CBDT vide Circular 29/2019 dated 2nd October, 2019 has clarified that Companies opting for lower tax rates as per Section 115BAA will have to forego any MAT Credit Entitlement.

However such Circulars are binding over Assessing Officers and not on assessees. Thus option to take a different stand is still possible for assessees although chances for a win has been lowered by the issue of circular. In this article, author will explain in detail how a different stand can be taken by assessees.

As per Supreme Court judgement in the case of Tulsyan NEC Ltd has ruled that MAT credit entitlement becomes a vested right for the assessee in the year in which such tax is paid u/a 115JA.

Supreme Court in the case of Shah Sadiq & sons held that “A right which had accrued and had become vested continued to be capable of being enforced notwithstanding the repeal of the statute under which that fight accrued unless the re- pealing statute took away such right expressly or by neces- sary implication.”

In the light of above judgements since the right towards MAT credit entitlement has been crystallized in the year in which tax was paid under MAT provisions. Further the Tax Ordinance, 2019 passed does not expressly or by necessary implication provides that tax credit can not be carried forward. Amendment brought in by the said Tax Ordinance only states that provisions of Section 115JB shall not be applicable on those opting for lower rate u/s 115BAA. However credit utilization of MAT credit is governed by provisions of Section 115JAA.

Now CBDT without making any amendment in law by way of a notification has simply provided a clarification by way of Circular.

In Ratan Melting & Wire Industries (supra) it has been held:

“7. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the court to direct that the circular should be given effect to and not the view expressed in a decision of this Court of the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the court to declare what the particular provision of statute says and it is not for the executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law.

View above the law laid down by Supreme Court in the case of Tulsyan NEC Ltd cannot be overruled by an issue of circular by CBDT. Thus author is of view that still there is an outside chance for assessee to take a stand that MAT credit should be allowed even though assessee opts for lower tax rate u/s 115BAA.

However given the fact that opting for lower rate is an option given to assessee and the way circular is worded, it demonstrates the intention of CBDT and clearly provides that if an assessee has MAT credit available then assessee can opt for lower rate in next year, chances of court ruling otherwise is slightly low but not impossible.

Further post such clarification, chances are that in ITR utility next year, for those opting for lower rate there will no schedule wherein computation of MAT credit utilisation is shown. In such scenario, assessee can take the matter during assessment and thereafter drag it up in litigation.

Concluding remarks:- Based on the risk-benefit analysis an assessee can opt for lower rate and can also take the matter regarding MAT credit entitlement during assessment. Two scenarios which can be applicable to a company having MAT credit entitlement have been listed below and it has been explained in which scenario it is better to litigate regarding availability of MAT credit entitlement.

Below are few scenarios in which your company might be falling:-

Scenario 1:-

Under current rates:- Tax payable under normal provisions:- Rs. 350& Under MAT:- Rs. 170. Further MAT credit available:- Rs. 130. Thus ultimate tax payable:- Rs. 220;

Under lower rates:- Tax payable under normal provisions:- Rs 250;

Scenario 2:-

Under current rates:- Tax payable under normal provisions:- Rs. 350& Under MAT:- Rs. 170. Further MAT credit available:- Rs. 30. Thus ultimate tax payable:- Rs. 320;

Under lower rates:- Tax payable under normal provisions:- Rs 250;

Analysis:-

In first scenario since amount involved of MAT credit is huge and is resulting in lower tax payable under current rates, thus lower rates should not be opted. However in second case, assessee should opt for lower rate and then take the matter at the time of assessment and may get benefitted during litigation.

Disclaimer:- Views expressed by the author should not be considered as a professional advice since interpretation may vary on case to case basis. Thus detailed analysis is necessary to arrive at conclusion for different assessee.

Also Read relevant Press Releases and Notifications

Taxation Laws (Amendment) Ordinance, 2019

Author Bio

Qualification: CA in Job / Business
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Location: Mumbai, Maharashtra, IN
Member Since: 06 Oct 2017 | Total Posts: 15
Author is a CA Final Rank holder (AIR 34 – Nov’15) and Diploma Holder in International Taxation (ICAI) currently working in a Fortune 500 company and can be reached at his facebook page – Jatin’s Tax Arena ( https://www.facebook.com/TheTaxArena/?ref=aymt_homepage_panel ) or his Linkedin acco View Full Profile

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