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1 Minimum Alternate Tax on Companies and LLPs on Book Profit under Companies Act A.C. Gangaiah CHARTERED ACCOUNTANT CHARTERED ACCOUNTANT.

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Presentation on theme: "1 Minimum Alternate Tax on Companies and LLPs on Book Profit under Companies Act A.C. Gangaiah CHARTERED ACCOUNTANT CHARTERED ACCOUNTANT."— Presentation transcript:

1 1 Minimum Alternate Tax on Companies and LLPs on Book Profit under Companies Act A.C. Gangaiah CHARTERED ACCOUNTANT CHARTERED ACCOUNTANT

2 REGULATORY ACTS Vs FISCAL ACTS Regulatory enactments Meant for regulation of society – penal provisions for violation rules – no financial loss required The entries to be interpreted as wide as possible - Ellis Bridge 229 ITR 1 Fiscal laws Meant for revenue to run the Government Charging section to be construed strictly. CWT Vs Ellis Bridge Gymkhana (229 ITR 1) Beneficial legislation to be interpreted liberally. CITv. Strawboard Manufacturing Co. Ltd. 177 ITR 431 & Bajaj Tempo Ltd. v. CIT (196) ITR 188 In the case of two interpretations – interpretation favouring the assessee is to be adopted CIT Vs Vegetables Products Limited (88 ITR 192)

3 Types of Assessments Filing Return of Income Summary assessment – by the department issuing notice for tax demand or for refund Other wise self assessment Scrutiny U/s 143(3) Issue a notice and providing personal hearing and calling the desired information MAT Assessment Transfer Price assessment Best judgment assessment Rectification of assessment Consequential assessment orders based upon appeal or revision or waiver / reduction of penalty or interest or penal interest

4 ASSESSMENT – PRESENTATION OF FACTS & LEGAL PROVISION for Computation of Income chargeable to tax Presentation of facts Based on evidence Not perverse To be decided as reasonable person Following the legal precedents Following principles of natural justice Legal Provisions –basin upon the principle of accrued or received Charging section vs beneficial section Information as per the rules framed Deduction to be claimed as per the rules Following the identical judicial precedents proper procedure to approach appropriate jurisdictional authority Principles of ‘Resjudicata’ do not apply to taxation acts

5 Minimum revenue – Legislation - Accounting Mining enactments – minimum royalty or dead rent – common feature Specifies the procedure for payment of minimum rent and set off the rent against future royalty / income payable As professional – know the procedure of accounting of minimum rent and its set off of rent in our early education itself. Minimum alternative tax – in income tax enactments

6 Minimum Alternate Tax U/s 115JB on Book Profit under Companies Act. General Principal in IT As Per the Provisions of IT Act Income accrued or deemed accrued Received or deemed to be received Deduction on the basis of accrual or the basis of payment in the previous year Not applicable to Electricity and Banking companies – applicable from To be passed in same assessment order Minimum Alternative tax U/s 115JB Chapter XII B – not within purview of definition of Income – Scope of Income Not applicable to SEZ Regular tax as per IT is less than 18.5% of Book Profit – 18.5% book profit deemed to be income Book profit for the year from April to March is to be taken If accounting period is different the book profit for the financial year to be computed Appling accounting standards in force. 18.5% Tax on book profits computed as per the provisions of Companies Act after Adding certain amount to book profit Allowing certain deductions – as per S.115JB

7 Provided that while preparing the annual accounts including profit and loss account,— ( i ) the accounting policies; ( ii ) the accounting standards adopted for preparing such accounts including profit and loss account; ( iii ) the method and rates adopted for calculating the depreciation, In the event accounting is different – Profit and loss account observing above is to be prepared Explanation 3. —For the removal of doubts, it is hereby clarified that for the purposes of this section, the assessee, being a company to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, has, for an assessment year commencing on or before the 1st day of April, 2012, an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of *Part II and Part III of Schedule VI to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company. *

