Minimum Alternate Tax on Companies and LLPs on
Book Profit under
Companies Act
A.C. Gangaiah
CHARTERED ACCOUNTANT
1
REGULATORY ACTS Vs
FISCAL ACTS
Regulatory enactments
• Meant for regulation of society –
penal provisions for violation
rules – no financial loss
required
• The entries to be interpreted as
wide as possible - Ellis Bridge 229
ITR 1
Fiscal laws
• Meant for revenue to run the
Government
•
Charging section to be construed
strictly. CWT Vs Ellis Bridge
Gymkhana (229 ITR 1)
•
Beneficial legislation to be
interpreted liberally. CITv.
Strawboard Manufacturing Co. Ltd.
177 ITR 431 & Bajaj Tempo Ltd. v.
CIT (196) ITR 188
•
In the case of two interpretations –
interpretation favouring the assessee
is to be adopted CIT Vs Vegetables
Products Limited (88 ITR 192)
Types of Assessments
• Filing Return of
Income
• Summary
assessment – by the
department issuing
notice for tax
demand or for refund
• Other wise self
assessment
• Scrutiny U/s 143(3)
Issue a notice and
providing personal
hearing and calling the
desired information
• MAT Assessment
• Transfer Price
assessment
• Best judgment
assessment
• Rectification of
assessment
• Consequential
assessment orders based
upon appeal or revision
or waiver / reduction of
penalty or interest or
penal interest
ASSESSMENT –
PRESENTATION OF
FACTS & LEGAL PROVISION
for Computation of Income
chargeable to tax
Presentation of facts
• Based on evidence
• Not perverse
• To be decided as reasonable
person
• Following the legal precedents
• Following principles of natural
justice
Legal Provisions –basin upon the
principle of accrued or received
• Charging section vs beneficial
section
• Information as per the rules
framed
• Deduction to be claimed as per
the rules
• Following the identical judicial
precedents
• proper procedure to approach
appropriate jurisdictional
authority
• Principles of ‘Resjudicata’ do not
apply to taxation acts
Minimum revenue –
Legislation - Accounting
• Mining enactments –
minimum royalty or dead
rent – common feature
• Specifies the procedure
for payment of minimum
rent and set off the rent
against future royalty /
income payable
• As professional – know
the procedure of
accounting of minimum
rent and its set off of rent
in our early education
itself.
• Minimum alternative tax
– in income tax
enactments
Minimum Alternate Tax U/s
115JB on Book Profit under
Companies Act.
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General Principal in IT
As Per the Provisions of IT
Act
Income accrued or deemed
accrued
Received or deemed to be
received
Deduction on the basis of
accrual or the basis of
payment in the previous
year
Not applicable to Electricity
and Banking companies –
applicable from 1-4-2013
To be passed in same
assessment order
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Minimum Alternative tax U/s
115JB Chapter XII B – not
within purview of definition of
Income – Scope of Income
Not applicable to SEZ
Regular tax as per IT is less
than 18.5% of Book Profit –
18.5% book profit deemed to be
income
Book profit for the year from
April to March is to be taken
If accounting period is different
the book profit for the financial
year to be computed
Appling accounting standards
in force.
18.5% Tax on book profits
computed as per the provisions
of Companies Act after
Adding certain amount to book
profit
Allowing certain deductions – as
per S.115JB
Provided that while preparing the annual accounts including
profit and loss account,—
(i) the accounting policies;
(ii) the accounting standards adopted for preparing such
accounts including profit and loss account;
(iii) the method and rates adopted for calculating the
depreciation,
In the event accounting is different – Profit and loss account
observing above is to be prepared
Explanation 3.—For the removal of doubts, it is hereby clarified
that for the purposes of this section, the assessee, being a
company to which the proviso to sub-section (2) of section 211 of
the Companies Act, 1956 (1 of 1956) is applicable, has, for an
assessment year commencing on or before the 1st day of April,
2012, an option to prepare its profit and loss account for the
relevant previous year either in accordance with the provisions of
*Part II and Part III of Schedule VI to the Companies Act, 1956 or in
accordance with the provisions of the Act governing such company.
Book profit computation
Book profit as per books + certain addition
(–) certain deductions U/s 115 JB (Self
contained code)
Additions
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Income Tax paid / payable – debited
to P & L A/c
Amount transferred to reserves other
than 33AC – Shipping business
Provision for unascertained liabilities
– add provision for bad debts –
Finance Act 2009 w.e.f 1.4.2001
Provision for gratuity – Ascertained liablity –
ITO Vs Jones Lang Lsalle Property
Consultants 39 DTR 230
Provision for leave encashment BEML 245
ITR 428
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Losses for subsidiary companies
Dividend
Expenditure relatable to income U/s
10, 11 and 12
Depreciation
Impairment of asset – diminution of
asset
Amount of deferred tax if debited
Deductions
• Amount withdrawn from reserves
(added to profits earlier)
• Income U/s 10, 11 and 12
• Depreciation other than revaluation
• Loss or unabsorbed depreciation
which ever is less
• Profits U/s 80HHC/80HHE/80HHF
• Profit of Sick companies
• Amount of deferred tax if credited
• Income of SEZ
• Unabsorbed book depreciation of
amalgamating company is
deductable for computing book profit
of amalgamated company for MAT
Purpose.: Finolex Cables Ltd. Vs.
