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2017-05-22
Introduction: MAT provisions u/s. 115JB (earlier, these provisions were part of section 115J) is a self-contained code of assessment. It requires that every company shall pay tax on its book profits arrived by preparing its accounts as per Schedule III to Companies Act 2013 (Part II of Schedule VI to Companies Act 1956 earlier), subject to adjustments as provided under Explanation 1 thereunder, if its total income computed under normal provisions is less than 18.5% of book profits.
In this Taxsutra Database insight, the Editorial team briefly surveys recent events that could impact MAT and presents a compilation of some landmark rulings on this section alongwith selected recent rulings impacting computation of book profits under MAT provisions.
Some Recent Developments
Ind AS and MAT:The CBDT was seized of the problems that could arise in computing book profit for Ind AS compliant companies, and hence appointed a Committee to suggest a framework for computation of book profit for the purposes of levy of MAT for Ind AS compliant companies. The Finance Act 2017 has thereafter introduced changes based on recommendations of thisCommittee.The main features of this proposed framework are divided into 3 broad buckets: (i) MAT on Ind AS compliant financial statements, (ii) MAT on first time adoption , and (iii) Reference year for first time adoption adjustments.
ICDS and MAT: Further challenge to MAT computation arose with introduction of the ICDS. While the CBDT has clarified that ICDS will not apply to MAT computation, it may be noticed that there may an imbalance or mismatch in taxability of certain items arising due to this differential treatment arising especially due to timing of recognition of income of losses. An example for such a mismatch may arise for construction contractors bound to follow ICDS III which provides that foreseeable or expected losses are not allowed as a deduction and hence tax would be payable as per normal provisions in that year; while in subsequent year, such a loss would not be recognised under MAT computation which will lead to higher tax under the MAT provisions.
Landmark Rulings on MAT provisions u/s. 115JB
|
Sr. No. |
Case Law |
Conclusion in the Ruling |
| 1 |
[TS-3-SC-2002-O], [TS-53-SC-2008-O] AO cannot question audited financial statements |
AO has only power of examining whether books of account are certified by authorities under Companies Act as having been properly maintained in accordance with Companies Act and thereafter, he has limited power of making additions and reductions as provided for in Explanation to said section…read more |
| 2 |
Applicability of Sec.115JB to foreign company |
Sec. 115JB is not designed to be applicable to a foreign company having no presence or PE in India - AAR rules in favour of applicant; Holds that “The income, which does not have a source in India, cannot be made a part of the book profits.”...read more |
| 3 |
Interest u/s 234B and 234C under MAT provisions |
Interest u/ss.234B and 234C shall be payable on failure to pay advance tax in respect of tax payable under MAT provisions - SC rules in favour of Revenue ….read more |
| 4 |
MAT provisions and doctrine of mutuality |
Interest from investments, dividend and profit on sale of investments fall within parameters of doctrine of mutuality, hence not taxable; Once the income is found to be covered by principle of mutuality, it cannot be brought to tax even under s.115JB ….read more |
| 5 |
MAT credit |
Right of MAT credit gets crystallized as soon as tax ispaid under MAT; MAT Credit is to be taken into account in computing advance tax payable - SC rules in favour of assessee; Holds that interest u/s.234B is to be computed on shortfall of taxes paid after considering MAT credit …. read more |
| 6 |
Special Deductions vis-à-vis MAT provisions |
Sec. 42 cannot override provisions of s.115JA; S.115JA is applicable even to an assessee covered under special provisions of s.42 - AAR rules in favour of Revenue; Holds that deduction of expenditure u/s.42 is allowable only when business income is computed under Chapter IV-D; …. read more |
| 7 |
Provision for doubtful debts -Treatment u/s.115JB vs. Treatment in books |
“Provision for doubtful debts" debited to P&L account shall remain as "provision" even if it is reduced from the "Sundry debtors A/c" on the Balance Sheet asset side,since the books are prepared u/s.115JB in accordance with Schedule VI of Companies Act 1956 - ITAT upholds validity of revision order u/s 263 … read more |
| 8 |
[TS-5865-ITAT-2011(Bangalore)-O] Sec. 115JB for companies having both STP & non-STP units |
Aggregate of profits/losses of both STP and non-STP units, and not just non-STP units, is to be taken into consideration while computing book profit u/s.115JB; amount as per books of account, and not amount as per Income-tax Act records, to be reckoned for reducing lower of loss brought forward or unabsorbed depreciation from book profit … read more |
| 9 |
Export profits u/s 80HHC |
SC: 100% export profits deductible while calculatingbook profits u/s.115JB as against deductible export profits u/s.80HHC - If dichotomy between "eligibility" and "deductibility" of profit is not kept in mind,s.115JB will cease to be a self-contained code. ...read more |
| 10 |
[TS-5941-ITAT-2010(HYDERABAD)-O] Treatment of capital gains under MAT provisions |
Capital gains credited to the P&L account includible while computing book profits notwithstanding the fact that it is exempted under the normal provisions of the Income tax Act on account of investment of capital gains in an approved mode...read more |
| 11 |
Eligibility of surcharge and education cess for MAT credit |
ITAT - Surcharge and education cess not eligible for MAT credit u/s.115JAA; 'Tax' u/s.2(43) does not include surcharge and education cess… read more |
| 12 |
Concealment penalty for claim of excess unabsorbed depreciation u/s 115JB |
Rejects 'No loss carry-back' proposition to justify incorrect MAT working, upholds penalty - Mumbai ITAT upholds penalty levy u/s.271(1)(c) for assessee’s excessive claim of unabsorbed depreciation in terms of Explanation to s.115JB ...read more |
Latest Rulings on MAT provisions u/s.115JB
