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    Applicability of Advance Tax Payment for Companies falling under MAT provisions

CA Bikash Kumar Jain
ACA, B.Com(Hons.)

bikashkumarjain@gmail.com
.

Provision in brief

As per the provisions of section 115JB [“Minimum Alternate Tax ( MAT ) provisions”] of the Income-tax Act, 1961 (‘the Act')1, if tax liability of a Company under normal provisions is lower than 15 percent of “book profit” , then such ‘Book Profit”2 shall be deemed as total income and 15 percent of book profit should be deemed as the tax liability3.

The MAT provisions of the Act starts with the ‘ non obstante clause' i.e., notwithstanding anything contained in any other provisions of the Act. Further clause 5 to section 115JB mentions the following:

“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. ”


The legislative history of the MAT provisions has been tabulated in brief hereunder:
Section
115J
115JA
115JB
Assessment year onwards
1988-89 to 1990-91
1997-98 to 2000-01
2001-02
All other provisions applicable-
Section 115JA(4)Section 115JB(5)
Advance tax payable as per the Finance Act
-
-
Section 2(8)


Judicial pronouncements as regards applicability of advance tax payment for companies under MAT

The impugned issue as regards the applicability of advance tax payment for companies falling under MAT has been under considerable litigation over the years. In connection with the same, let us examine the various judicial pronouncements for sufficient guidance as regards the applicability of advance tax on MAT companies.

The Karnataka High Court in the case of Kwality Biscuits Ltd.4, addressing the issue in the context of erstwhile section 115J of the Act, observed that since the entire exercise of computing the income or that of book profit could be only at the end of the financial year, the provisions of section 207, 208, 209 or 2105 cannot be made applicable, until and unless the accounts are audited and the balance sheet is prepared as even the assessee may not know whether the provision of section 115J would be applicable or not. Accordingly, the Court held that interest could not be charged as per the provisions of section 234B and section 234C of the Act.

Subsequently, the Bombay High Court in the case of Kotak Mahindra Finance Ltd.6 disagreeing with the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd. (supra) and following the judgment of Guwahati High Court7 and Madhya Pradesh High Court8 had taken the view that even in a case covered by section 115J the provisions of section 234B and section 234C were attracted.

The aforesaid judgment of the Karnataka High Court was taken in appeal by way of Special Leave to the Supreme Court, and the following order was passed by the Supreme Court9:-

"The appeals are dismissed."

It is to be noted that the aforesaid decisions were rendered in the context of erstwhile section 115J of the Act. Attention is drawn to the fact that the wordings in section 115JA(4) and section 115JB(5) which provide for the applicability of all other provisions of the Act were not present in the earlier section 115J of the Act.

In the context of section 115JB, the Karnataka High Court in the case of Jindal Thermal Power Co. Ltd.10 held that the provisions of section 234B and section 234C for interest on default in payment of advance tax and deferment of advance tax would be applicable for companies paying tax under MAT . Similar view has also been taken in the following cases:
  • Madaus Pharmaceuticals P. Ltd. (Mum ITAT)11.

  • Ashima Syntex Ltd. (Ahmedabad Special Bench)12

Further, the Central Board of Direct Taxes (CBDT) had also issued circular13 clarifying that all companies are liable for payment of advance tax under the new MAT provisions of section 115JB of the Act.

It may be appropriate to mention the decision of Madras High Court in the case of Geetha Ramakrishna Mills (P) Ltd.14, wherein, while distinguishing the decision of the Supreme Court in the case of Kwality Biscuits Ltd., the Hon'ble Madras High Court held as under:

"Further, as pointed out by the learned senior standing counsel for the Revenue, the Bombay High Court in CIT v. Kotak Mahindra Finance Ltd. [2004] 265 ITR 119 and the Punjab and Haryana High Court in CIT vs Upper India Steel Mfg. and Engg. Co. Ltd. [2005] 279 ITR 123 also considered the judgment of the Karnataka High Court in Kwality Biscuits Ltd. v. CIT (2000) 243 ITR 519 and held that where there is non-payment or short payment due to the computation of income under section 115J of the Act, interest can be levied under sections 234B and 234C of the Act and dissented from the view taken by the Karnataka High Court in Kwality Biscuits Ltd.'s case (2000) 243 ITR 519.

Even though it is brought to our notice that the decision of the apex court in CIT v. Kwality Biscuits Ltd. [2006] 284 ITR 434, confirming the decision of the Karnataka High Court in Kwality Biscuits Ltd. vs. CIT (2000) 243 ITR 519 , we find that the apex court has only dismissed the appeal. It is a settled law that dismissal simpliciter would not be a declaration of the law and it would not be a binding precedent (vide: Saurashtra Oil Mills Association vs. State of Gujarat [2002] 3 SCC 202; AIR 2002 SC 1130).

