Computation of book profits would be calculated as under a stepi. 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. Explanation 2 of section 115jb only define the meaning of tax. As per the assessing officer, the said land being located in rural area though does not form the part of the capital asset within the meaning of section 214iii of the act, at the same time, while computing book profits u s 115jb of the act, gain so derived on sale of agriculture land cannot be excluded while computing the book profits. The above explanation 1 clarifies that explanation 2 to section 115jb was inserted to define the meaning of tax which of course includes education tax and surcharge for the purpose of calculating book profits liable to tax u s 115jb and it cannot be extended to sections 115jb or section 115jaa of the act. Tribunals ruling the tribunal has explained its position through the following illustration. The said return was accompanied by statutory audit report claiming deduction under section 80hhc of the incometax act, 1961 for short, the 1961 act.
As regard the decision of the honble apex court in the case of apollo tyres as relied upon the ld. Hc to examine exclusion of jv profits while computing book profits u s. Minimum alternate tax or mat does not mean that all the companies are not. A question arises whether the amounts, which can be added or reduced from the book profit as prescribed in section 115j, 115ja and section 115jb are exhaustive or illustrative. Let us look at the definition and some of the most prominent traits of this tax. The mat provisions begin with a nonobstante clause, and thus, are a sacrosanct and selfcontained code.
Calculation of book profits for the purpose of mat. The minimum alternate tax mat on companies challenges and way forward 09. It is the net profit shown in the profit and loss account for the previous year in question and as increased and decreased by certain items. Book profit under section 115jb the purpose of computing. The term book profit has been defined in the respective sections. Book profit a gain on an investment that has not yet been realized. Now after the insertion of minimum alternate tax provisions companies have to pay a particular amount of tax termed as mat, so they come under the tax net under section 115jb. To compute book profit, on should take profit and loss account and make additions and deletions. As per explanation 1 to section 115jb2 book profit for the. While computing the book profits under section 115 jb of the 1961 act, the assessee claimed reduction, under clause iv of explanation to section 115jb, of 100% export profits. Whether penalty under section 2711c of the act can be levied in a case where tax has been paid by the assessee under section 115jb of the act and amount of tax payable as book profit is the same even as per order of assessment, with reference to variation in the amount of loss or income determined as per normal provisions of the incometax act. Apr 20, 2016 this books profit meaning is provided in explanation 1 of subsection 2 of section 115jb. Explanation 2 of section 115jb only define the meaning of. Whether unabsorbed depreciation includes unabsorbed.
Minimum alternate tax mat us 115jb of income tax act, 1961. That is, book profit occurs when the current price of a security is higher than the price the holder paid for it, but the holder still owns the security. As per explanation 1 to section 115jb2 book profit for the purposes of section 115jb means net profit as shown in the statement of profit. Calculation of book profits for the purpose of mat section. Dec 04, 2015 where in case of a company, the income tax payable on the total income as computed under the income tax act in respect of any previous year is less than 18. Understanding the concept of liability to pay minimum alternate taxmat and alternate minimum tax amt and various provisions like book profit, dividends paid or proposed, depreciation, deferred tax, income of foreign company, etc. Section 115jb of income tax act, 1961after budget 2016. Investments which did not yielded exempt income, are to be considered in calculating disallowance us 14a read with rule 8diii. Section 115jb, incometax act, 1961 2015 7special provision for payment of tax by certain companies.
The procedure for the computation of book profit as per. The return of income was taken up for assessment which was completed u s. As a result, there is the possibility that the book profit might be erased if the price goes back down. Minimum alternate tax mat check credits, calculation with. The issue of whether disallowance under section 14a of the act, would impact the profits computed us 115jb is a litigative issue altogether. Conundrum on brought forward loss treatment under mat taxsutra. Based on the matching principle of accountancy, only expenses debited to the profit and loss account that had direct and proximate nexus with the exempt income credited to the profit and loss account should have been added back while computing book profit. As per section 115jb, every taxpayer being a company is liable to pay mat, if the incometax including surcharge and cess payable on the total income, computed as per the provisions of the incometax act in respect of any year is less than 18. Where in case of a company, the income tax payable on the total income as computed under the income tax act in respect of any previous year is less than 18. The minimum alternate tax mat on companies challenges and. As a result the final assessed income was in terms of the provisions of section 115jb of the act. May 21, 2012 book profit simply means profit as computed in accordance with the provisions but before remuneration paid to partner. Meaning of book profit as per explanation 1 to section 115jb2 book profit for the purposes of section 115jb means net profit as shown in the statement of profit and loss prepared in accordance with schedule iii to the companies act, 20 as increased and decreased by certain items prescribed in this regard. Book profit us 115jb to be reduced by exempted capital gain.
