Minimum Alternate Tax Section 115JB

1
Minimum Alternate TaxSection 115JB
February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
2
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.

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
3
APPLICABILITY

• Companies

Foreign Company
Banking, Electricity, Insurance, NBFC
Section 25 Companies
February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
4
Procedure for Computation of MAT
Step 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
February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
5
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.

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
6
Computation of Book Profit

• 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

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
7
Computation of Book Profit

• 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.

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
8
Computation of Book Profit

• 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• Amount withdrawn from any reserves / provisions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

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
9
Computation of Book Profit

• 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

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
10
Technical issues on MAT Section 115JB

• 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.

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
Slide 10
11
Technical issues on MAT Section 115JB

• Capital gains taxable u/s 45 and credited to PL
  a/c to be included in book profits
• CIT vs Veekayalal Investment Co P Ltd (249 ITR
  597)(Bom)

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
12
Technical issues on MAT Section 115JB

• 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)
• Auditors qualification on direct transfer to
  capital reserve Dept may contend not in
  consonance with Schedule VI??

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
13
Technical issues on MAT Section 115JB

• 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)

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
14

• MAT CREDIT
• SECTION 115JAA

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
15
Computation of MAT Credit
Available when Assessee pays tax on Book Profit 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. MAT Credit can be availed in 10 Subsequent Assessment Years.
February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
16
Availing MAT Credit
Applicable when Assessee paid Tax on Total Income 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.
February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
17
CASE 1/ YEAR 1
Total Income Rs. 3,00,000 Book
Profit Rs.20,00,000
Applicable when assessee paid tax on Book Profit 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
February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
18
Year 2 Availing MAT Credit
Total Income Rs. 7,00,000 Book
Profit Rs.10,00,000
Step 1 Tax on Total Income Rs.2,16,300
Step 2 Tax on Book Profit Rs.1,90,550
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
February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
19
Year 3 Availing MAT Credit
Total Income Rs. 10,00,000 Book
Profit Rs. 8,00,000
Step 1 Tax on Total Income Rs.3,09,000
Step 2 Tax on Book Profit Rs.1,52,440
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
February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
20
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 Tribunal
• Tulsyan NEC Ltd. Supreme Court
• Classic Shares Stock Broking Services Ltd.
  Mumbai Tribunal

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
21
Technical Issues on MAT Credit

• 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

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
22
Technical Issues on MAT Credit

• 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?

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
23
Technical Issues on MAT Credit

• 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?

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
24
Technical Issues on MAT Credit

• 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 company

February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
25
Tax under Section 115JB and MAT Credit under
Section 115JAA
February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co
26
THANK YOU
February 1-2, 2013
Agreem Patel Ruchi Shah M V Damania Co