2

A.Y. 1984-85 out of top 23

12 CO's did not pay tax

TAX

HISTORY
MAT and AMT
Section 115 J Section 115 JA Section 115JAA Section 115 JB Section 115JAA Section 115 JC A.Y 88-89 to 91-92 A.Y. 97-98 to 01-02 A.Y. 97-98 to 01-02 A.Y. 01-02 to A.Y. 06-07 to A.Y. 2012-13

History of A M T
Particulars Assessment year 2012-13 Applicable Assessment year 2013-14 onwards Applicable Limited Liability Partnership Any other firm or any artificial juridical person, not being company Individual, HUF, AOP, BOI, artificial juridical person

Not applicable

Applicable

Not applicable

Applicable if adjusted T.I. > Rs.20 Lakh

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

Section Hit by the Provisions of AMT

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 Section 80RRB 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. 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. Royalty on patents.

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.

Case study 1
Particulars Net profit as per profit and loss account Add : Disallowance u/s 37(1) & u/s 43B Less : Deduction under section 10AA Add : LTCG (on transfer of Equity Shares in Stock Exchange) Rs.6,00,000 Gross Total Income Less : Deduction u/s 80G Less : Deduction u/s 80-IB Net Income Amount (Rs.) 67,60,000 10,000 (65,00,000) Exempt 2,70,000 (3,000) (48,000) 2,19,000

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Solution to Case study 1

Particulars Tax computation under normal provisions Tax on income of Rs.2,19,000 Add : EC + SHEC Total Tax Liability (A) Computation of Adjusted Total Income (ATI) Net Income Add : Deductions claimed u/s 8O-IB Add : Deductions claimed u/s 10AA Adjusted Total Income Computation of Alternate Minimum Tax (AMT) 18.5% of Adjusted Total Income Add : EC + SHEC Alternate Minimum Tax (AMT) (B) Tax Payable [(a) or (b), whichever is more] (rounded off) Alternate Minimum Tax Credit 12,51,895 37,557 12,89,452 12,89,450 12,87,493 2,19,000 48,000 65,00,000 67,67,000 1,900 57 1,957 Amount (Rs.)

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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

MAT
Particulars Start point of calculation Rate of Tax Impact on asst /disallowances Impact of b/fd loss Exemption

Vs.
MAT

AMT
AMT Total income as per assessee 18.5% of Adjusted TI Every addition shall impact Sec 115JD(6) Impact TI, hence ATI Rs.20 lacs in certain cases

Audited accounts 18.5% of BP No impact on BP (generally) No impact (generally) No exemption

by CA.K.K.Chhaparia

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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)

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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 companys Act 1956 eg. Banks, Electricity companies.

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INCOMETAX RESERVE PROVISIONS DIMINUTION IN VALUE OF ASSET REVALUATIO N RESERVE

PROV LOSS OF SUB

DIVIDEND

DEPRECIATION DEFERRED TAX & PROVISION EXP FOR EXEMPT INCOME

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B/FD LOSS UNABSORBED Depreciation

Revaluation Depn, Revaluation res

SICK CO.

u/s 10, 11,12

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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)

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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 ITATs 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 amount Amount 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 AY2013-14 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 costRs.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

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WHETHER CONSOLIDATED FIGURE OF BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION FOR EARLIER YEARS OR YEAR TO YEAR BASIS ?
A.Y LOSS EXCLODING DEPRECIATIONS AS PER BOOKS 100 2 DEPRECIATIO N AS PER BOOKS 10 10 0 20 50 LOSS AFTER DEPRECIATIO N 110 12 10 20 25 AMOUNT TO BE DEDUCTED 10 2 0 0 0

1997-98 1998-99

1999-2000 10 2000-01 2001-02 0 25(Profit)

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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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.( ICAIs 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)

) 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 as

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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.
Tax u/s 115JA Tax on regular income of Rs. 21448790 (40 %+ 7.5 %) MAT credit available MAT credit allowed Excess allowed 19800964 9222980 10577984 11130125 552141

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.

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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 benefit to be given to the Assessee. 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 Foreign Company

Castleton 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 shares Held 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) 29 taxmann.com 147

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What if the Foreign Co. has no presence or permanent establishment in India

Timken Co., IN re (AAR New Delhi) 233 ITR 334
Facts
Assessee was a foreign co. having no permanent place of business or presence in India Claimed LTCG on sale of shares is exempt u/s 10(38) Claimed not required to pay MAT on book profit u/s 115JB

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 Cos Act Hence Sec 115JB is not designed to be applicable in such a case

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