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Minimum Alternate Tax on Companies and Minimum Alternate Tax on Companies and LLPs on Book Profit underLLPs on Book Profit under

Companies Act Companies Act

A.C. GangaiahA.C. Gangaiah CHARTERED ACCOUNTANT CHARTERED ACCOUNTANT

REGULATORY ACTS Vs FISCAL ACTS

Regulatory enactments• Meant for regulation of society

– penal provisions for violation rules – no financial loss required

• The entries to be interpreted as wide as possible - Ellis Bridge 229 ITR 1

Fiscal laws • Meant for revenue to run the

Government

• Charging section to be construed strictly. CWT Vs Ellis Bridge Gymkhana (229 ITR 1)

• Beneficial legislation to be interpreted liberally. CITv. Strawboard Manufacturing Co. Ltd. 177 ITR 431 & Bajaj Tempo Ltd. v. CIT (196) ITR 188

• In the case of two interpretations – interpretation favouring the assessee is to be adopted CIT Vs Vegetables Products Limited (88 ITR 192)

Types of Assessments

• Filing Return of Income

• Summary assessment – by the department issuing notice for tax demand or for refund

• Other wise self assessment

• Scrutiny U/s 143(3) Issue a notice and providing

personal hearing and calling the desired information

• MAT Assessment• Transfer Price assessment• Best judgment assessment• Rectification of assessment• Consequential assessment

orders based upon appeal or revision or waiver / reduction of penalty or interest or penal interest

ASSESSMENT – PRESENTATION OF FACTS & LEGAL PROVISIONfor Computation of Income

chargeable to tax Presentation of facts• Based on evidence• Not perverse • To be decided as reasonable

person• Following the legal precedents• Following principles of natural

justice

Legal Provisions –basin upon the principle of accrued or received

• Charging section vs beneficial section

• Information as per the rules framed

• Deduction to be claimed as per the rules

• Following the identical judicial precedents

• proper procedure to approach appropriate jurisdictional authority

• Principles of ‘Resjudicata’ do not apply to taxation acts

Minimum revenue – Legislation - Accounting

• Mining enactments – minimum royalty or dead rent – common feature

• Specifies the procedure for payment of minimum rent and set off the rent against future royalty / income payable

• As professional – know the procedure of accounting of minimum rent and its set off of rent in our early education itself.

• Minimum alternative tax – in income tax enactments

Minimum Alternate Tax U/s 115JB on Book Profit under

Companies Act. • General Principal in IT As Per the Provisions of IT

Act• Income accrued or deemed

accrued • Received or deemed to be

received• Deduction on the basis of

accrual or the basis of payment in the previous year

• Not applicable to Electricity and Banking companies –applicable from 1-4-2013

• To be passed in same assessment order

• Minimum Alternative tax U/s 115JB Chapter XII B – not within purview of definition of Income – Scope of Income

• Not applicable to SEZ• Regular tax as per IT is less than

18.5% of Book Profit – 18.5% book profit deemed to be income

• Book profit for the year from April to March is to be taken

• If accounting period is different the book profit for the financial year to be computed

Appling accounting standards in force. • 18.5% Tax on book profits computed

as per the provisions of Companies Act after

Adding certain amount to book profit Allowing certain deductions – as per

S.115JB

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,In the event accounting is different – Profit and loss account observing above is to be prepared

Explanation 3.—For the removal of doubts, it is hereby clarified that for the purposes of this section, the assessee, being a company to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, has, for an assessment year commencing on or before the 1st day of April, 2012, an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company.

Book profit computationBook profit as per books + certain addition

(–) certain deductions U/s 115 JB (Self contained code)

Additions• Income Tax paid / payable – debited to P

& L A/c• Amount transferred to reserves other

than 33AC – Shipping business• Provision for unascertained liabilities –

add provision for bad debts – Finance Act 2009 w.e.f 1.4.2001

Provision for gratuity – Ascertained liablity – ITO Vs Jones Lang Lsalle Property Consultants 39 DTR 230

Provision for leave encashment BEML 245 ITR 428

• Losses for subsidiary companies• Dividend• Expenditure relatable to income U/s 10,