8 Book profit computation Book profit as per books + certain addition (–) certain deductions U/s 115 JB (Self contained code) Additions Income Tax paid / payable – debited to P & L A/c Amount transferred to reserves other than 33AC – Shipping business Provision for unascertained liabilities – add provision for bad debts – Finance Act 2009 w.e.f Provision for gratuity – Ascertained liablity – ITO Vs Jones Lang Lsalle Property Consultants 39 DTR 230 Provision for leave encashment BEML 245 ITR 428 Losses for subsidiary companies Dividend Expenditure relatable to income U/s 10, 11 and 12 Depreciation Impairment of asset – diminution of asset Amount of deferred tax if debited Deductions Amount withdrawn from reserves (added to profits earlier) Income U/s 10, 11 and 12 Depreciation other than revaluation Loss or unabsorbed depreciation which ever is less Profits U/s 80HHC/80HHE/80HHF Profit of Sick companies Amount of deferred tax if credited Income of SEZ Unabsorbed book depreciation of amalgamating company is deductable for computing book profit of amalgamated company for MAT Purpose.: Finolex Cables Ltd. Vs. ACIT (TS-351-ITAT-2011) (Pune) - not to be taken from

9 Section 115JB – Charging Section – Self Contained Code Charging Section (i) to be construed strictly (ii) not to taxed by implication (iii) to be brought within ambit of charging section with a clear words used in the charging section Tax to be imposed if obligation is cast CWT Vs. Ellis Bridge Gymkhana SC 229 ITR 1 Practice is otherwise Provisions not made – such as funded interest – disputed tax – can not be considered for computation of book profits - Essorpe Mills Limited 265 ITR 637 – Madras HC – Profit to be taken from the accounts prepared by the assessee Charging Section construed strictly not machinery section – rule subject to re buttal. - Machinery provisions do not impose a charge or extend or restrict a charge - CIT Vs. Sharvan Kumar Swarup and Sons 115 JB self contained code - Appollo Tyres Limited Vrs CIT 255 ITR 273 Save otherwise other provisions – apply – normally to be taken for machinery provisions and not as charging section – Practice is otherwise

10 CHAPTER XII-BA SPECIAL PROVISIONS RELATING TO CERTAIN LIMITED LIABILITY PARTNERSHIPS Special provisions for payment of tax by certain limited liability partnerships. 115JC. (1) Notwithstanding anything contained in this Act, where the regular income-tax payable for a previous year by a limited liability partnership is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of the limited liability partnership for such previous year and it shall be liable to pay income-tax on such total income at the rate of eighteen and one-half per cent. (2) Adjusted total income referred to in sub-section (1) shall be the total income before giving effect to this Chapter as increased by— ( i )deductions claimed, if any, under any section included in Chapter VI-A under the heading “ C. — Deductions in respect of certain incomes ”; and ( ii )deduction claimed, if any, under section 10AA.section 10AA (3) Every limited liability partnership to which this section applies shall obtain a report, in such form as may be prescribed, from an accountant certifying that the adjusted total income and the alternate minimum tax have been computed in accordance with the provisions of this Chapter and furnish such report on or before the due date of filing of return under sub-section (1) of section 139.section 139

11 CHAPTER XII-BA Special provisions for payment of tax by certain persons other than a company. 115JC. (1) Notwithstanding anything contained in this Act, where the regular income-tax payable for a previous year by a person, other than a company, is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of that person for such previous year and he shall be liable to pay income-tax on such total income at the rate of eighteen and one- half per cent. (2) Adjusted total income referred to in sub-section (1) shall be the total income before giving effect to this Chapter as increased by— ( i ) deductions claimed, if any, under any section (other than section 80P) included in Chapter VI-A under the heading "C.—Deductions in respect of certain incomes"; andsection 80P ( ii ) deduction claimed, if any, under section 10AA.section 10AA (3) Every person to whom this section applies shall obtain a report, in such form as may be prescribed, from an accountant, certifying that the adjusted total income and the alternate minimum tax have been computed in accordance with the provisions of this Chapter and furnish such report on or before the due date of furnishing of return of income under sub-section (1) of section 139.section 139

12 "FORM NO. 29C [ See rule 40BA] Report under section 115JC of the Income-tax Act, 1961 for computing adjusted total income and alternate minimum tax of the limited liability partnership 1. I/We* have examined the accounts and records of (name and address of the assessee with PAN) engaged in business of (nature of business) in order to arrive at the adjusted total income and the alternate minimum tax for the year ended on the 31st March, ( a) I/We* certify that the adjusted total income and the alternate minimum tax has been computed in accordance with the provisions of Chapter XII-BA of the Income tax Act. The tax payable under section 115JC of the Income-tax Act in respect of the assessment year is Rs which has been determined on the basis of the details in Annexure A to this Form. 3. In my/our * opinion and to the best of my/our* knowledge and according to the explanations given to me/us* the particulars given in the Annexure A are true and correct. Date Signed †Accountant