ACIT (TS-351-ITAT-2011) (Pune) - not
to be taken from 1-4-2013
Section 115JB – Charging
Section – Self Contained Code
• Charging Section
(i) to be construed strictly
(ii) not to taxed by implication
(iii) to be brought within ambit of
charging section with a clear words
used in the charging section
Tax to be imposed if obligation is cast
CWT Vs. Ellis Bridge Gymkhana SC 229
ITR 1
Practice is otherwise
Provisions not made – such as funded
interest – disputed tax – can not be
considered for computation of book
profits - Essorpe Mills Limited 265
ITR 637 – Madras HC – Profit to be
taken from the accounts prepared by
the assessee
•
Charging Section construed
strictly not machinery
section – rule subject to
rebuttal. - Machinery provisions
do not impose a charge or
extend or restrict a charge - CIT
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Vs. Sharvan Kumar Swarup
and Sons
115 JB self contained code Appollo Tyres Limited Vrs
CIT 255 ITR 273
Save otherwise other
provisions – apply –
normally to be taken for
machinery provisions and
not as charging section –
Practice is otherwise
CHAPTER XII-BA
SPECIAL PROVISIONS RELATING TO CERTAIN LIMITED LIABILITY
PARTNERSHIPS
Special provisions for payment of tax by certain limited liability partnerships.
115JC. (1) Notwithstanding anything contained in this Act, where the regular
income-tax payable for a previous year by a limited liability partnership is less
than the alternate minimum tax payable for such previous year, the adjusted
total income shall be deemed to be the total income of the limited liability
partnership for such previous year and it shall be liable to pay income-tax on
such total income at the rate of eighteen and one-half per cent.
(2) Adjusted total income referred to in sub-section (1) shall be the total income
before giving effect to this Chapter as increased by—
(i) deductions claimed, if any, under any section included in Chapter VI-A
under the heading “C.—Deductions in respect of certain incomes”; and
(ii) deduction claimed, if any, under section 10AA.
(3) Every limited liability partnership to which this section applies shall obtain
a report, in such form as may be prescribed, from an accountant certifying that
the adjusted total income and the alternate minimum tax have been computed
in accordance with the provisions of this Chapter and furnish such report on or
before the due date of filing of return under sub-section (1) of section 139.
CHAPTER XII-BA
Special provisions for payment of tax by certain persons other
than a company.
115JC. (1) Notwithstanding anything contained in this Act, where the
regular income-tax payable for a previous year by a person, other than
a company, is less than the alternate minimum tax payable for such
previous year, the adjusted total income shall be deemed to be the total
income of that person for such previous year and he shall be liable to
pay income-tax on such total income at the rate of eighteen and onehalf per cent.
(2) Adjusted total income referred to in sub-section (1) shall be the total
income before giving effect to this Chapter as increased by—
(i) deductions claimed, if any, under any section (other than section
80P) included in Chapter VI-A under the heading "C.—Deductions in
respect of certain incomes"; and
(ii) deduction claimed, if any, under section 10AA.
(3) Every person to whom this section applies shall obtain a report, in
such form as may be prescribed, from an accountant, certifying that the
adjusted total income and the alternate minimum tax have been
computed in accordance with the provisions of this Chapter and furnish
such report on or before the due date of furnishing of return of income
under sub-section (1) of section 139.
"FORM NO. 29C
[See rule 40BA]
Report under section 115JC of the Income-tax Act, 1961 for computing
adjusted total income and alternate minimum tax of the limited liability
partnership
1. I/We* have examined the accounts and records of . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .(name and address of the assessee with PAN)
engaged in business of. . . . . . . . . . . . . . . . . . . . . . . . (nature of business) in
order to arrive at the adjusted total income and the alternate minimum tax for
the year ended on the 31st March, . . . . . . . . . . . . . . . . .
2. (a) I/We* certify that the adjusted total income and the alternate
minimum tax has been computed in accordance with the provisions of Chapter
XII-BA of the Income tax Act. The tax payable under section 115JC of the
Income-tax Act in respect of the assessment year . . . . .. . is Rs.. . . . . . . . . . . . .
which has been determined on the basis of the details in Annexure A to this
Form.
3. In my/our * opinion and to the best of my/our* knowledge and according
to the explanations given to me/us* the particulars given in the Annexure A are
true and correct.
