MAT credit - ITA No. 231 of 2009

MAT credit is to be first adjusted and then TDS and prepaid taxes should be set off against the total tax liability and the assessee is not entitled to interest under s 244A against the MAT credit — as held by KarHC in CIT and Anr. v Sami Labs Limited — In favour of: The Assessee ; ITA No. 231 of 2009

Decided on: 14 February 2011

The assessee is engaged in the business of manufacture and export of fine chemicals and herbal medicines. The AO, while computing the income under regular provisions, allowed MAT credit against the tax payable before giving credit to TDS and other prepaid taxes. The CIT(A), in pursuance to the powers conferred on him under s 263, initiated suo moto proceedings for the revision and found that the order of the AO in allowing interest under s 244A on the refund is entirely attributable to MAT credit was not in accordance with the law. In an appeal, the order passed by the CIT was set aside by the Tribunal holding that the MAT credit was rightly allowed by the AO and the Revisional Authority committed a serious error in interfering with the said order. Being aggrieved, the revenue has filed the present appeal.

The issue is whether the TDS and prepaid taxes should be set off against the total taxes payable and then only MAT credit should be allowed, and on the MAT credit over which the refund had been allowed, interest under s 244A has to be paid.

The MAT credit available to an assessee could be adjusted within a period of five years from the date of its accrual. The said credit should be set off while computing advance tax/self-assessment tax payable for the years two to six, 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 the assessee’s own computation.

The MAT credit is to be set off first, thereafter TDS, then the advance tax paid and then the tax paid along with returns. However, no interest is claimable against the MAT credit. Therefore, it is clear that under no circumstances, MAT credit can become the subject matter of a refund. It is only liable to be adjusted for five years and it does not carry any interest. The order passed by the Tribunal is in accordance with the law and does not suffer from any infirmities which call for any interference.