13 ANNEXURE A [ See paragraph 2] Details relating to the computation of Adjusted Total Income and Alternate Minimum Tax for the purposes of section 115JC of the Income-tax Act, Name of the assessee 2. Address of assessee 3. Permanent Account Number 4. Assessment year 5. Total income of the assessee computed in the manner laid down in the Income-tax Act before giving effect to Chapter XIIBA of the Income-tax Act 6. Income-tax payable on total income referred to in Column 5 above 7. The amount of deduction claimed under any section included in Chapter VI-A under the heading "C." - "Deductions in respect of certain incomes" Sl. No. Section under which Amount of deduct ion deduction Claimed deduction claimed 8. The amount of deduction claimed under section 10AA 9. Adjusted total income of the assessee ( ) 10. Alternate Minimum Tax (18.5% of adjusted total income computed in column 9 above)"

14 DISPUTES arisen Applying the principles of Regular tax assessment and disallow certain non-specified additions such as donations and expressly disallowable expenditure as per IT Act. Disregarding the principles of accounting standards Section 115JB – self contained code – violating provisions and adopted regular provisions even though section begins with non- obstinate clause - Appollo Tyres Limited Vrs CIT 255 ITR 273 Provisions not made – such as funded interest – disputed tax – can not considered for computation of book profits - Essorpe Mills Limited 265 ITR 637 – Madras HC Bad interpretations Provision for bad debts – not liability – reduction of asset (Usha Martin Industries Limited 104 ITD 249) – Retrospective amendment Provision for warranties - (Ibm India Limited 105 ITD 1) Rotork Controls India Private Limited v CIT (314 ITR62) Provision in respect of NPA (Mukand Global Finance Limited 117 ITD 20) &Steel Authority of India Ltd v DCIT 76 ITD 69 Any provision connected to the assets – not to liabilities Basis of ascertainment questioned Imposition of penal interest for not paying advance tax

15 Provision for ascertained liability Rotork Controls India P Ltd v CIT 314 ITR 62 SC Judgment - warranties Provision – to recognize (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle obligation; and c) a reliable estimate can be made of amount of obligation Good Guidelines – to specify ascertained liability and claim deduction Good Judgment giving credence to Accounting Standards and claiming deduction of expenditure

16 Procedure in filing the Return of Income – Rectification of Mistakes Applicable to all the Companies unless regular tax is more than 18.5 % Book Profit Certificate - Form 29B in addition to the certificate U/s 44AB Pay the tax amount as computation of income Computation of book profit as per Section 115JB Get U/s 115JB less TDS Petition to rectify the mistake apparent on record – assessment and appeal orders of CIT (A) – U/s 154 Petition to rectify and to decide undecided issue U/s 254 to ITAT MPs to HC or SC

17 Provisions of Advance Tax Based upon the principles of accrual or receipt To computed under the provisions of Chapter as per the Section as computed in accordance with the provisions of this Chapter - CHAPTER XVII. Against the Assessee – Special Bench of ITAT - Sutlaj Cotton Mills Ltd., vs. ACIT (45 ITD 22) – other HC such as MP, MAD and Gauhati Book profit to be computed under the provisions of Chapter based upon the accounting standards not on the principles of accrual or receipt as per IT Act. – Chapter XIIB Support of SC ITR Dismissing SLP - against Karnataka HC - Kwality Biscuits Limited 243ITR519 – but Ashima Syntex Ltd.(117 ITD 1)(ITAT SB) - in the case of S.115J – SC Full Bench – Rolta India -330 ITR 470 confirmed levy

18 SET OFF THE MAT PAID AGAINST REGULAR INCOME TAX U/s 115 JAA /115JD MAT paid is eligible for set- off against the regular income tax within 10 years without interest MAT credit in excess of 18.5% Book Profit MAT credit to be treated at par with the advance tax or TDS paid Previously set off was under dispute No interest at the time of set off from the date of MAT payment till the date of set off For LLPs – 115JD – 10years If regular income is not there within 10 years from payment of MAT; MAT is an expenditure –S.37(1) or write off to P & L A/c Whether MAT is to be shown as tax paid in advance or tax for concerned year Direct Tax Code – Similar provision – may exit for set off – enactment to be seen – amendments to be suggested in pre budget meeting – if the provisions otherwise

