T. N. Pandey
1. Section 115JB of the
Income-tax Act, 1961 provides for levy of Minimum Alternate Tax (MAT) in case of what are popularly referred to as Zero tax companies. Uptill the assessment year 2006-07, levy of MAT was governed by section 115JA of the Act. From the next year, section 115JA has been replaced by section 115JB. Briefly, section 115JB provides for levy of tax on the following basis.
2. If tax liability of a company (Indian or foreign) under the normal provisions is lower than 10 per cent surcharge education cess of ‘book profit’, then the provisions of section 115JB are attracted.
In such a circumstance, ‘book profit’ shall be deemed as total income and 10 per cent of such book profit is deemed as tax liability [10 per cent rate is applicable from the assessment year 2007-08. For the years 2001-02 to 2006-07, it was 7.5 per cent].
Every assessee, being a company, has to, for the purpose of section 115JB, 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.
Book profit (net profit) as per the profit and loss account prepared under the Companies Act, for levy of MAT, needs to be adjusted as per Explanation I to section 115JB of the Income-tax Act. This Explanation provides that the net profit as shown in profit and loss account prepared as per the Schedule VI of the Companies Act in accordance with the requirements of Parts II and III of the Schedule has to be adjusted by the increases and the decreases as given in the Explanation. The items of adjustments are :
(a) Positive (plus) adjustments
(i) Income-tax paid or payable and the provisions therefor.
(ii) Amounts carried to any reserves, by whatever name called.
(iii) Amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities.
(iv) Amount by way of provision for losses or subsidiary companies.
(v) Amount or amounts of dividends paid or proposed.
(vi) Amount of expenditure relatable to any exempt income (if such income is not subject to MAT).
(vii)(From the assessment year 2007-08), the amount of depreciation.
(viii) Amount of deferred tax and the provisions therefor.
(b) Negative (minus) adjustments
(ix) Amount withdrawn from reserves or provisions, if any, such amount is credited to the profit and loss account.
(x) Income exempt from tax.
(xi) Depreciation (other than because of revaluation of assets) debited to profit and loss account applicable from the assessment year 2007-08 onwards.
(xii) Amount withdrawn from revaluation reserve credited to profit and loss account to the extent it does not exceed the amount of depreciation on account of revaluation of assets [applicable from the assessment year 2007-08].
(xiii) Amount of loss brought forward or unabsorbed depreciation, whichever is less, as per books of account.
(xiv) Amount of profit eligible for deduction under sections 80HHC, 80HHE and 80HHF of the Income-tax Act.
(xv) Profit of sick industrial unit.
(xvi) The amount of deferred tax, if any, such amount is credited to the profit and loss account.
The cumulative effect of the additions and deductions is that book profit would be increased by the addition of items (i) to (viii) and reduced by items (ix) to (xvi) mentioned hereinbefore. It is on this adjusted figure that the MAT is to be levied.
3. Depreciation debited to profit and loss account shall be added back. However, depreciation (not being depreciation which arises because of revaluation of assets) shall be deducted. The cumulative impact of the addition and deduction is that book profit will be increased by depreciation (pertaining to revaluation of assets). Some relief is available if there is a withdrawal from the revaluation reserve account and it appears on the credit side of the profit and loss account.
4. The Assessing Officer while computing the income under section 115JB has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided hereinbefore. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account, except to the extent given in paras 2(a) and (b) earlier - Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562 (SC).
5.1 FACTS OF THE CASE - The assessee had filed a return of
income-tax claiming a loss of Rs. 1,04,16,643. In the profit & loss account, the assessee disclosed an income of Rs. 25,51,856. During the course of the scrutiny, it was discovered that the assessee had not charged depreciation to the profit and loss account but had disclosed the said fact in the notes appended to the accounts. The Assessing Officer disallowed the deduction claimed on account of current year depreciation amounting to Rs. 16,47,417 while calculating ‘book profit’ under section 115.
The matter was carried in appeal to the Commissioner (Appeals) and thereafter, by way of a further appeal, to the Tribunal. The Tribunal, vide order dated December 17, 2002 passed in Income-tax Appeal No. 2150 (Delhi) of 1996, remanded the matter to the Commissioner (Appeals). By virtue of the aforesaid order of remand, the Commissioner (Appeals) was directed by the Tribunal to decide the case afresh, in accordance with the judgment of the Supreme Court in the case of Surana Steels (P.) Ltd. v. Dy. CIT [1999] 237 ITR 777/104 Taxman 188. The Commissioner (Appeals) disallowed the claim of the assessee with regard to the deduction of depreciation for the current year while determining the ‘book profit’ under section 115J; on the ground that the depreciation for the current year had not been charged to the profit and loss Account. He, however, directed the Assessing Officer, to examine, the past record of the assessee with respect to the assessment year 1983-84 so as to determine whether the amount of Rs. 4,69,440 which the assessee claimed, was duly charged to the profit and loss account and included in the brought forward unabsorbed depreciation; and if, found to be correct, to deduct the said amount from ‘book profit’. The Commissioner (Appeals), accordingly, partly allowed the appeal of the assessee.
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