Date. . . . . . . . . . . . . . . . . . . .
Signed
†Accountant
ANNEXURE A
[See paragraph 2]
Details relating to the computation of Adjusted Total Income and Alternate
Minimum Tax for the purposes of section 115JC of the Income-tax Act, 1961
1. Name of the assessee
2. Address of assessee
3. Permanent Account Number
4. Assessment year
5. Total income of the assessee computed in the manner
laid down in the Income-tax Act before giving effect to
Chapter XIIBA of the Income-tax Act
6. Income-tax payable on total income referred to in Column 5 above
7. The amount of deduction claimed under any section included in Chapter VI-A
under the heading "C." - "Deductions in respect of certain incomes"
Sl. No.
Section under which
Amount of deduct ion
deduction Claimed
deduction claimed
8. The amount of deduction claimed under section 10AA
9. Adjusted total income of the assessee
(5+7 + 8)
10. Alternate Minimum Tax (18.5% of adjusted total income computed in column 9
above)"
DISPUTES
arisen
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Applying the principles of
Regular tax assessment and
disallow certain non-specified
additions such as donations
and expressly disallowable
expenditure as per IT Act.
Disregarding the principles of
accounting standards
Section 115JB – self contained
code – violating provisions and
adopted regular provisions even
though section begins with nonobstinate clause - Appollo Tyres
Limited Vrs CIT 255 ITR 273
Provisions not made – such as
funded interest – disputed tax – can
not considered for computation of
book profits - Essorpe Mills
Limited 265 ITR 637 – Madras HC
Bad interpretations
• Provision for bad debts – not
liability – reduction of asset
(Usha Martin Industries Limited
104 ITD 249) – Retrospective
amendment
• Provision for warranties - (Ibm
India Limited
105 ITD 1) Rotork Controls
India Private Limited v CIT (314
ITR62)
• Provision in respect of NPA
(Mukand Global Finance
Limited 117 ITD 20) &Steel
Authority of India Ltd v DCIT 76
ITD 69
• Any provision connected to the
assets – not to liabilities
• Basis of ascertainment
questioned
• Imposition of penal interest for
not paying advance tax
Provision for ascertained liability
Rotork Controls India P Ltd v CIT 314
ITR 62 SC Judgment - warranties
• Provision – to recognize
(a) an enterprise has a
present obligation as a
result of a past event;
(b) it is probable that an
outflow of resources will
be required to settle
obligation; and
c) a reliable estimate can
be made of amount of
obligation
Good Guidelines – to specify
ascertained liability and
claim deduction
• Good Judgment
giving credence to
Accounting
Standards and
claiming
deduction of
expenditure
Procedure in filing the Return of Income –
Rectification of Mistakes
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Applicable to all the
Companies unless regular
tax is more than 18.5 %
Book Profit
Certificate - Form 29B in
addition to the certificate
U/s 44AB
Pay the tax amount as
computation of income
Computation of book profit
as per Section 115JB
Get U/s 115JB less TDS
• Petition to rectify the
mistake apparent on
record – assessment
and appeal orders of
CIT (A) – U/s 154
• Petition to rectify and
to decide undecided
issue U/s 254 to
ITAT
• MPs to HC or SC
Provisions of Advance
Tax
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Based upon the principles of
accrual or receipt
To computed under the
provisions of Chapter
as per the Section 208 - as
computed in accordance
with the provisions of this
Chapter - CHAPTER XVII.
Against the Assessee –
Special Bench of ITAT Sutlaj Cotton Mills Ltd., vs.
ACIT (45 ITD 22) – other HC
such as MP, MAD and
Gauhati
•
Book profit to be computed
under the provisions of
Chapter based upon the
accounting standards not on
the principles of accrual or
receipt as per IT Act. –
Chapter XIIB
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Support of SC - 284 ITR 434 Dismissing SLP - against
Karnataka HC - Kwality Biscuits
Limited 243ITR519 – but
Ashima Syntex Ltd.(117 ITD
1)(ITAT SB) - in the case of
S.115J – SC Full Bench – Rolta
India -330 ITR 470 confirmed
levy
SET OFF THE MAT PAID
AGAINST REGULAR INCOME
TAX U/s 115 JAA /115JD
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MAT paid is eligible for setoff against the regular
income tax within 10 years
without interest
MAT credit in excess of
18.5% Book Profit
MAT credit to be treated at
par with the advance tax or
TDS paid
Previously set off was under
dispute
No interest at the time of set
off from the date of MAT
payment till the date of set
off
For LLPs – 115JD – 10years
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If regular income is not
there within 10 years from
payment of MAT; MAT is an
expenditure –S.37(1) or write
off to P & L A/c
Whether MAT is to be shown
as tax paid in advance or tax
for concerned year
Direct Tax Code – Similar
provision – may exit for set
off – enactment to be seen –
amendments to be
suggested in pre budget
meeting – if the provisions
otherwise
Retrospective
amendments
• MAT gets
increased due to
retrospective
amendments
• Tax and 234B and
234C gets
increased
• Tax is to be paid
• Penal interest
imposed 234B or
234C due to
retrospective
amendment; may
be waived by CCIT
• Penalty not to be
imposed – crime
cannot be created
retrospectively
FAVOURABLAE /
UNFAVOURABLE ORDERS
• SOME DISCUSSION TO
TAKE STEPS ORDERS
AGAINST
• Picture on discussion
Appeals to CIT (A)
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Appeal can be filed against the
assessment order of AO
In Form 35 – brief facts of the appeal
– grounds of appeal
Proof of payment of admitted tax or
proof of granting of installments and
abiding by it.
