Minimum Alternate Tax Section 115JB

Minimum Alternate TaxMinimum Alternate TaxSection 115JBSection 115JB

February 1-2, 2013 Agreem Patel Ruchi Shah

M V Damania & Co

Objective

To Counter increase in number of Zero tax paying

companies.

Company earning substantial income:

Paying handsome dividends.

Not paying tax on account of various incentives.

All profitable companies should pay minimum corporate tax.


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APPLICABILITY

Companies

Foreign Company

Banking, Electricity, Insurance, NBFC

Section 25 Companies


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Procedure for Computation of MATStep Procedure

1 Compute Total Income under Income Tax Act, 1961.

2 Compute Book Profit u/s 115JB.

3 Compute tax on Total Income at rates applicable for Companies under Income Tax Act.

4 Compute Tax at 18.5% on Book Profit.

5 Tax payable = Higher of Step 3 or Step 4


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Computation of Book Profit

Net Profit as per Statement of Profit and Loss:

For Companies governed by The Companies Act – Statement of Profit and Loss as per Revised Schedule VI.

For all other Companies – Statement of Profit and Loss prepared in accordance with the provisions of the Act governing such Company.


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Add: If debited to Statement of Profit and Loss

Income Tax paid or payable or provision for tax

Amount transferred to reserves by whatever name called

Provision for unascertained liabilities

Provision for losses of subsidiary Companies.

Dividends paid / proposed



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Expenditure related to exempt incomes u/s 10/11/12 [except 10(38)]

Amount of Depreciation

Deferred Tax including the provision created

Any amount set aside as provision for Diminution in Value of assets.

Amount standing in Revaluation Reserve relating to Revalued Asset on the retirement or disposal of such asset.



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Less: If Credited to Statement of Profit and Loss

Amount withdrawn from any reserves / provisions

Income exempt u/s 10/ 11/ 12 [except 10(38)]

Brought forward loss (other than depreciation) or unabsorbed depreciation, whichever is less, as per books of accounts

Profits derived from sick industrial undertakings.

Depreciation debited excluding depreciation on account of revaluation of asset



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Withdrawal from revaluation reserve to the extent it does not exceed the amount of Depreciation on account of revaluation.

Profits of a Tonnage Tax Company

Amount of deferred Tax



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Technical issues on MAT– Section 115JB

Slide 10

- Can AO recompute MAT liability by making certain adjustments outside the P&L a/cIssue 1

Books are prepared as per companies Act?

AO has no power to disturb Book profits if accounts so prepared are accepted as presenting a true and fair view by Statutory Auditors.

Apollo Tyres Limited vs CIT (255 ITR 273) (SC)

Books not prepared as per Companies Act ?

AO can recalculate the Net Profit

No fraud or misrepresentation but only change of opinion?

AO cannot disturb the profit as shown by the assessee.


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- Whether Profits on sale of assets, investment credited to profit and loss account be excluded for the purpose of computing MAT ?

Issue 2

Capital gains taxable u/s 45 and credited to P&L a/c to be included in book profits

CIT vs Veekayalal Investment Co P Ltd (249 ITR 597)(Bom)



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- Whether income directly credited to reserves and not routed through P&L Account can be added to Book profits for the purpose of computing MAT ?

Issue 3

Sale proceeds over the original cost of asset taken to Capital reserve – to be included in book profits

CIT vs Veekaylal Investment Co P Ltd (249 ITR 597)(Bom)

Auditor’s qualification on direct transfer to capital reserve – Dept may contend not in consonance with Schedule VI??



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- Adjustment of prior period itemsIssue 4

No specific requirement either to add or reduce as per the provisions of section 115JB

Prior Period Items

National Rayon Corporation (51 ITD 621)

CIT vs Krishna Oil Ext Ltd (232 ITR 928)



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MAT CREDIT SECTION 115JAA


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Computation of MAT Credit

Available when Assessee pays tax on Book Profit

Step 1 Tax on Book Profit

Step 2 Tax on Total Income

Step 3 MAT Credit = Step 1 – Step 2

MAT Credit can be availed in 10 Subsequent Assessment Years.