As we have already observed, the Division Benches of different High Courts, viz., the Madras High Court, the Bombay High Court and the Punjab and Haryana High Court considered the judgment of the Karnataka' High Court in Kwality Biscuits Ltd.'s case (2000) 243 ITR 519 and dissented from the view taken by the Karnataka High Court. Therefore, agreeing with the view expressed by this court as also other High Courts, viz., the Gauhati High Court, the Madhya Pradesh High Court, the Bombay High Court and the Punjab and Haryana High Court, referred to above, we have no option except to hold that even where the assessment was made under section 115J of the Act, interest could be levied.

That apart, in view of the introduction of sections 115JA and 115JB of the Act with effect from April 1, 1997 by the Finance (No.2) Act, 1996, the question whether a company which is liable to pay tax under either of the provisions should pay advance tax does not assume much importance as specific provisions have been made in the section providing that all provisions of the Act shall apply to the assessee being a company mentioned in the said section and therefore, section 115J of the Act is no more available for the assessee for delaying the payment of advance tax in view of the insertion of sections 115JA and 115JB of the Act.

For all these reasons, the question referred to us is answered in favour of the Revenue and against the assessee and the appeal is allowed."

Interestingly, the aforesaid judgment was rendered by the High Court in the context of section 115J of the Act.

However, recently the Bombay High Court in the case of Snowcem India Ltd.15 had an opportunity to consider this issue in the context of section 115JA of the Act. The Court held that section 115JA is same or similar to section 115J of the Act. It further held that since the Karnataka High Court's decision in Kwality Biscuits Ltd. was affirmed by the Supreme Court by dismissing the appeals, it was binding on them. The relevant portion of the judgment has been mentioned here-in-below:

“If the Special Leave Petitions had only been dismissed then perhaps it would have been possible to say that there was no merger of the judgment of the Karnataka High Court and that the Supreme Court had refused to grant Special leave to Appeal and consequently it was not an order of affirmation. See Kunhayammed vs. State of Kerala , 2001 (129) ELT 11 (S.C.). However, the order passed by the Supreme Court is "The Appeals are dismissed" being Civil Appeal Nos.1284 and 1285 of 2001. Once the Appeals are dismissed then it can be said that the judgment of the Karnataka High Court has been affirmed by the Supreme Court. That would not be the case in the event only Special Leave Petitions had been dismissed in which event it would be the said that the Supreme Court chose not to interfere with the judgment of the Karnataka High Court. In such an event the doctrine of merger would not apply. Once the judgment of the Karnataka High Court in Quality Biscuits (supra) has been affirmed by the Supreme Court by dismissing the Appeals, in our opinion, the law binding on us would be the judgment in Kwality Biscuits Ltd. (Supra).”

Accordingly, the Bombay High Court allowed the appeal in favour of the assessee.

It appears that the provisions of section 115JA(4) were not considered by the High Court leading to the conclusion that the terminology is the same. Further, in arriving at the said conclusion the Court did not refer to the judgment of the Karnataka High Court in the case of Jindal Thermal (supra) or the decision of the Madras High Court in the case of Geetha Ramakrishna Mills (supra) .

Also, in the following cases the Tribunals have taken a view in favour of the assesee following the judgment of the Supreme Court in the case of Kwality Biscuits:
  • Deepak Fertilizer and Petrochemicals Corporation (Mumbai)16

  • Escapade Resorts P. Ltd. (Cochin)17

  • IBM India Ltd. (Bangalore)18

Conclusion

The contrary judgments of the Bombay High Court in the case of Snowcem India Ltd (supra) and the Madras High Court in the case of Geetha Ramakrishna Mills (P) Ltd. (supra) has ensured the non-closure of the Pandora's Box and left the companies assessable under the MAT provisions in quandary as regards the applicability of payment of advance tax.

However, considering the difference in the language of section 115J and section 115JA / section 115JB, provisions of the Finance Act, Circular issued by the CBDT and the view taken by the Ahmedabad Special Bench, Karnataka High Court and the Madras High Court, MAT companies ought to be liable to pay advance tax as per the provisions of the Act. Failure to pay such advance tax would attract interest under section 234B and 234C of the Act.


1. As amended vide Finance Act (No. 2), 2009
2. “Book Profit” computed as per the provision of section 115JB of the Act
3. Plus applicable surcharge and education cess and surcharge and higher education cess
4. 243 ITR 519
5. provisions dealing with advance payment of tax
6. 265 ITR 119
7. 239 ITR 862
8. 250 ITR 686
9. 284 ITR 434
10.286 ITR 182
11.24 SOT 180
12.310 ITR (AT) 1
13.Circular No. 13/2001 dated 9 November 2001
14.288 ITR 489
15.313 ITR 170
16.304 ITR (AT) 167
17.13 SOT 300
18.290 ITR (AT) 183


The view expressed are strictly personal. We and author are not liable for any damage caused to any person.
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