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A.Y. 1984-85 out of top 23 12 CO'sdid notpay tax

TAX EVASION

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Section

SectionSection

115 J

115 JA115JAA

A.Y 88-89 to 91-92

A.Y.A.Y.

97-98 to 01-0297-98 to 01-02

Section 115 JBSection 115JAA

A.Y.A.Y.

01-02 to…06-07 to …

Section 115 JC A.Y. 2012-13

HISTORY ᾶMAT and AMT

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History of A M TParticulars Assessment year

2012-13Assessment year2013-14 onwards

Limited LiabilityPartnership

Applicable Applicable

Any other firm or any artificial juridical person, not being company

Not applicable Applicable

Individual, HUF, AOP, BOI, artificial juridical person

Not applicable Applicable if adjusted T.I.> Rs.20 Lakh

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Chapter XII- BA (Special Provision)

Notwithstanding anything contained in this Act.Applies to all assessees other than company, who has claimed any deduction under sec 10AA or any section included in chapter VI-A part “C” other than sec 80P If regular income tax payable < alternate minimum

Alternate Minimum tax = Adjusted T.I. * 18.5%

tax, then

Adjusted Total income = T.I. + Deduction under Chapter VIA-C, 10AA

Save as otherwise provided in this Chapter, all other provisions ofthe Act shall apply to every assessee referred to in this chapter.

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Section Hit by the Provisions of AMTNewly established Units in Special Economic Zones

Infrastructure development

Development of SEZ.

Certain industrial undertakings and enterprises . Undertakings in

certain special category states. Hotel and convention centers in

specified area.

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•

•

•

•

•

•

Section 10AA

Section 80-IA

Section 80-IAB

Section 80 IB

Section 80-IC

Section 80-ID

Section 80-IE

Section 80JJA

Section 80JJAA

Section 80LA

Section 80 QQB

Certain undertaking in North Eastern States.

Collection and processing of bio degradable waste.

Employment of new workman.

Offshore banking units and international financial service center.

Certain royalty to authors of books.

• Section 80RRB Royalty on patents.

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Steps – A M T by CA.K.K.Chhaparia

1. Find regular income tax liability of non-corporate assessee ignoring A.M.T.

2. Find Adjusted Total income (ATI)Normal Total incomeAdd : Deduction claimed by assessee u/s 80HH to 80RRB or u/s 10AA and not as allowed by Assessing Officer.

3. Find 18.5% of Adjusted Total Income

4. If amt computed under Step 1 is >= amt under Step 3, then AMT will not apply.

However if amt under Step 3 > amt in Step 1, then ATI will be the deemed totalincome & 18.5% (+SC+EC+SHEC) of ATI will be the deemed tax liability

5. The excess amount computed under Step 3 over amount in Step 1 will beavailable as AMT Credit.

6. When AMT becomes applicable, report under Form 29C needs to beobtained from a C.A.

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Case study 1Particulars Amount (Rs.)

Net profit as per profit and loss account 67,60,000

Add : Disallowance u/s 37(1) & u/s 43B 10,000

Less : Deduction under section 10AA (65,00,000)

Add : LTCG (on transfer of Equity Shares in StockExchange) – Rs.6,00,000

Exempt

Gross Total Income 2,70,000

Less : Deduction u/s 80G (3,000)

Less : Deduction u/s 80-IB (48,000)

Net Income 2,19,000

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Solution to Case study 1Particulars Amount (Rs.)Tax computation under normal provisionsTax on income of Rs.2,19,000 1,900

Add : EC + SHEC 57

Total Tax Liability (A) 1,957

Computation of Adjusted Total Income (ATI)Net Income 2,19,000

Add : Deductions claimed u/s 8O-IB 48,000

Add : Deductions claimed u/s 10AA 65,00,000

Adjusted Total Income 67,67,000

Computation of Alternate Minimum Tax (AMT)18.5% of Adjusted Total Income 12,51,895

Add : EC + SHEC 37,557

Alternate Minimum Tax (AMT) (B) 12,89,452

Tax Payable [(a) or (b), whichever is more] (rounded off) 12,89,450

Alternate Minimum Tax Credit 12,87,493

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Other important points – A M T

• CA report -Form 29C (Rule 40BA).