Questioning unnecessary additions
and restricting deductions – not
following Section 115 JB
Restricting the deductions basing
upon regular provisions of the Act.
Not following the accounting
standards as prescribed in
Companies Act.
Applying the provisions of Advance
Tax on basis of Circular of CBDT –
Circular can relax and can not
impose charge
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Admitting the appeal and
post the appeal for hearing.
Providing necessary
information – facts and law
May file an additional
ground – left CIT to admit
the same.
May file additional
information to CIT (A) – CIT
may call for remand report
from AO
May raise additional plea in
the course of appeal
proceedings
Involving Transfer price or
foreign company – DRP 144C
REVISION BY CIT U/s 263 or
264
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Revision of assessment –
suo moto – calling the record
examine the record – issue a
notice of revision
Assessment – be erroneous –
prejudicial interest of
revenue.
Revision be carried after
receiving the objections –
providing hearing.
Not taking different decision
against ITAT orders
Appeallable to ITAT
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The assessee can file
revision application to CIT
with in time limit against
any orders of AO
In the case of no appeal is
filed
Normally be disposed after
hearing.
Not appelable to ITAT
QUESTION OF
FACT AND LAW
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QUESTION
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OF FACT
• Collect the
necessary
document and
find out the
sequence of
operations taken
place
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QUESTION
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OF LAW
• Necessary case laws
on identical issues
• Appropriate
interpretation of law
if the same is first
time
DRAFTING THE APPEAL
PETITION – FACT AND LAW –
Suggested steps
DEFINE
The disputed
issue – to be
defined –
question of
fact or
question of
law or any
other
remissions /
concessions
required
Any document
or any legal
issue not
brought
Keep the
original and
take copies
IDENTIFY
Possibility of
Documentary
evidences
Collect data as
regards the
question of fact
Compare the
data and data
specified in the
orders
Establish
Critical
Success
Factors
Review data
and evidences
DESIGN
OPTIMIZE
Identify gaps
Question of Fact
& Law – arrange
the data and case
laws
Find solutions by
interpreting
Assess for
potential risks in
using the data by
OTHER PARTY
mistake proof
solutions
Discuss with the
concerned
Review the
placing the data
with legal issues
Identify and
communicate
Possible orders
Final risk
assessment
and final
mistake
proofing
Consultation
with the
management if
required
Start-up plan to
be developed
Review and
kept ready for
Sign
VERIFY
Do a pilot run if
it is possible
Verify the
placement of
data and
arguments
Do
improvements
as may be
necessary
Plan for longterm
monitoring
issue disputed
Review and get
Sign and file
the PEITION /
APPEAL
24
INCOME TAX APPELLATE
TRIBUNAL – REVENUE AND
APPELLANTS’ APPEALS
• Second appeal –
against the orders of
CIT (A)
• First appeal against
the revision orders of
CIT U/s 263
• Revenue appeal –
against the appeal
orders of CIT (A)
• There may be Cross
appeals by Appellant
and Revenue –
normally heard after
clubbing the both.
Appeal to High Court
– by the assessee
or by revenue – question of
law – wrong fact finding or
under writ jurisdiction and
Appeals to Supreme Court
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Third appeal – against the
orders of ITAT
Second appeal against ITAT
confirming the revision
orders of CIT U/s 263
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Stay powers either in the
enactment
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Revenue appeal – against
the appeal orders of ITAT
Orders of High Court on writ
jurisdiction
There may be Cross appeals
by Appellant and Revenue –
normally heard after
clubbing the both.
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Against the appeal orders
and writ directions - of High
Court if permitted
SLP if high Court not
permitted
SC after hearing admit the
SLP
If admitted normal
procedure of hearing the
appeal
Guidance from the
Institute
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Guidance Note on MAT –
on various issues
including Form 29B –
Form 29C
Guidance required in
respect of Provisions of
Advance Tax – on LLPs
Steps to be taken for MAT
set off against regular tax
in DTC – without time
limit at par with
unabsorbed depreciation
THANK YOU
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