11 and 12• Depreciation• Impairment of asset – diminution of

asset• Amount of deferred tax if debited

Deductions • Amount withdrawn from reserves

(added to profits earlier)• Income U/s 10, 11 and 12• Depreciation other than revaluation • Loss or unabsorbed depreciation

which ever is less• Profits U/s 80HHC/80HHE/80HHF• Profit of Sick companies• Amount of deferred tax if credited • Income of SEZ• Unabsorbed book depreciation of

amalgamating company is deductable for computing book profit of amalgamated company for MAT Purpose.: Finolex Cables Ltd. Vs. ACIT (TS-351-ITAT-2011) (Pune) - not to be taken from 1-4-2013

Section 115JB – Charging Section – Self Contained Code

• Charging Section (i) to be construed strictly (ii) not to taxed by implication (iii) to be brought within ambit of

charging section with a clear words used in the charging section

Tax to be imposed if obligation is castCWT Vs. Ellis Bridge Gymkhana SC 229

ITR 1 Practice is otherwiseProvisions not made – such as funded

interest – disputed tax – can not be considered for computation of book profits - Essorpe Mills Limited 265 ITR 637 – Madras HC – Profit to be taken from the accounts prepared by the assessee

• Charging Section construed strictly not machinery section – rule subject to rebuttal. - Machinery provisions do not impose a charge or extend or restrict a charge - CIT Vs. Sharvan Kumar Swarup and Sons

• 115 JB self contained code - Appollo Tyres Limited Vrs CIT 255 ITR 273

• Save otherwise other provisions – apply – normally to be taken for machinery provisions and not as charging section – Practice is otherwise

CHAPTER XII-BASPECIAL PROVISIONS RELATING TO CERTAIN LIMITED LIABILITY

PARTNERSHIPSSpecial provisions for payment of tax by certain limited liability

partnerships.

115JC. (1) Notwithstanding anything contained in this Act, where the regular income-tax payable for a previous year by a limited liability partnership is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of the limited liability partnership for such previous year and it shall be liable to pay income-tax on such total income at the rate of eighteen and one-half per cent.

(2) Adjusted total income referred to in sub-section (1) shall be the total income before giving effect to this Chapter as increased by—

(i) deductions claimed, if any, under any section included in Chapter VI-A under the heading “C.—Deductions in respect of certain incomes”; and

(ii) deduction claimed, if any, under section 10AA.

(3) Every limited liability partnership to which this section applies shall obtain a report, in such form as may be prescribed, from an accountant certifying that the adjusted total income and the alternate minimum tax have been computed in accordance with the provisions of this Chapter and furnish such report on or before the due date of filing of return under sub-section (1) of section 139.

CHAPTER XII-BASpecial provisions for payment of tax by certain persons other than a company.115JC. (1) Notwithstanding anything contained in this Act, where the regular income-tax payable for a previous year by a person, other than a company, is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of that person for such previous year and he shall be liable to pay income-tax on such total income at the rate of eighteen and one-half per cent.(2) Adjusted total income referred to in sub-section (1) shall be the total income before giving effect to this Chapter as increased by— (i)  deductions claimed, if any, under any section (other than section 80P) included in Chapter VI-A under the heading "C.—Deductions in respect of certain incomes"; and(ii)  deduction claimed, if any, under section 10AA.(3) Every person to whom this section applies shall obtain a report, in such form as may be prescribed, from an accountant, certifying that the adjusted total income and the alternate minimum tax have been computed in accordance with the provisions of this Chapter and furnish such report on or before the due date of furnishing of return of income under sub-section (1) of section 139. 

"FORM NO. 29C[See rule 40BA]

Report under section 115JC of the Income-tax Act, 1961 for computing adjusted total income and alternate minimum tax of the

limited liability partnership

1. I/We* have examined the accounts and records of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(name and address of the assessee with PAN) engaged in business of. . . . . . . . . . . . . . . . . . . . . . . . (nature of business) in order to arrive at the adjusted total income and the alternate minimum tax for the year ended on the 31st March, . . . . . . . . . . . . . . . . .

2. (a) I/We* certify that the adjusted total income and the alternate minimum tax has been computed in accordance with the provisions of Chapter XII-BA of the Income tax Act. The tax payable under section 115JC of the Income-tax Act in respect of the assessment year . . . . .. . is Rs.. . . . . . . . . . . . . which has been determined on the basis of the details in Annexure A to this Form.

3. In my/our * opinion and to the best of my/our* knowledge and according to the explanations given to me/us* the particulars given in the Annexure A are true and correct.