▫ To be furnished before due date u/s 139(1). – Section 115JC(3).

• AMT shall not apply if ATI(other than firm & LLP) < Rs. 20 Lacs –Section 115JEE(2)

• AMT Credit shall be allowed for the next ten consecutive years- S.115JD

▫

▫

▫

AMT Credit shall vary consequent to assessment or appeal

No interest shall be payable on tax credit allowed.

Credit can be set off only in the year in which the Regular Tax payable

exceeds the AMT

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M A T Vs. A M T

by CA.K.K.Chhaparia

Particulars MAT AMT

Start point ofcalculation

Audited accounts Total income as perassessee

Rate of Tax 18.5% of BP 18.5% of Adjusted TIImpact on asst/disallowances

No impact on BP (generally)

Every addition shall impact – Sec 115JD(6)

Impact of b/fd loss

No impact(generally)

Impact TI, hence ATI

Exemption No exemption Rs.20 lacs in certaincases

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Who is liable to pay MAT1.The Finance Act, 2012 has inserted new sub-section 5A to provide that section 115JB shall not apply to any income accruing or arising to a company from life insurance business.2.Company has no taxable income but has a positive book profit.3.Where a Company has a negative net profit as per its P&L account but has positive book profit.4.Applicability to foreign companies P No.14 of 1997(1998) 100 Taxman 1 (AAR). Contrary decision in Timken Co. In re (2010) 193 Taxman 20 (AAR-ND)

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5. Exemption from MAT to developer of SEZ or unit located in SEZ has been withdrawn from AY 2012-13 by Finacne Act, 2011 by inserting a proviso in section 115JB (6)

6. Applicability of MAT to companies eligible for tax holiday refer Sidcul Industrial Association Vs State of Uttrakhand (2011) 199 Taxman 75. Ganesh Housing Corporation Vs DCIT, 32 SOT 207(AHD)

7. Main Provision of Section 115JB(2) as amended by the Finance Act, 2012 a new explanation 3 brought those company also under MAT who are not required to prepare accounts in accordance with schedule VI of the company’s Act 1956 eg. Banks, Electricity companies.

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INCOMETAXRESERVE

PROVISIONSDIMINUTION INVALUE OF ASSET PROV LOSS OF SUB

REVALUATION

RESERVE DIVIDEND

DEPRECIATION

DEFERRED TAX &PROVISION

EXP FOR EXEMPTINCOME

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B/FD LOSSUNABSORBED Depreciation

Revaluation Depn,Revaluation res

SICK CO.

u/s 10, 11,12

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SOME ISSUES U/S MATA. Prior period items and extraordinary items The format of P &L account given in part II if new Schedule VI envisages distinct disclosure of extraordinary items as separate line item and is silent about prior period items However, note 5 (L) of part II of Revised Schedule VI requires disclosure in notes to accounts of aggregate expenditure and income in respect of prior period .

Reference Sree Bhagawathy Textiles Ltd. Vs. ACIT (2011) 199 Taxman 14 (Ker.)

Gulf Oil Corporation Ltd. Vs. ACIT(2008) 111 ITD 124 (HYD)

Shivshahi Punarvasan Prakalp Ltd. V.ITO (2011)15 taxmann.com 352 (Mum)

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B. Gain due to restatement at the balance sheet date of foreign currency term loan can not be reduced from the net profit for the purposes of working out “book profit”. If a profit and loss account has been made in terms of companies Act (i.e. Accounting Standards and Schedule VI), then no adjustment or tinkering is available except as provided in Explanation 1 to section 115JB(2)-City Gold Media Ltd. v. ITO [2012] 17 taxmann.com 232 (Ahd)C. Profit on sale of assets credited to profit and loss account cannot be excluded in computing book profit under section 115JB even though capital gain arising from sale of that asset is not subject to tax under normal provisions of Act by virtue of provisions of section 54EC-Technicarts (P.) Ltd. v. ITO [2011] 12 taxmann.com 1 (Mum),Growth Avenue Securities (P.) Ltd. v. DCIT[2010] 126 ITD179 (Delhi),N.J. Jose & Co. (P.) Ltd. [2008] 174 Taxman 141 (Ker.).

