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9. [Section 115JB] Meaning & Concept-Corporate Tax ,Indian Companies & Foreign Cos., Minimum Alternative Tax (MAT)

 

9.1.      INTRODUCTION


The MAT was introduced for the first time in the AY 1988-89. It was felt that due to various concession provided in Tax Laws big corporate groups become zero tax companies. Therefore to counter this, a system of MAT was introduced.


Why there is a difference between two profits i.e. Regular profit and Book Profit.


1. Regular profit is the profit computed by applying the provisions of Tax laws. Whereas Book Profit is computed on the basis of Schedule VI of the Companies Act, 1956.


2. Rate of depreciation is different in tax law and Companies Act.


3. In tax laws real income is computed, whereas in Companies Act, deductions are allowed for provisions and reserves also which leads to computation of not real income but conservative income.


4. Tax laws allowed various incentives and deductions from profits like deduction u/s
801A, 801B. This is not so in computation of book profit under the Companies Act.

 

9.2.   PROVISIONS OF MINIMUM ALTERNATIVE TAX ON COMPANIES (MAT) [ Section 115 JA]


1. These provisions are applicable on all those Indian companies whose total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after 1-4-1997, is less than 30% of book profits.


2. For the purposes of levying tax on such companies total income as computed under Income- tax Act shall be disregarded and 30% of Book profit shall be deemed as total income for such previous year.


3. Every such company shall prepare its profits and loss account in accordance with the provisions of part II and III of Schedule VI of the Companies Act 1956.


4. While preparing profit and loss account depreciation will have to be the same as has been charged for preparing the accounts to be presented at the time of annual general meeting of the company. In case the company has its accounting year which is different than financial year the amount of depreciation (as mentioned above) shall have to be adjusted.


5. The term Book profit means the net profit as per profit and loss account which is to be increased by the following if these are delited or are not credited to P & L A/c

(a) any amount of income-tax paid or payable and any provision for such tax,
(b) any amount carried to any reserve by whatever name called,
(c) any amount set aside to meet any liability other than ascertained liabilities,
(d) any amount set aside as provisiOn for losses of subsidiary companies,
(e) any amount or amounts of dividend paid or proposed,
(f any amount of expenditure relating to such incomes which do not form part of total income u/s 10 to 13.

Amount so arrived at shall be reduced by the following:


(i) any amount withdrawn from reserves other than reserve specified u/s 80 HHD, or from provisions, if any such amount is credited to the P & L Account. Any amount withdrawn from a reserve created or provision made on or after 1-4-1997, the amount of said withdrawal shall not be deducted if such amount has not increased the book profits of such year.


(ii) any income which is not to be included in total income as given u/s 10 to 13 but has been credited.


(iii) any amount of loss brought forward or unabsorbed depreciation which ever is less, [B/F loss shall not include unabsorbed depreciationi.


(iv) any amount of profits derived by an undertaking from the business of generation and distribution of electricity.


(v) any amount of profits derived by an undertaking set up in industrially backward districts as notified u/s 801A during the period it is eligible for deduction u/s 801A.

 

(vi) any amount of profits derived by an undertaking set up in infra structural sector as notified u/s 801A during the period it is eligible for deduction u/s 801A.


(vii) any amount of profits of a sick industrial company for the period from the assessment year in which the unit became industrially sick till the assessment year during which the entire net worth of the company equals or exceeds the accumulated losses.


(viii) any amount of profits derived from the export of goods or merchandise to which section 80 HHC is applicable.


6. The provisions contained above shall not have any effect on unabsorbed.

 

9.3.   TAX CREDIT IN RESPECT OF TAX PAID UNDER MAT [Section 115JAA]


1. In case any amount is paid u/s 1 15JA by a company for any assessment year, such company shall be allowed credit of amount of tax so paid in prescribed manner.


2. The tax credit to be allowed shall be an amount equal to difference between the amount of tax paid u/s 1 I5JA and tax payable on his total income as computed under this Act.


3. No interest shall be allowed on the amount of tax credit to be given.


4. Amount of tax credit as determined above shall be allowed to be carried forward
up to 4 assessment years succeeding the assessment year in which such credit became due.


5. Tax credit will be allowed in the year in which tax becomes payable on the total income as computed under this Act without applying the provisions of section 1 15JA.


6. In case the amount of tax credit allowed äan be reduced or increased as per orders u/s
143(1), 147, 154, 155, 245D(4), 250, 254, 260, 262, 263 or 264.

 

9.4.      [SECI1ON 115JB] :  SPECIAL PROVISION FOR PAYMENT OF TAX BY CERTAIN COMPANIES (MAT)

(I)         Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April. 2001, is less than 7.5% 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 7.5%.

(2)        Every assessee. being a company, shall. for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule Vito the Companies Act. 1956.

Provided that while preparing the annual accounts including profit and loss account,—

(i)         the accounting policies;

(ii)        the accounting standards adopted for preparing such accounts including profit and loss account;

(iii)       the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of thc Companies Act. 1956. Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956, which is different from the previous year under this Act,—


(i)         the accounting policies;


(ii)        the accounting standards adopted for preparing such accounts including profit and loss account;


(iii)       the method arid rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year.

 

9.5.      TAX ON DISTRIBUTED PROFITS

 

Upto 31-05-1997, the company was not liable to pay any income tax on the amount of dividends declared, distributed or paid by such company. However, such dividend was included in the income of the shareholders under the head "income from other sources". The finance act, 1997 has introduced changes in this rule.


A) Tax on distributed profits of the Domestic company


The domestic company shall be liable to pay additional income tax on any amount declared, distributed or paid by such company by way of dividend (whether interim or otherwise) on or after 1-06-1997, whether out of current or accumulated profits. Such additional income tax shall be payable @ 10% of the amount so distributed. This additional tax shall be payable even if no income tax is payable by such company on its total income.


B) Exemption of dividend in the hands of shareholders


In view of the income tax now payable by the domestic company, any dividends declared, distributed or paid by such company, on or after 01-06-1997 shall be exempt in the hands of the shareholders.


Time limit for deposit of additional income tax :


Such additional tax will have to be paid by the principal officer of the domestic company within 14 days from the date of :

a) Declaration of any dividend

b) Distribution of any dividend

c) Payment of any dividend, whichever is earlier

Additional income-tax is not allowed as deduction :

The company shall not be allowed any deduction on account of such additional income tax under any provisions of the income tax act.

 

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