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https://taxguru.in/income-tax/minimum-alternate-tax-mat-115jb-income-tax-act-1961.html
CA Rockey
Introduction:-
Law makers observed that there is many companies which are disclosing massive profit in the accounts as laid in
the Annual General Meeting (AGM) before the shareholder but at the same time these companies also showing
profit nil or bit above nil for the income tax purpose. Variance between profits as per the Companies Act and as
per Income Tax Act was due to many dissimilar allowance of disallowance in the both Acts e.g. difference in
method and rate of depreciation provided in both Acts.
To put an end on this trend and bring these kind of companies under the tax net, law maker framed concept of
MAT, according to this concept corporate entity has to pay minimum tax. The concept of MAT is govern by the
provisions contains in section 115JB of Income Tax Act, 1961.
Page Contents
Applicability of MAT:-
Analysis of provision of section 115JB:-
Meaning of Book Profit:-
Meaning of profit & loss account for the purpose of book profit:-
Analysis of prescribed additions and deletion to the net profit as shown in the profit & loss account:-
MAT Credit: –
Applicability of other provisions of Income tax Act:-
Furnishing of the Report:-
Applicability of MAT:-
MAT is applicable to all companies including the foreign companies.
In the simple words every company has to compute its income tax liability as per two sets of provisions. The set
of provisions which results in higher income tax liability become the income tax payable. Followings are the two
set of provisions:
1). Income tax computed as per normal provisions of income tax act.
2). Income tax computed as per provision of section 115JB of income tax act.
In simple words to compute book profit, we have to take profit & loss account and make some prescribed
additions and deletions to it.
Before going to analysis prescribed additions and deletions, we must understand the meaning of “Profit & Loss
Account”.
Meaning of profit & loss account for the purpose of book profit:-
As per sub-section (2) of section 115JB:-
1). Assessee being a company on which the proviso to sub-section (1) of section 129 of the companies act, 2013
is applicable, shall for the purpose of section 115JB, prepare profit & loss account for the relevant previous year
in accordance with the provisions of Act governing such company. (However, proviso to sub-section (1) of
section 129 of the companies act, 2013 is applicable on Electricity, Insurance & Banking companies, these
company is required to follows the provisions of governing laws for the purpose of making profit & loss
account.)
2). Assessee being a company other than a company refer above in (1), shall, for the purpose of section 115JB,
prepare the profit & loss account in accordance with provision of schedule-III to the Companies Act, 2013.
While preparing the profit & loss account for the purpose of book profit and for the purpose of laying accounts
before the company at its AGM, following shall be same:-
Additions to net profit: Where followings amount debited to profit & loss account:-
1. Amount carried to any reserves by whatever name called (other than reserves relating to shipping business
created under Section 33AC)
5. Balance in revaluation reserve relating to revalued asset on the retirement or disposal of such asset.
7. Amount of Income tax paid, payable or provision thereof; However, Income tax penalty or its interest, Tax
including Wealth tax penalty or its interest, Penalties under other laws need not be added back
9. The amount or amounts of expenditure relatable to, income, being share of the taxpayer in the income of an
association of persons or body of individuals, on which no income-tax is payable in accordance with the
provisions of section 86.
10. The amount or amounts of expenditure relatable to income accruing or arising to a taxpayer being a foreign
company, from :
the rate or rates specified in Chapter XII if the income-tax payable on above income is less than the rate of
MAT
11. The amount representing notional loss on transfer of a capital asset, being share or a special purpose vehicle
to a business trust in exchange of units allotted by that trust referred to in clause (xvii) of section 47 or the
amount representing notional loss resulting from any change in carrying amount of said units or the amount of
loss on transfer of units referred to in clause (xvii) of section 47
12. Expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section
115BBF
13. Amounts set aside as provision for diminution in the value of assets; Example: Provision for bad debts to be
added
14. Amounts set aside to provisions made for meeting unascertained liabilities, However, provisions made on
scientific basis are not to added back for Example: Provision for encashment of leave (SC Judgment: BHARAT
EARTH MOVERS)
15. The amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such an
asset if not credited to statement of profit and loss
16. The amount of gain on transfer of units referred to in clause (xvii) of section 47 computed by taking into
account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the
shares at the time of exchange where such shares are carried at a value other than the cost through statement of
profit and loss as the case may be;
3. The amount of loss brought forward or unabsorbed depreciation whichever is less as per books of account.
Note: Loss and unabsorbed depreciation to be considered in the books as at the commencement of the year
5. Any amount withdrawn from the revaluation reserve and credited to P&L A/c, to the extent it does not exceed
the amount of depreciation on account of revaluation of assets
8. The amount of income, being the share of the taxpayer in the income of an association of persons or body of
individuals, on which no income-tax is payable in accordance with the provisions of section 86, if any such
amount is credited to the statement of profit and loss
9. The amount of income accruing or arising to a taxpayer being a foreign company, from :
(a) the capital gains arising on transactions in securities; or
(b) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII
if such income is credited to the statement of profit and loss and the income-tax payable on above income is less
than the rate of MAT.
10. The amount (if any, credited to the statement of profit and loss) representing
(a) notional gain on transfer of a capital asset, being share of a special purpose vehicle to a business trust in
exchange of units allotted by that trust referred to in clause (xvii) of section 47; or
(b) notional gain resulting from any change in carrying amount of said units; or
11. The amount representing notional gain on transfer of units referred to in clause (xvii) of section 47 computed
by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying
amount of the shares at the time of exchange where such shares are carried at a value other than the cost through
statement of profit and loss, as the case may be;
11. Income by way of royalty in respect of patent chargeable to tax under section 115BBF Aggregate amount of
unabsorbed depreciation and loss brought forward in case of:
a) A company and its subsidiary and the subsidiary of such subsidiary, where, the Tribunal, on an application
moved by the Central Government under Section 241 of the Companies Act, 2013 has suspended the Board of
Directors of such company and has appointed new directors who are nominated by the Central Government
under Section 242 of the said Act;
A company against whom an application for corporate insolvency resolution process has been admitted by the
Adjudicating Authority under Section 7 or Section 9 or Section 10 of the Insolvency and Bankruptcy Code,
2016
MAT Credit: –
When any amount of tax is paid as MAT by an assessee being a company, then, credit in respect of tax so paid
shall be allowed to him in accordance with the provision of section 115JAA.
1). Allowable Tax Credit = Difference of MAT paid and income tax payable under normal provision of Income
tax Act, 1961.
2). Such tax credit shall be carry forward for 15 assessment year immediately succeeding the assessment year in
which such credit is become allowable.
3). Tax credit shall be allowed set off in a year when tax becomes payable on the total income in accordance
with the normal provisions of the Act.
4). Set off shall be allowed to the extent of difference between tax on the total income (under normal provision)
and tax which would have been payable u/s 115JB for that assessment year.
Therefore the company to which MAT applies shall be liable to pay Advance Tax, interest u/s 234A, 234B &
234C. The company shall also be liable to pay penalty for concealment of income.