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D. No part of the liability that has ceased on account of settlement of loan liability of bank and credited to P & L account can be excluded even though part of the liability may represent waiver of principal amount of loan. Profit on sale of capital assets as well as profit on sale of stock in trade form part of same profit and loss and taken into account while determining the book profit. – Duke Offshore Ltd. v. DCIT [2011] 45 SOT 399 (Mum.)E. Long term capital gain exempt under section 47(iv) can not be reduced from net profit. Rain Commodities Ltd. [2010] 40 SOT 265 (Hyd.)(SB)F. Interest on borrowed capital not debited to P&L account and capitalized as part of cost of new project can not be reduced from net profit.- CIT v. Avery Cycle Industries[2004] 89 ITD 497 (Chd.)

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G. Where Government of India had waived loan and interest thereon due from assessee and assessee did not incorporate effect of waiver in its books of account, though it disclosed details of waiver in its annual report placed before shareholders, AO was justified in adding amount of interest waiver to arrived at book profit. Hindustan Shipyard Ltd. v. DCIT [2010] 130 TTJ 213 (Vishakhapattanam)H. Arrears of depreciation for past years debited due to change in method of depreciation from Straight Line Method (SLM) to Written Down Value (WDV) method and debited to profit and loss account should not be added back to net profit working out book profit. Kinetic Motor Co. Ltd. v. DCIT [2003] 133 Taxman 956 (Bom).However, dissented judgement has been given by MP High Court in case of Gilt Pack Ltd. V. UOI [2007] 163 taxman 331

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I. Amount or amounts set aside as provision for diminution in value of any asset was inserted by Finance Act, 2009 with retrospective effect from AY 2000-2001. The above amendment was carried out to overcome the Supreme Court decision in CIT v. HCL Comnet Systems & Services Ltd. [2008] 174 Taxman 118 example- provision for doubtful debts, provision for impairment, provision for fall in value for investment.

J. Amount of Defferred Tax and provision therefore was inserted by same Finance Act, 2008 with retrospective effect AY 2001-02. The above amendment was carried out overcome the ITAT’s decision in ACIT v. Balarampur Chini Mills Ltd. [2007] 14 SOT 372 (Kol.)

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K. Addition of expenditures related to tax free income to net profits as per clause (f) of explanation 1 below section 115JB. The disallowance made u/s 14A is to be added back to book profit as held by in M/s DABUR INDIA LTD v/s ACIT.2013-TIOL-790-MUM & EIH ASSOCIATED HOTELS LTD V/S DCIT.2013-TIOL-796-MAD

L. The Finance Act, 2006 introduced clauses (g), (iia) and (iib) in explanation 1 below section 115JB. The implication of above three clauses are that the company does not stand to benefit from a MAT prospective by upward revaluation of assets and debiting higher depreciation (on revalued amounts) to P & L account and reducing net profit.

M. Addition to net profit of income-tax amountAmount of Income-tax , According to Explanation 2 below section 115JB(2), for the purposes of clause (a) of Explanation 1, the amount of income-tax shall include-

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(i) Any tax on distributed profits under section 115-O (dividend distribution – i.e. DDT) or tax on distributed inocme under section 115R;

(ii) Any interest charged under this Act;(iii) Surcharge, if any, as levied by the Central Acts;(iv) Education cess on income-tax, (v) Secondary and Higher Education Cess on income-tax,(vi) In ACIT Vs Chettinad Cement Corporation Ltd. (2011)

15 taxmann.com 262 (Chennai), ITAT has ruled that provision for wealth tax would come within the ambit of clause (a) of Explanation to section 115JA.

