Minimum Alternate Tax on companies [Section 115JB] under Assessment of Companies – Income Tax

Minimum Alternate Tax on companies [Section 115JB] under Assessment of Companies :

As per section 115JB(1), in case of company (domestic or foreign), if the income-tax payable on the total income computed under the Income-tax Act, 1961 is less than 18.5% of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of 18.5% (add surcharge, if applicable, i.e., 7% for domestic companies and 2% for foreign companies, where the total income exceeds Rs 1 crore but does not exceed Rs 10 crore, and 12% for domestic companies and 5% for foreign companies where the total income exceeds Rs 10 crore). Further, education cess @2% and secondary and higher education cess@1% shall be added on the aggregate of income-tax and surcharge

As per section 115JB(2), prior to amendment by the Finance Act, 2012, every company was required to prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. However, as per the proviso to section 211(2) of the Companies Act, 19564, certain companies like insurance companies, banking companies, companies engaged in generation or supply of electricity etc., are allowed to prepare their profit and loss account in accordance with the form specified in or under the Act governing such class of company.

In order to align section 115JB(2) with the proviso to section 211(2) of the Companies Act, 1956, sub-section (2) of section 115JB has been substituted w.e.f. A.Y.2013-14 to require such companies to prepare their profit and loss account for the relevant previous year in accordance with the provisions of the Act governing such company. Companies, other than companies referred to in the proviso to section 211(2) of the Companies Act, 1956, shall continue to prepare their profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act, 19565.

For computing the book profit, the net profit shall be increased by the following amounts if debited to the profit and loss account:

(a) income-tax paid or payable, and the provision therefor; or [It may be noted that income-tax includes –

(1) dividend distribution tax / tax on distributed income;

(2) interest;

(3) surcharge;

(4) education cess; and

(5) secondary and higher education cess]

(b) amount carried to any reserves, by whatever name called, other than any amount transferred to Special Reserve under section 33AC; or

(d) amount of provision for losses of subsidiary companies; or

(e) amount of dividends paid or proposed; or

(f) amount of expenditure relatable to any income to which section 10 [other than section 10(38)] or 11 or 12 apply; or

(fa) amount of expenditure relatable to income, being share of the assessee in the income of an AOP or BOI, on which no income-tax is payable in accordance with the provisions of section 86; or

(fb) the amount or amounts of expenditure relatable to income accruing or arising to an assessee, 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 the income-tax payable thereon in accordance with the provisions of the Act, other than the provisions of this Chapter, is at a rate less than 18.5%; or

(fc) 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 or the amount representing notional loss resulting from any change in carrying amount of said units or the amount of loss on transfer of such units; or

(g) the amount of depreciation; or

(h) the amount of deferred tax and provision therefor ; or

(i) the amount set aside as provision for diminution in the value of any asset.

Further, the net profit shall also be increased by the amount standing in revaluation reserve relating to the revalued asset on the retirement or disposal of such asset, in case the same is not credited to the profit and loss account.

Also, when units of business trust are actually transferred, the amount of gain on such transfer has to be added to compute the book profit, since notional gains on transfer of share of a special purpose vehicle to a business trust in exchange for the units of the business trust and notional gains resulting from change in carrying amount of such units have been deducted earlier to compute book profit. The amount of gain has to be computed by taking into consideration the cost of shares exchanged with the units of the business trust, in a case where the shares are carried at cost. In a case where the shares are carried at a value other than the cost through profit and loss account, the carrying amount of shares at the time of exchange would be taken into consideration for computing the amount of gain. The amount of gain on such transfer, if any, credited to profit and loss account will be reduced.

The net profit shall be reduced by the following amounts:

(i) amount withdrawn from any reserve or provision, if any, such amount is credited to the profit and loss account.

However, the amount withdrawn from reserves/provisions shall not be reduced from the book profit unless the book profit of that year has been increased by those reserves/ provisions;

(ii) amount of income to which section 10 [other than section 10(38)] or 11 or 12 apply, if such amount is credited to the profit and loss amount;

(iia) the amount of depreciation debited to the profit and loss account (excluding the claim of depreciation on account of revaluation of assets);

(iib) the amount withdrawn from the revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on revaluation of assets;

(iic) the amount of income, being the share of the assessee in the income of an AOP or BOI, on which no income-tax is payable in accordance with the provisions of section 86, if any such amount is credited to the profit and loss account; or

(iid) the amount of income accruing or arising to an assessee, 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 profit and loss account and the income-taxpayable thereon in accordance with the provisions of the Income-tax Act, 1961,
other than the provisions of Chapter XII-B, is at a rate less than 18.5%; or

(iie) the amount representing –

(A) the notional gain on transfer of a capital asset, being a share of a SPV to a business trust in exchange of units allotted by the business trust;

