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

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Presentation on theme: "Minimum Alternate Tax Section 115JB February 1-2, 2013 Agreem Patel Ruchi Shah M V Damania & Co."— Presentation transcript:

1 Minimum Alternate Tax Section 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 StepProcedure 1Compute Total Income under Income Tax Act, Compute Book Profit u/s 115JB. 3Compute tax on Total Income at rates applicable for Companies under Income Tax Act. 4Compute Tax at 18.5% on Book Profit. 5Tax 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 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 Computation of Book Profit February 1-2, 2013 Agreem Patel Ruchi Shah M V Damania & Co

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

8 Less: If Credited to Statement of Profit and Loss Amount withdrawn from any reserves / provisions Income exempt u/s 10/ 11/ 12 [except 10(38)] Brought forward loss (other than depreciation) or unabsorbed depreciation,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 Computation of Book Profit February 1-2, 2013 Agreem Patel Ruchi Shah M V Damania & Co

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

10 Technical issues on MAT– Section 115JB Slide 10 - Can AO recompute MAT liability by making certain adjustments outside the P&L a/c Issue 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. February 1-2, 2013 Agreem Patel Ruchi Shah M V Damania & Co

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

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

13 - Adjustment of prior period items Issue 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) Technical issues on MAT– Section 115JB 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 Step 1Tax on Book Profit Step 2Tax on Total Income Step 3MAT Credit = Step 1 – Step 2 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 Step 1Tax on Total Income Step 2Tax on Book Profit Step 3Difference of Tax = Step 1 – Step 2 Step 4Availed MAT Credit = Aggregate available MAT Credit or Step 3,whichever is less. Step 5Net 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 ProfitRs.20,00,000 Applicable when assessee paid tax on Book Profit Step 1Tax on Book Profit = Rs.3,81,100 Step 2Tax on Total Income = Rs.92,700 Step 3MAT 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 ProfitRs.10,00,000 Step 1Tax on Total Income = Rs.2,16,300 Step 2Tax on Book Profit = Rs.1,90,550 Step 3Difference of Tax = Step1 – Step2 = Rs.25,750 Step 4Availed MAT Credit = Actual MAT Credit (2,88,400) or Step 3 whichever is less. = 25,750 Step 5Net Tax Payable = Step1 – Step 4 = Rs.1,90,550 Step 6Balance 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 ProfitRs. 8,00,000 Step 1Tax on Total Income = Rs.3,09,000 Step 2Tax on Book Profit = Rs.1,52,440 Step 3Difference of Tax = Step1 – Step2 = Rs.1,56,560 Step 4Availed MAT Credit = Actual MAT Credit (2,62,650) or Step 3 whichever is less = 1,56,560 Step 5Net Tax Payable = Step1 – Step 4 = Rs. 1,52,440 Step 6Balance 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 - 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 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 - 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 February 1-2, 2013 Agreem Patel Ruchi Shah M V Damania & Co

22 Technical Issues on MAT Credit - Period of carry forward of MAT credit Issue 3  Credit not allowed to be carried forward beyond 10 th AY immediately succeeding the AY in which MAT credit become allowable.  If the MAT Credit was first allowable in A.Y , 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 ? February 1-2, 2013 Agreem Patel Ruchi Shah M V Damania & Co

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

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


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