(vii) Provision of taxation made by the foreign branches of the banks are to be added back to net profits for arriving at book profit – Bank of India, In re (2007) 165 Taxman 627 (AAR- New Delhi)

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(N) REVALUATION RESERVE BALANACE IN RESPECT OF ASSET RETIRED/DISPOSED OF

Explanation 1 to sec. 115JB has been amended w.e.f AY-2013-14 and has replaced with “(j) the amount standing in revaluation reserve created to revalued asset on the retirement or disposal of such asset , if any amount referred to in clauses (a) to (i) is debited to the P & L account or if any amount referred to in clause (j) is not credited to the P & L a/c

The AS(10) permits the transfer of amount standing in revaluation reserve to general reserve following the retirement or disposal of an asset .Thus the gains attributable to revaluation of the asset was not subject to MAT liability .The above amendment has been made to overcome the decision in ITO v/s Galaxy Saw (P) Ltd.13 TAXMANN.COM 179

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(Ex).Company “Y” ltd revalued its plot of land (original cost-Rs.10,00,000) at Rs. 3,00,00,000 in F.Y. 2010-11.The resulting surplus on revaluation Rs. 2,90,00,000 was credited to revaluation reserve and has since been appearing in the balance sheet. The company sold the plot on 31-03-2012 at Rs. 4,00,00,000 and credited the Rs. 1,00,00,000(sale proceeds – revalued amount) to P & L a/c. Further, the company transferred the revaluation reserve balance of Rs. 2,90,00,000 to general reserve.

Only the profit on sale of Rs. 1,00,00,000 is liable to be included in book profit.

However if above plot was sold after 31-03-2102, then along with profit on sale of plot of Rs. 1,00,00,000 ,the amount standing in revaluation reserve of Rs. 2,90,00,000 has to be added to net profit for calculating “book profit” as clause (j) comes into play for AY 2013-14.

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DEPRECIATION OR BUSINESS LOSS( EXCLUDING DEPRECIATION) AS PER BOOKS

As per explanation below section 115 JB, for the purposes of this section “book Profit” means the net profit as shown in the profit and loss account for the relevant previous year prepared under section as reduced by

(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.

Explanation: For the purpose of this clause, -(a) the loss shall not include depreciation ;(b) the provisions of this clause shall not apply if the amount

of loss brought or unabsorbed depreciation is nil ;] The sub-clause (b) to Explanation (iii ) was inserted in the

Act in order to nullify the effect of the order in the case of ACIT v. Kartar Bus Service (P.) Ltd. [2002] 74 TTJ (Asr.) 324/124 Taxman 222 (Mag.).

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WHETHER CONSOLIDATED FIGURE OF BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION FOR EARLIER YEARS OR YEAR TO YEAR BASIS ?

Amline Textiles (P) ltd v/s ITO.27 SOT152 (Mum) Has held that consolidated figure of loss /depreciation for

earlier years in totality to be considered.

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A.Y LOSS EXCLODING DEPRECIATIONS AS PER BOOKS

DEPRECIATION AS PER BOOKS

LOSS AFTER DEPRECIATION

AMOUNT TO BE DEDUCTED

1997-98 100 10 110 10

1998-99 2 10 12 2

1999-2000 10 0 10 0

2000-01 0 20 20 0

2001-02 25(Profit) 50 25 0

WHERE COMPANY DOES NOT OWN ANY DEPRECIABLE ASSET

If the company does not own any depreciable fixed asset and hence has not depreciation or unabsorbed depreciation ,the brought forward loss(entire amount) is deductible in determining book profits. It should accordingly be deducted and treatment disclosed as a note. In such a case ,explanation (b) to clause (iii) will have no application.(ICAI’s opinion given in note 4 of the enclosure in Appendix XIII in ICAI,s Guidance Note on Report u/s 115JB).

