Advance tax on mat

This query is : Resolved

Bhavesh Mehta (Querist)
Follow

12 December 2011 Hello

I would like to know whether there is need to pay advance tax as per tax calculated on MAT provisions? Kindly give reference of any recent case law.

Kapil Gupta

Kapil Gupta (Expert)
Follow

12 December 2011 Yes .
We need to pay advance tax on MAT also. please read the below story:

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 onlyat 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 baiance 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 Adahindra Finance Ltd.6 disagreeing
with the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd. (supra) and folowing the judgment of Guwahati High Court 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 byway of Special Leave to the Supreme Court, and the following order was passed by the Supreme Court ,-

"The appeals are dismissed."

Lt is to be noted that the aforesaid decisions were rendered in the context of erstwhile section 11 5J of the Act Attention is drawn to the fact that the wordings in section 115JA(4) and section 11 5JB(5) which provide for the applicability of at other provisions of the Act were not present in the earlier section 115J of the Act.
In the context of section 11 5JB, 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 taxwourd be appiicabie for companies paying tax under MAT. Similar view has also been taken in the following cases:
• Madaus Pharmaceuticals P. Ltd. (Mum /TAT)".

• 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 11 5JB
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 Courtin the case of Kwality Biscuits Ltd., the Hon'ble Madras High Courtheld 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 undersection 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 Courtin 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 Courtin
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 115JoftheAct

However, recentlythe 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 11 5JA
is same or similar to section 11 5J of the Act, it further held that since the Karnataka High Courts
decision in KwalityBiscuits 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 ofthe 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)

Plso, 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)1 7

• IBM India Ltd. (Bangalore)18

Conclusion

The contraryjudgments of the Bombay High Courtin 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 11 5J and section 115JA I 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 payadvance tax as per the provisions of the Act, Failure to pay such advance taxwouid attract interest under section 234B and 234C of the Act,