For the purpose of book profit, an assessee being a company for which the proviso to subsection 2 of section 211 of the companies act, 1956 applies, shall prepare a profit and loss account for the concerned previous year as per the provisions of act for the purpose of section 115jb. Whether unabsorbed depreciation includes unabsorbed amortisationbot cases posted on august 15, 2015 brought forward depreciation for the purpose of section 115jb of income tax act, 1961 in case of build, operate and transfer bot projects whether includes amortisation of. Assumption of jurisdiction us 147 cannot be sustained. Minimum alternate tax mat in the case of companies, if tax payable on its total income as computed under the i. Special bench puts an end to the controversy of applicability. Jul 06, 2017 therefore, even clause f of explanation to section 115jb which refers to those amounts which are debited to the profit and loss account, alone can be added to the book profit, cannot apply. Oct 10, 2009 should be followed while preparing pl ac for the purpose of computing book profit us 115 jb thus it is clear that under mat provisions ao normally takes the net profit as computed by the assessee and then makes the adjustments us 115jb. Further the sales tax subsidy received by the assessee is a capital receipt and does not come within the definition of income under section 224 of the i. Minimum alternate tax mat section 115jb income tax. Since the book profit as per the audited balance sheet, profit and loss account of the assessee company was more, therefore, the tax liability was determined by assessee u s 115jb of the act and computed book profit u s 115jb of rs.
Income tax computed as per provision of section 115jb of income tax act. Jul 29, 2016 conundrum on brought forward loss treatment under mat. Book profit means the net profit as shown in the profit and loss account, as increased by the amount of incometax paid or payable, and the provision therefor. Additions made while determining book profit us 115jb are. As per section 115jb of the income tax act, if for any previous year for a company the tax payable on the total income as calculated on the basis of the income tax act, falls below 18. This books profit meaning is provided in explanation 1 of subsection 2 of section 115jb. Step 2 adjustment to net profit to convert it into book profit which are given under explanation 1 to section 115jb2. This explanation provides that book profit is nothing but is calculated after making some adjustments in the net profit as per the profit and loss account of the company. Special bench puts an end to the controversy of applicability of s.
Mat is calculated under section 115jb of the incometax act. Similarly for computing book profits u s 115jb of the act, the ao added rs. Central board of direct taxes cbdt constituted mat ind as committee to suggest framework for computation of book profit for purposes of levy of minimum alternate tax mat under section 115jb of the incometax act, 1961 for indian accounting standards ind as compliant companies in the year of adoption and thereafter. Under the provisions of the minimum alternate tax act, as per section 115jb, every company domestic or foreign is required to. In other words, the mat provisions in section 115jb create a deeming fiction, which deems book profit as the total income of a company for determining its tax liability. Section 115jb, section 80hhc1b of income tax act, 1961. For computation of book profit, one may proceed as follows. Only ascertained liability and not mere provision, is. The book profit is defined under explanation 1 below subsection 2 of section 115jb. Actual tax payable, tax credit available us 115jaa, tax credit set off.
Cbdt issues faqs on computation of book profit for. Aug 15, 2015 brought forward depreciation for the purpose of section 115jb of income tax act, 1961 in case of build, operate and transfer bot projects whether includes amortisation of project expenditure. Tax laws allowed various incentives and deductions from profits like deduction us 80ia, 80ib. Minimum alternate tax mat is a tax payable by companies and falls under the indirect tax category. Act, 1961 and when a receipt is not a in the nature of income, it cannot form part of book profit u s 115jb of the i. Gupta 5 the book profit shall mean the net profit as. Ltd on the controversial issue whether the disallowance u s 14a and rule 8d is required to be adjusted while computing the book profits u s 115jb and explained its nuances in the light of the judgement of the bombay high court in cit vs. Act, 1961 in respect of any previous years, is less than 18. Book profit simply means profit as computed in accordance with the provisions but before remuneration paid to partner.
