presentation on section 115jb & 115jc

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  • 2 INTRICACIES OF ALTERNATE MINIMUM TAX (SEC.115JC) & MINIMUM ALTERNATE TAX (SEC. 115JB) By PAWAN SINGLA E-mail-singlapavan@gmail.com
  • A.Y. 1984-85 out of top 23 12 CO's did not pay tax TAX EVASION 2
  • Section Section Section 115 J 115 JA 115JAA A.Y 88-89 to 91-92 A.Y. A.Y. 97-98 to 01-02 97-98 to 01-02 Section 115 JB Section 115JAA A.Y. A.Y. 01-02 to 06-07 to Section 115 JC A.Y.2012-13 HISTORY MAT and AMT 3
  • History of A M T Particulars Assessment year 2012-13 Assessment year 2013-14 onwards Limited Liability Partnership 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 4
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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 of the Act shall apply to every assessee referred to in this chapter. 6
  • Section Hit by the Provisions of AMT Newly 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. 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. 7
  • 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 income Add : 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 total income & 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 be available as AMT Credit. 6. When AMT becomes applicable, report under Form 29C needs to be obtained from a C.A. 8
  • Case study 1 Particulars 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 Stock Exchange) 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 9
  • Solution to Case study 1 Particulars Amount (Rs.) Tax computation under normal provisions Tax 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 10
  • 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 11
  • M A T Vs. A M T by CA.K.K.Chhaparia Particulars MAT AMT Start point of calculation Audited accounts Total income as per assessee Rate of Tax 18.5% of BP 18.5% of Adjusted TI Impact 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 certain cases
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  • Who is liable to pay MAT 1.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) 15
  • 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 CIT, Gujarat 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 companys Act 1956 eg. Banks, Electricity companies. 15
  • INCOMETAX RESERVE PROVISIONS DIMINUTION IN VALUE OF ASSET PROV LOSS OF SUB REVALUATIO N RESERVE DIVIDEND DEPRECIATION DEFERRED TAX & PROVISION EXP FOR EXEMPT INCOME 19
  • B/FD LOSS UNABSORBED Depreciation Revaluation Depn, Revaluation res SICK CO. u/s 10, 11,12 20
  • SOME ISSUES U/S MAT A. 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) 15
  • 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.). 15
  • 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.) 15
  • 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 r