Minimum Alternate Tax
Section 115JB
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
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
APPLICABILITY
Companies
Foreign Company
Banking, Electricity, Insurance, NBFC
Section 25 Companies
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
Procedure for Computation of MAT
Step
Procedure
1
Compute Total Income under Income Tax Act, 1961.
2
Compute Book Profit u/s 115JB.
3
Compute tax on Total Income at rates applicable for
Companies under Income Tax Act.
4
Compute Tax at 18.5% on Book Profit.
5
Tax payable = Higher of Step 3 or Step 4
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
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
Computation of Book Profit
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
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
Computation of Book Profit

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.
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
Computation of Book Profit
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Amount withdrawn from any reserves / provisions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
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
Computation of Book Profit

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
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
Technical issues on MAT– Section 115JB
Issue 1

-
Can AO recompute MAT liability by making certain
adjustments outside the P&L a/c
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.
Slide 10
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
Technical issues on MAT– Section 115JB
Issue 2

-
Whether Profits on sale of assets, investment
credited to profit and loss account be excluded for
the purpose of computing MAT ?
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)
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
Technical issues on MAT– Section 115JB
-
Issue 3

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 ?
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??
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
Technical issues on MAT– Section 115JB
Issue 4


-
Adjustment of prior period items
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)
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
MAT CREDIT
SECTION 115JAA
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
Computation of MAT Credit
Available when Assessee pays tax on Book Profit
Step 1
Tax on Book Profit
Step 2
Tax on Total Income
Step 3
MAT 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
Availing MAT Credit
Applicable when Assessee paid Tax on Total Income
Step 1
Tax on Total Income
Step 2
Tax on Book Profit
Step 3
Difference of Tax = Step 1 – Step 2
Step 4
Availed MAT Credit = Aggregate available MAT Credit or
Step 3,whichever is less.
Step 5
Net Tax Payable = Tax on Total Income (Step 1) – Step 4.
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
CASE 1/ YEAR 1
Total Income
Rs. 3,00,000
Book Profit
Rs.20,00,000
Applicable when assessee paid tax on Book Profit
Step 1
Tax on Book Profit = Rs.3,81,100
Step 2
Tax on Total Income = Rs.92,700
Step 3
MAT Credit = Step 1 – Step 2 = Rs.2,88,400
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
Year 2 – Availing MAT Credit
Total Income
Rs. 7,00,000
Book Profit
Rs.10,00,000
Step 1
Tax on Total Income = Rs.2,16,300
Step 2
Tax on Book Profit = Rs.1,90,550
Step 3
Difference of Tax = Step1 – Step2 = Rs.25,750
Step 4
Availed MAT Credit = Actual MAT Credit (2,88,400) or Step
3 whichever is less. = 25,750
Step 5
Net Tax Payable = Step1 – Step 4 = Rs.1,90,550
Step 6
Balance 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
Year 3 – Availing MAT Credit
Total Income
Rs. 10,00,000
Book Profit
Rs. 8,00,000
Step 1
Tax on Total Income = Rs.3,09,000
Step 2
Tax on Book Profit = Rs.1,52,440
Step 3
Difference of Tax = Step1 – Step2 = Rs.1,56,560
Step 4
Availed MAT Credit = Actual MAT Credit (2,62,650) or Step 3
whichever is less = 1,56,560
Step 5
Net Tax Payable = Step1 – Step 4 = Rs. 1,52,440
Step 6
Balance of MAT Credit = 2,62,650 – 1,52,440 = 1,10,210
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
Technical Issues on MAT Credit
Issue 1
- Whether surcharge and cess paid earlier would be
available as a 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
Technical Issues on MAT Credit
Issue 2
- Implication of the phrase “no interest shall be
payable on MAT Credit”
 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
Technical Issues on MAT Credit
Issue 3
- Period of carry forward of MAT credit
 Credit not allowed to be carried forward beyond 10th AY
immediately succeeding the AY in which MAT credit become
allowable.
 If the MAT Credit was first allowable in A.Y. 2006-07, 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. 2010-11?
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
Technical Issues on MAT Credit
Issue 4
- Accounting Treatment of MAT credit
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
Technical Issues on MAT Credit
Issue 5
-
Whether MAT credit can be carried forward by the
successor in the case of amalgamation/merger?

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
Tax under Section 115JB and MAT
Credit under Section 115JAA
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co
February 1-2, 2013
Agreem Patel Ruchi Shah
M V Damania & Co