Date. . . . . . . . . . . . . . . . . . . .Signed

†Accountant

ANNEXURE A[See paragraph 2]

Details relating to the computation of Adjusted Total Income and Alternate

Minimum Tax for the purposes of section 115JC of the Income-tax Act, 1961

1. Name of the assessee2. Address of assessee3. Permanent Account Number4. Assessment year5. Total income of the assessee computed in the manner laid down in the Income-tax Act before giving effect to Chapter XIIBA of the Income-tax Act6. Income-tax payable on total income referred to in Column 5 above7. The amount of deduction claimed under any section included in Chapter VI-A under the heading "C." - "Deductions in respect of certain incomes"Sl. No. Section under which Amount of deduct ion deduction Claimed deduction claimed

8. The amount of deduction claimed under section 10AA9. Adjusted total income of the assessee (5+7 + 8)10. Alternate Minimum Tax (18.5% of adjusted total income computed in column 9 above)"

DISPUTES arisen

• Applying the principles of Regular tax assessment and disallow certain non-specified additions such as donations and expressly disallowable expenditure as per IT Act.

• Disregarding the principles of accounting standards

• Section 115JB – self contained code – violating provisions and adopted regular provisions even though section begins with non-obstinate clause - Appollo Tyres Limited Vrs CIT 255 ITR 273

• Provisions not made – such as funded interest – disputed tax – can not considered for computation of book profits - Essorpe Mills Limited 265 ITR 637 – Madras HC

Bad interpretations• Provision for bad debts – not liability –

reduction of asset (Usha Martin Industries Limited 104 ITD 249) – Retrospective amendment

• Provision for warranties - (Ibm India Limited105 ITD 1) Rotork Controls India Private Limited v CIT (314 ITR62)

• Provision in respect of NPA (Mukand Global Finance Limited 117 ITD 20) &Steel Authority of India Ltd v DCIT 76 ITD 69

• Any provision connected to the assets – not to liabilities

• Basis of ascertainment questioned• Imposition of penal interest for not

paying advance tax

Provision for ascertained liability Rotork Controls India P Ltd v CIT 314

ITR 62 SC Judgment - warranties • Provision – to recognize (a) an enterprise has a

present obligation as a result of a past event;

(b) it is probable that an outflow of resources will be required to settle obligation; and

c) a reliable estimate can be made of amount of obligation

Good Guidelines – to specify ascertained liability and claim deduction

• Good Judgment giving credence to Accounting Standards and claiming deduction of expenditure

Procedure in filing the Return of Income – Rectification of Mistakes

• Applicable to all the Companies unless regular tax is more than 18.5 % Book Profit

• Certificate - Form 29B in addition to the certificate U/s 44AB

• Pay the tax amount as computation of income Computation of book profit as per Section 115JB

• Get U/s 115JB less TDS

• Petition to rectify the mistake apparent on record – assessment and appeal orders of CIT (A) – U/s 154

• Petition to rectify and to decide undecided issue U/s 254 to ITAT

• MPs to HC or SC

Provisions of Advance Tax

• Based upon the principles of accrual or receipt

• To computed under the provisions of Chapter

• as per the Section 208 - as computed in accordance with the provisions of this Chapter - CHAPTER XVII.

• Against the Assessee – Special Bench of ITAT - Sutlaj Cotton Mills Ltd., vs. ACIT (45 ITD 22) – other HC such as MP, MAD and Gauhati

• Book profit to be computed under the provisions of Chapter based upon the accounting standards not on the principles of accrual or receipt as per IT Act. – Chapter XIIB

• Support of SC - 284 ITR 434 - Dismissing SLP - against Karnataka HC - Kwality Biscuits Limited 243ITR519 – but Ashima Syntex Ltd.(117 ITD 1)(ITAT SB) - in the case of S.115J – SC Full Bench – Rolta India -330 ITR 470 confirmed levy

SET OFF THE MAT PAID AGAINST REGULAR INCOME

TAX U/s 115 JAA /115JD• MAT paid is eligible for set-

off against the regular income tax within 10 years without interest

• MAT credit in excess of 18.5% Book Profit

• MAT credit to be treated at par with the advance tax or TDS paid

• Previously set off was under dispute

• No interest at the time of set off from the date of MAT payment till the date of set off

• For LLPs – 115JD – 10years

• If regular income is not there within 10 years from payment of MAT; MAT is an expenditure –S.37(1) or write off to P & L A/c

• Whether MAT is to be shown as tax paid in advance or tax for concerned year

• Direct Tax Code – Similar provision – may exit for set off – enactment to be seen – amendments to be suggested in pre budget meeting – if the provisions otherwise