(B) notional gain resulting from any change in carrying amount of said units; or

if any, credited to profit and loss account;

(iif) the amount of loss on transfer of units acquired in exchange of shares of SPV computed by taking into account the cost of the shares exchanged with the units, where the shares are carried at cost. In case shares are carried at a value other than cost through profit and loss account, the amount of loss on transfer of such units has to be computed by taking into account the carrying amount of the shares at the time of exchange;

(iii) amount of brought forward loss or unabsorbed depreciation, whichever is less as per books of account. The loss shall not include depreciation; If either the figure of brought forward loss or unabsorbed depreciation is “NIL”, no deduction will be allowed from the book profit of the relevant year;

(vii) amount of profits of a sick industrial company (BIFR company) commencing from the previous year in which the company became sick and ending with the assessment year during which the entire net worth becomes positive. For this purpose, “net worth” shall have the same meaning as assigned under section 3(1 (ga) of the Sick Industrial Companies (Special Provisions) Act, 1985.

(viii) the amount of deferred tax, if any such amount is credited to the profit and loss account. The section also specifies that the profit and loss account for the relevant previous year has to be computed in accordance with Parts II of Schedule VI to the Companies Act, 1956. Further, while preparing the annual accounts,-

(i) the accounting policies,

(ii) the accounting standards followed for preparing such accounts,

(iii) the method and rates for calculating depreciation

shall be the same as have been adopted for the purpose of preparing such accounts and laid before the company at its annual general meeting.

Where the financial year adopted by the company under the Companies Act, 1956 6is different from the previous year under the Income-tax Act, 1961, the accounting policies, etc. adopted shall correspond to the accounting policies followed for preparing such accounts for the financial year.

The section also provides that every company to which this section applies shall furnish, along with the return of income filed under section 139(1) or in response to a notice under section 142(1)(i), a report from a chartered accountant certifying that the book profit has been computed in accordance with the provisions of this section.

It is also provided that in respect of the relevant previous year, the amounts determined under the provisions of section 32(2) or section 72(1)(ii) or section 73 or section 74 or section 74A(3), shall be allowed to be carried forward.

Also, it has been provided that any income accruing or arising to a company from life insurance business referred to in section 115B would not be subject to MAT. [Sub-section (5A) of section 115JB]

Set-off of credit of tax paid under section 115JB [Section 115JAA]

(1) This section provides that where tax is paid in any assessment year in relation to the deemed income under section 115JB(1), the excess of tax so paid over and above the tax payable under the other provisions of the Income-tax Act, 1961, will be allowed as tax credit in the subsequent years.

(2) The tax credit is, therefore, the difference between the tax paid under section 115JB(1) and the tax payable on the total income computed in accordance with the other provisions of the Act.

(3) The tax credit shall be allowed to be set off in a year in which tax becomes payable on the total income computed in accordance with provisions of the Act other than section 115JB.

(4) This tax credit is allowed to be carried forward for 10 assessment years succeeding the assessment year in which the credit became allowable.

(5) Such credit is allowed to be set off against the tax payable on the total income in an assessment year in which the tax is computed in accordance with the provisions of the Act, other than 115JB, to the extent of excess of such tax payable over the tax payable on book profits in that year.

(6) In case of conversion of a private company or unlisted public company into an LLP, the tax credit under section 115JAA for MAT paid by the company under section 115JB would not be allowed to the successor LLP.

Illustration

A.Y.	Normal tax liability	Tax liability u/s. 115JB	Tax payable by the assessee [Higher of (2) and (3)]	Additional tax liability (4) – (2)	Credit u/s. 115JAA utilised	Credit available for carry forward
(1)	(2)	(3)	(4)	(5)	(6)	(7)
2007-08	100	300	300	200	–	200
2008-09	120	90	120	NIL	30#	170
2009-10	150	110	150	NIL	40	130
2010-11	180	200	200	20	–	150
2011-12	200	190	200	NIL	10	140
2012-13	300	280	300	NIL	20	120
2013-14	250	230	250	NIL	20	100
2014-15	225	175	225	NIL	50	50
2015-16	250	240	250	NIL	10	40
2016-17	275	270	275	NIL	5	35
2017-18	300	295	300	NIL	5	30*

# Even though credit of 200 is available, only 30 can be utilised so that the tax payable by the assessee does not go below the amount computed under section 115JB

* out of the credit of 30, 10 relates to A.Y. 2007-08 and 20 relates to A.Y. 2010-11. In view of provisions of sub-section (3A) of section 115JAA, the credit of 10 will not be allowable after A.Y. 2017-18 and would accordingly lapse. However, credit of 20 pertaining to A.Y. 2010-11 would be allowed to be carried forward till A.Y. 2020-21.

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