing Officer is as under:
Accordingly in our case tax credit shall be allowable for set off from asst.year 1998-99, which succeeds asst.year 1997-98 in which tax credit was allowed, for the succeeding 5 years i.e., from asst.year 1999-00 upto asst. year 2003-04 as given below.
Asst Year    Tax credit allowed u/s 115JA    Tax credit availed u/s 115JA    No of years allowed for c/f
1997-98   5904340      -
1998-99      1522   0
1999-00      48602   1
2000-01      0   2
2001-02      3237939   3
2002-03      1146571   4
2003-04      1469706   5
5.2 I have gone through the submissions made by the appellant. Section 115JAA clearly specifies that 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 5th assessment year immediately succeeding the assessment year in which tax credit become allowable under sub section (1). In the instant case the first year therefore commences from the asst.year 1999-2000 and ends in the asst.year 2003-04 and therefore the officer is hereby directed to allow the tax credit available for the asst. year 2003-04."
9. In our opinion the CIT(A) has rightly interpreted the sub-section (3) of section 115JAA of the Act. The sub-section (3) says, "-------such carry forward shall not be allowed beyond the fifth assessment immediately succeeding the assessment year in which tax credit became allowable under sub-section (1)".
9.1 There is no ambiguity in the language of sub-section (3) of 115JAA. The carry forward is available for a total of six (1+5) years. It appears that the above confusion has arisen because of the language used in the CBDT Circular No.763 dated 18.2.1998. The paragraph 45.4 of this Circular, dealing with 'Minimum Alternative Tax on companies', reads as under.
"45.4 The Act also inserts a new section 115JAB to provide for a tax credit scheme by which the MAT paid can be carried forward for set-off against regular tax payable during the subsequent five-year period subject to certain conditions, as under:
(1) When a company pays tax under MAT, the tax credit earned by it shall be an amount which is the difference between the amount payable under MAT and the regular tax. Regular tax in this case means the tax payable on the basis of normal computation of total income of the company.
(2) MAT credit will be allowed carry forward facility for a period of five assessment years immediately succeeding the assessment year in which MAT is paid. Unabsorbed MAT credit will be allowed to be accumulated subject to the five year carry forward limit.
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10. The period of 'five assessment years', mentioned in sub-paragraph (2) reproduced above, contradicts with what is stated in sub-section (3) of section 115JAA. It is trite law that statutory provisions prevail over a Circular in case of a contradiction between the two. This position was reiterated by the Supreme Court in the case of Commissioner of Central Excise vs. Ratan Melting & Wire Industries (2008) 220 CTR (SC) 98 = (2008-TIOL-194-SC-CX-CB). Therefore, we agree with the conclusions reached by the CIT(A). His order is, accordingly, upheld.
11. In the result the appeal filed by the department is dismissed.

Kindly review your assessment records of A.Y. 2006-07 and see if any benefit can be taken from this judgement.If need arises , you may resort to 154 also for claiming refund.