Retrospective amendments

• MAT gets increased due to retrospective amendments

• Tax and 234B and 234C gets increased

• Tax is to be paid

• Penal interest imposed 234B or 234C due to retrospective amendment; may be waived by CCIT

• Penalty not to be imposed – crime cannot be created retrospectively

FAVOURABLAE / UNFAVOURABLE ORDERS

• SOME DISCUSSION TO TAKE STEPS ORDERS AGAINST

• Picture on discussion

Appeals to CIT (A)

• Appeal can be filed against the assessment order of AO

• In Form 35 – brief facts of the appeal – grounds of appeal

• Proof of payment of admitted tax or proof of granting of installments and abiding by it.

• Questioning unnecessary additions and restricting deductions – not following Section 115 JB

• Restricting the deductions basing upon regular provisions of the Act.

• Not following the accounting standards as prescribed in Companies Act.

• Applying the provisions of Advance Tax on basis of Circular of CBDT – Circular can relax and can not impose charge

• Admitting the appeal and post the appeal for hearing.

• Providing necessary information – facts and law

• May file an additional ground – left CIT to admit the same.

• May file additional information to CIT (A) – CIT may call for remand report from AO

• May raise additional plea in the course of appeal proceedings

• Involving Transfer price or foreign company – DRP -144C

REVISION BY CIT U/s 263 or 264

• Revision of assessment – suo moto – calling the record examine the record – issue a notice of revision

• Assessment – be erroneous – prejudicial interest of revenue.

• Revision be carried after receiving the objections – providing hearing.

• Not taking different decision against ITAT orders

• Appeallable to ITAT

• The assessee can file revision application to CIT with in time limit against any orders of AO

• In the case of no appeal is filed

• Normally be disposed after hearing.

• Not appelable to ITAT

QUESTION OF FACT AND LAW

• QUESTION• OF FACT• Collect the

necessary document and find out the sequence of operations taken place

• QUESTION • OF LAW• Necessary case laws

on identical issues• Appropriate

interpretation of law if the same is first time

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DRAFTING THE APPEAL PETITION – FACT AND LAW –

Suggested steps

DEFINE

The disputed issue – to be defined – question of fact or question of law or any other remissions / concessions required

Any document or any legal issue not brought

Keep the original and take copies

IDENTIFY

Possibility of Documentary evidences

Collect data as regards the question of fact

Compare the data and data specified in the orders

Establish Critical Success Factors

Review data and evidences

DESIGN

Question of Fact & Law – arrange the data and case laws

Find solutions by interpreting

Assess for potential risks in using the data by OTHER PARTY

mistake proof solutions

Discuss with the concerned

Review the placing the data with legal issues

OPTIMIZE

Identify gaps

Identify and communicate Possible orders

Final risk assessment and final mistake proofing

Consultation with the management if required

Start-up plan to be developed

Review and kept ready for Sign

VERIFY

Do a pilot run if it is possible

Verify the placement of data and arguments

Do improvements as may be necessary

Plan for long-term monitoring issue disputed

Review and get Sign and file the PEITION / APPEAL

INCOME TAX APPELLATE TRIBUNAL – REVENUE AND

APPELLANTS’ APPEALS• Second appeal –

against the orders of CIT (A)

• First appeal against the revision orders of CIT U/s 263

• Revenue appeal – against the appeal orders of CIT (A)

• There may be Cross appeals by Appellant and Revenue – normally heard after clubbing the both.

Appeal to High Court – by the assessee or by revenue – question of law – wrong fact finding or under writ jurisdiction and Appeals to Supreme Court

• Third appeal – against the orders of ITAT

• Second appeal against ITAT confirming the revision orders of CIT U/s 263

• Stay powers either in the enactment

• Revenue appeal – against the appeal orders of ITAT

• Orders of High Court on writ jurisdiction

• There may be Cross appeals by Appellant and Revenue – normally heard after clubbing the both.

• Against the appeal orders and writ directions - of High Court if permitted

• SLP if high Court not permitted

• SC after hearing admit the SLP

• If admitted normal procedure of hearing the appeal

Guidance from the Institute

• Guidance Note on MAT – on various issues including Form 29B – Form 29C

• Guidance required in respect of Provisions of Advance Tax – on LLPs

• Steps to be taken for MAT set off against regular tax in DTC – without time limit at par with unabsorbed depreciation

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THANK YOU