Calculation of book profits for the purpose of matmaximum alternate tax section 115jb for computation of book profit, one may proceed as follows. Profit which has been made but not yet realized through a transaction, such as a stock which has risen in value but is still being held. Compute tax liability under section 115jb for the assessment year 201819. Capital receipt waiver of loan not chargeable to tax u. The matter referred before the third member is whether provision made by the assessee for bad debts is to be added to the book profit to the extent it contains unascertained liability. The profit and loss account prepared in accordance with regulatory act governing such companies, would be taken as basis for computing book profit under section 115jb. Based on the matching principle of accountancy, only expenses debited to the profit and loss account that had direct and proximate nexus with the exempt income credited to the profit and loss account should have been added back while computing book profit under mat provisions. Nov 28, 2007 29 november 2007 for the purposes of section 115jb, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under subsection 2, as increased by a the amount of incometax paid or payable, and the provision therefor. Calculation of book profits for the purpose of mat section 115jb. However, by virtue of an amendment made retrospectively by the finance act 2002 with effect from 01042001, where the income tax payable on the total income is less than 7.
Cbdt issues faqs on computation of book profit for levy of. For the companies minimum alternate tax mat would be applicable u s. Profit as per profit and loss account in the current year. Minimum alternate tax and alternate minimum tax 115jb and. For the purposes of this section, book profit means the profit as shown in the statement of profit and loss for the relevant previous year prepared under. Mat minimum alternative tax is presently governed by section 115jb of income. Book profit is defined in section 115jb of the act. Amount of expenditure incurred in relation to exempt income us 10,11. Minimum alternate taxsection 115jbhow to compute arthikdisha. May 07, 2016 central board of direct taxes cbdt constituted mat ind as committee to suggest framework for computation of book profit for purposes of levy of minimum alternate tax mat under section 115jb of the incometax act, 1961 for indian accounting standards ind as compliant companies in the year of adoption and thereafter. Mat is calculated as 15% of the book profit of the tax assesse. Minimum alternate tax mat and alternate minimum tax amt.
Mat provisions require book profit to be adjusted against lower of brought forward unabsorbed loss and unabsorbed depreciation and not merely restrict the amount setoff to the lower number august 21, 2018 in brief in a recent ruling1 of the ahmedabad bench of the incometax appellate tribunal tribunal, an issue. The assesseecompany is engaged in the business of purchase and distribution of electric power. So while calculating book profit under explanation 1 to section 115jb 1, the agricultural income falling u s. Iwe have examined the accounts and records of name. This tax is computed using a separate charging section altogether. It requires that every company shall pay tax on its book profits arrived by preparing its accounts as per schedule iii to companies act 20 part ii of schedule vi to companies act 1956 earlier, subject to adjustments as provided under explanation 1 thereunder. The above explanation 1 clarifies that explanation 2 to section 115jb was inserted to define the meaning of tax which of course includes education tax and surcharge for the purpose of calculating book profits liable to tax us 115jb and it cannot be extended to sections 115jb or section 115jaa of the act. Minimum alternate tax part iii computation of book profits. Step 1 find out net profit before other comprehensive income oci as per statement of profit and loss of the company. Apr 20, 2019 now after the insertion of minimum alternate tax provisions companies have to pay a particular amount of tax termed as mat, so they come under the tax net under section 115jb.
Calculation of mat credit applicability of minimum alternate tax. Then, the tribunal referred to the order passed in the case of essar teleholdings ltd. The manner of computation of mat has been prescribed in section 115jb. Read choose from paytm first vs ola money credit card. Minimum alternate tax and alternate minimum tax 115jb and 115jc. Minimum alternate tax mat u s 115jb of income tax act, 1961. As per section 115jb 2, book profit means net profit in the statement of profit.
Provisions of income tax act, 1961 tax on book profits i. Mat provisions require book profit off to the lower number. Conundrum on brought forward loss treatment under mat. Meaning of mat minimum alternate tax is the minimum tax payable by any company.
In such cases book profits is required to be computed strictly in accordance to the provisions of section 115jb. Book profit the cumulative book income plus any gain or loss on disposition of assets. Minimum alternate tax mat us 115jb of income tax act. Aug 20, 2015 book profit u s 115jb to be reduced by exempted capital gain q. Capital receipts and book profits mat no longer a self. Capital reserve created on amalgamation, not revaluation reserve. Transition amount means the amount or aggregate of the amount adjusted in other.
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