The guidance seems to be contrary to the language given in explanation (b) to clause (iii) as the words are “the amount of loss forward or unabsorbed depreciation whichever is less as per books of accounts” For the purpose of this subsection

(b) the provisions of this clause shall not apply if the amount of loss brought or unabsorbed depreciation is nil ;]

S.I.J. Chains (P.) Ltd v/s ACIT.(2006) 100 ITD 379(ASR)

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MAT CREDIT As per provisions of Section 115JAA(IA)(2) “the tax credit to be

allowed under sub-section (1) shall e the difference of the tax paid for any assessment year under sub-section (1) of section 115JA and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of the Act”.

MAT credit is be compared at two stages. First at when assessee becomes entitled for Credit and second when he avails the MAT Credit. At both stages, tax payable at normal income & u/s 115JB needs to be examined.

15As per provisions of Section 115JAA(IA)(2) “the tax credit to be allowed under sub-section (1) shall e the difference of the tax paid for any assessment year under sub-section (1) of section 115JA and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of the Act ”.

Tax u/s 115JA 19800964

Tax on regular income of Rs. 21448790 (40 %+ 7.5 %) 9222980

MAT credit available 10577984

MAT credit allowed 11130125

Excess allowed 552141

WHETHER COMPANY LIABLE TO PAY ADVANCE TAX WHEN TAX IS PAID U/S 115JB ?

The controversy was settled by the Supreme court in case of JCIT v/s ROLTA INDIA LTD (2011) 330 ITR 470 where it was held that companies liable to MAT are obliged to pay advance tax & for failure to pay in time ,they are liable for interest u/s 234B & C of the Income Tax Act.Action needs to taken in all orders of CIT(A) , ITAT or High Court where respective Appellate authorities deleted liability to pay interest u/s 234B & C based on the law prevailing before the judgment of the Apex court was delivered. In most of the cases , appeal to higher forum must also have not been filed considering the Low tax effect circular and its limits.

(a) File rectification appeal before CIT(A) if order passed by him is within four years and appeal to ITAT has not been filed

(b) File MA before ITAT if order passed by ITAT is within four years and appeal to High court has not been filed

© SLP along with condonation of delay against orders of High courts

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Carry Forward of MAT credit in case of Amalgamation

• Income Tax Act silent on the issue

• Genuine doubt about interpretation of law benefitAssessee.

to be given to the

▫ CIT v. Vegetable Products Ltd., [1973] 88 ITR 192 (SC)

• In SKOL Breweries Ltd. v. ACIT, 28 ITAT India 998 (Mum.) ITA No.313/Mum./07 A.Y. 2003-04 decision dated 15-5-2008 the Tribunal allowed set off of MAT credit of amalgamating company in the hands of the appellant assessee being the amalgamated company

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Whether Sec 115JB applies on ForeignCompanyCastleton Investment Ltd. (AAR New Delhi) 211 Taxman 282

Assessee was a foreign Company incorporated under the law of Mauritius.Assessee earned LTCG on sale of sharesHeld Co. u/s 2(17) of the IT Act includes a non-resident company S.115JB does not make any distinction between resident/ NR co.

View again confirmed in the case of ZD, In re* (AAR New Delhi) 29taxmann.com 147

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What if the Foreign Co. has no presence orpermanent establishment in IndiaTimken Co., IN re (AAR New Delhi) 233 ITR 334• Facts Assessee was a foreign co. having no permanent place of

presence in IndiaClaimed LTCG on sale of shares is exempt u/s 10(38)Claimed not required to pay MAT on book profit u/s 115JB

business or

• Held A Non Resident Co. having no permanent place or presence in India not

required to prepare b/a as per Sec 594 read with Sec 591 of the Co’s Act Hence Sec 115JB is not designed to be applicable in such a case

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