Section 115JAA – Extension of period of carry forward of MAT credit from 10 years to 15 years – Clarity regarding carry forward and set off of MAT credit in cases where the ten year period has expired on or before AY 2016-17 but the fifteen year period has still not expired
The Finance Act, 2017 amended section 115JAA of the Income-tax Act, 1961 to provide that the tax credit in respect of Minimum Alternate Tax (MAT) paid by companies under section 115JB of the Act can be carried forward up to fifteenth assessment year immediately succeeding the assessment year in which such tax credit becomes allowable. This amendment is being made effective from 1 April, 2018.
Earlier, the MAT credit was not allowed to be carried forward beyond ten assessment years. The relevant provisions of Section 115JAA of the Act are reproduced as under
“(3A) The amount of tax credit determined under sub-section (2A) 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 tenth assessment year immediately succeeding the assessment year in which tax credit becomes allowable under subsection (1A).
(1A) Where any amount of tax is paid under sub-section (1) of section 115JB by an assessee, being a company for the assessment year commencing on the 1st day of April, 2006 and any subsequent assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section.” (Emphasis supplied) An issue arises in cases where the ten year period has expired with the assessment year 2016-17 owing to completion of 10 years period on the basis of the erstwhile provisions. In such cases, having regard to the amendment made, a question arises as to whether the benefit which has already lapsed will get a new lease of life. The ambiguity arises since the extension of carry forward period to fifteen years shall take effect only from April 1, 2018 (i.e. A.Y. 2018-19).
It may be noted that a similar amendment was made in Section 115JAA vide the Finance Act, 2009 wherein the carry forward of MAT credit was extended upto 10 assessment years from 7 assessment years. The Explanatory Memorandum to the Finance Bill, 2009 reads as under:
“.. .the assessees, being companies, who pay Minimum Alternate Tax under section 115JB for any assessment year beginning on or after the 1st day of April, 2006, it is also proposed to amend the provisions of sub-section (3A) of section 115JAA…” (Emphasis Supplied)
The issue discussed above did not exist when the tenure was extended from 7 to 10 years as the amendment was brought before the expiry of the available bracket for carry forward.
The memorandum explaining the provisions of the Finance Bill, 2017 states as follows:
“Section 115JAA contains provisions regarding carrying forward and set off of tax credit in respect of Minimum Alternate Tax (MAT) paid by companies under section 115JB. Currently, the tax credit can be carried forward upto tenth assessment years. With a view to provide relief to the assessees paying MAT, it is proposed to amend section 115JAA to provide that the tax credit determined under this section can be carried forward up to fifteenth assessment years immediately succeeding the assessment years in which such tax credit becomes allowable…
….These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.” (Emphasis Supplied)
It appears from the language of the Memorandum that the intent of the legislature is to provide relief to the taxpayers paying MAT by extending the carry forward period for MAT credit. However, the strict interpretation of the provisions does not appear to sync with this intent. The issue in hand needs to be addressed so that taxpayers’ whose MAT credit carry forward period has lapsed should not be at a disadvantage and suffer from the transitional impact of the said amendment.
In line with the intent of the legislative amendment and to ensure equity, it is suggested that appropriate clarification either by way of an Explanation in section 115JAA or by way of an Explanatory circular be issued to the effect that such benefit is available even in cases where the ten year period expired before A.Y.2018-19 but the fifteen year period has still not expired.