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Availing MAT Credit

Applicable when Assessee paid Tax on Total Income

Step 1 Tax on Total Income

Step 2 Tax on Book Profit

Step 3 Difference of Tax = Step 1 – Step 2

Step 4 Availed MAT Credit = Aggregate available MAT Credit or Step 3,whichever is less.

Step 5 Net Tax Payable = Tax on Total Income (Step 1) – Step 4.


M V Damania & Co

CASE 1/ YEAR 1

Total Income Rs. 3,00,000

Book Profit Rs.20,00,000

Applicable when assessee paid tax on Book Profit

Step 1 Tax on Book Profit = Rs.3,81,100

Step 2 Tax on Total Income = Rs.92,700

Step 3 MAT Credit = Step 1 – Step 2 = Rs.2,88,400


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Year 2 – Availing MAT CreditTotal Income Rs. 7,00,000

Book Profit Rs.10,00,000

Step 1 Tax on Total Income = Rs.2,16,300


Step 3 Difference of Tax = Step1 – Step2 = Rs.25,750

Step 4 Availed MAT Credit = Actual MAT Credit (2,88,400) or Step 3 whichever is less. = 25,750

Step 5 Net Tax Payable = Step1 – Step 4 = Rs.1,90,550

Step 6 Balance of MAT Credit = Rs.2,88,400 – Rs.25,750 = Rs.2,62,650


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Year 3 – Availing MAT CreditTotal Income Rs. 10,00,000

Book Profit Rs. 8,00,000

Step 1 Tax on Total Income = Rs.3,09,000


Step 3 Difference of Tax = Step1 – Step2 = Rs.1,56,560

Step 4 Availed MAT Credit = Actual MAT Credit (2,62,650) or Step 3 whichever is less = 1,56,560

Step 5 Net Tax Payable = Step1 – Step 4 = Rs. 1,52,440

Step 6 Balance of MAT Credit = 2,62,650 – 1,52,440 = 1,10,210


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- Whether surcharge and cess paid earlier would be available as a credit?

Issue 1

Technical Issues on MAT Credit

MAT credit which is allowed to be carried forward and set-off is only in respect of Basic Income Tax or includes ‘surcharge’ and ‘cess’?

Defination under section 2(43) should be extended?

Richa Global Exports Pvt. Ltd. – Delhi TribunalTulsyan NEC Ltd. – Supreme CourtClassic Shares & Stock Broking Services Ltd. – Mumbai Tribunal


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- Implication of the phrase “no interest shall be payable on MAT Credit”

Issue 2

Interest u/s 234 B/C to be computed after setting off MAT Credit?

Jindal Exports Ltd. – Delhi High Court

Assessee is entitled to interest u/s 244A on the refund calculated after set-off of MAT Credit?

Bank of India – Mumbai Tribunal


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- Period of carry forward of MAT credit Issue 3

Credit not allowed to be carried forward beyond 10th AY immediately succeeding the AY in which MAT credit become allowable.

If the MAT Credit was first allowable in A.Y. 2006-07, when the eligibility of carried forward of credit was 7 succeeding Assessment Years, will the Company get benefit of 10 years due to the amendment w.e.f. A.Y. 2010-11?


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- Accounting Treatment of MAT credit Issue 4

Guidance Note issued by ICAI on MAT Credit

Is MAT Credit a Deferred Tax Asset?

Is MAT credit to be recognized in Books as an Asset?

Treatment of MAT Credit in the financial statements?


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Technical Issues on MAT Credit- Whether MAT credit can be carried forward by

the successor in the case of amalgamation/merger?

Issue 5

Carry forward of MAT Credit

Literal reading suggests tax credit available only to

company which has paid tax

No specific provision unlike in the case of section 72A or

section 41

Reference in High court order for transfer of such credit to

amalgamated / merged companyFebruary 1-2, 2013

Agreem Patel Ruchi ShahM V Damania & Co

Tax under Section 115JB and MAT Credit under Section 115JAA


M V Damania & Co


M V Damania & Co

Minimum Alternate Tax Section 115JB

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