19 Retrospective amendments MAT gets increased due to retrospective amendments Tax and 234B and 234C gets increased Tax is to be paid Penal interest imposed 234B or 234C due to retrospective amendment; may be waived by CCIT Penalty not to be imposed – crime cannot be created retrospectively

20 FAVOURABLAE / UNFAVOURABLE ORDERS SOME DISCUSSION TO TAKE STEPS ORDERS AGAINST Picture on discussion

21 Appeals to CIT (A) Appeal can be filed against the assessment order of AO In Form 35 – brief facts of the appeal – grounds of appeal Proof of payment of admitted tax or proof of granting of installments and abiding by it. Questioning unnecessary additions and restricting deductions – not following Section 115 JB Restricting the deductions basing upon regular provisions of the Act. Not following the accounting standards as prescribed in Companies Act. Applying the provisions of Advance Tax on basis of Circular of CBDT – Circular can relax and can not impose charge Admitting the appeal and post the appeal for hearing. Providing necessary information – facts and law May file an additional ground – left CIT to admit the same. May file additional information to CIT (A) – CIT may call for remand report from AO May raise additional plea in the course of appeal proceedings Involving Transfer price or foreign company – DRP - 144C

22 REVISION BY CIT U/s 263 or 264 Revision of assessment – suo moto – calling the record examine the record – issue a notice of revision Assessment – be erroneous – prejudicial interest of revenue. Revision be carried after receiving the objections – providing hearing. Not taking different decision against ITAT orders Appeallable to ITAT The assessee can file revision application to CIT with in time limit against any orders of AO In the case of no appeal is filed Normally be disposed after hearing. Not appelable to ITAT

23 QUESTION OF FACT AND LAW QUESTION OF FACT Collect the necessary document and find out the sequence of operations taken place QUESTION OF LAW Necessary case laws on identical issues Appropriate interpretation of law if the same is first time

24 24 DRAFTING THE APPEAL PETITION – FACT AND LAW – Suggested steps DEFINE The disputed issue – to be defined – question of fact or question of law or any other remissions / concessions required Any document or any legal issue not brought Keep the original and take copies IDENTIFY Possibility of Documentary evidences Collect data as regards the question of fact Compare the data and data specified in the orders Establish Critical Success Factors Review data and evidences DESIGN Question of Fact & Law – arrange the data and case laws Find solutions by interpreting Assess for potential risks in using the data by OTHER PARTY mistake proof solutions Discuss with the concerned Review the placing the data with legal issues OPTIMIZE Identify gaps Identify and communicate Possible orders Final risk assessment and final mistake proofing Consultation with the management if required Start-up plan to be developed Review and kept ready for Sign VERIFY Do a pilot run if it is possible Verify the placement of data and arguments Do improvements as may be necessary Plan for long- term monitoring issue disputed Review and get Sign and file the PEITION / APPEAL

25 INCOME TAX APPELLATE TRIBUNAL – REVENUE AND APPELLANTS’ APPEALS Second appeal – against the orders of CIT (A) First appeal against the revision orders of CIT U/s 263 Revenue appeal – against the appeal orders of CIT (A) There may be Cross appeals by Appellant and Revenue – normally heard after clubbing the both.

26 Appeal to High Court – by the assessee or by revenue – question of law – wrong fact finding or under writ jurisdiction and Appeals to Supreme Court Third appeal – against the orders of ITAT Second appeal against ITAT confirming the revision orders of CIT U/s 263 Stay powers either in the enactment Revenue appeal – against the appeal orders of ITAT Orders of High Court on writ jurisdiction There may be Cross appeals by Appellant and Revenue – normally heard after clubbing the both. Against the appeal orders and writ directions - of High Court if permitted SLP if high Court not permitted SC after hearing admit the SLP If admitted normal procedure of hearing the appeal

27 Guidance from the Institute Guidance Note on MAT – on various issues including Form 29B – Form 29C Guidance required in respect of Provisions of Advance Tax – on LLPs Steps to be taken for MAT set off against regular tax in DTC – without time limit at par with unabsorbed depreciation

28 28 THANK YOU


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