INTRODUCTION WHO IS LIABLE TO PAY MAT

Transcription

1 CONTENTS I-9 Chapter-heads I-5 DIVISION ONE MINIMUM ALTERNATE TAX (MAT) 1 INTRODUCTION 1.1 History of Minimum Alternate Tax (MAT) Rationale for MAT Salient features of MAT Regime u/s 115JB MAT payable 7 2 WHO IS LIABLE TO PAY MAT 2.1 Who is liable to pay MAT Company MAT not applicable to income from life insurance business Where company has no taxable income but has a positive book profit Where company has negative net profit as per its P&L account but has a positive book profit 11

2 CONTENTS I Where company has positive net profit and taxable income but negative book profit Applicability to foreign companies Applicability to assessees covered by presumptive tax provisions Exemption to sick industrial companies MAT not applicable where company incurring commercial losses not attributable to tax incentives Applicability of MAT to section 25 companies (now section 8 Companies) and mutual concerns Applicability of MAT to shipping companies covered by Tonnage Tax Scheme Applicability of MAT to company eligible for tax holiday Applicability of MAT to company whose total income is Nil When liability to MAT arises? Domestic companies which opt for new concessional 25% tax regime under section 115BA 24 3 BOOK PROFIT 3.1 Definition of book profit Computation of book profit Implicit relationship of book profit with distributable profit i.e. profit available for distribution or appropriation Book profit quarantined from total income Auditor s certificate Reopening of assessment where retrospective amendments made to section 115JB 30

3 I-11 CONTENTS 4 NET PROFIT AS PER PROFIT AND LOSS ACCOUNT 4.1 Net profit as shown in the profit and loss account Preparation of Profit and Loss Account in accordance with section 115JB(2) Relevance of sections 348 and 349 of the Companies Act, 1956 [now section 198 of the Companies Act, 2013] for calculating net profits for section 115JB purposes Profit and Loss account as per Revised Schedule VI [now Schedule III] Prior Period Items and extraordinary items Gain due to restatement at the balance sheet date of foreign currency term loan Profit on sale of assets credited to profit & loss account being long-term capital gain eligible for section 54EC benefit Treatment of the cessation of liability on account of settlement loan liability with bank for the purpose of book profits Income received by assessee, which had earlier been written off as a bad debt Deduction under section 80-IB cannot be allowed while computing book profit under section 115JB Accumulated depreciation standing in provision for depreciation account as credit balance in respect of assets sold or disposed of Capital gains exempt under section 47(iv) Interest on borrowed capital not debited to P&L account Income by way of interest on Zero Coupon Bonds not accrued during previous year Loss on sale of fixed assets debited to P&L account Income covered by the principle of mutuality 60

4 CONTENTS I Waiver of loan and interest by the lender (gains) Central Govt. grant for modernization of machinery and compensation from State Govt. for loss of assessee company s compound wall Amount received on transfer of marketing rights and technical know-how Reimbursement of advance tax by parties Profit on sale of shares received by company under family arrangement Gains arising on pre-payment of deferred sales tax loans at NPV as per State Govt. Schemes Notional difference in maintenance expenditure on account of change in accounting procedure Loan admitted as income by assessee Incremental liability towards leave encashment not debited to P&L but otherwise disclosed in notes to accounts Where the Company Revises its accounts which were adopted by AGM and submits revised return Change in accounting policy from treating preliminary expenses as deferred revenue to writing off in one go and qualified by auditor - Whether violation of Schedule VI [now Schedule III]? Revised accounts pursuant to scheme of amalgamation which has retrospective effect 71 5 INCOME-TAX PAID/PAYABLE/ PROVISION FOR INCOME-TAX 5.1 Addition to net profit of income-tax amount Amount of income-tax Deferred tax Provision for wealth-tax - Whether can be added to net profit? Foreign income tax 75

5 I-13 CONTENTS 6 AMOUNTS CARRIED TO RESERVES 6.1 Addition to net profit of amounts carried to reserves Conditions to be satisfied for addition under clause (b) of Explanation Reserve contemplated by clause (b) Amounts carried to debenture redemption reserve/ loan redemption reserve Profit on sale of land directly credited to capital reserve Profit on redemption of investments (mutual fund units) taken to capital reserve without routing it through profit and loss account Gain on repossession of vessels by creditor on assesseecompany s default credited directly by assessee to capital reserve 85 7 PROVISIONS FOR UNASCERTAINED LIABILITIES 7.1 Unascertained liabilities to be added to net profits Ascertained liabilities of a capital nature to be added to net profits Ascertained liability - Connotation of Liability other than ascertained liability (i.e., contingent liability) Is provision for product warranties an ascertained liability? Where assessee suffered losses due to earthquake and made provision for repairs as per Government agency s estimates Where provision for ascertained liability made in a year different from the year in which the liability arose Distinction between condition precedent to creating a liability & condition precedent to discharging a liability 93

6 CONTENTS I Provision for gratuity made on the basis of actuarial valuation Provision for bonus Where provisions for ascertained liabilities erroneously credited to Reserves Provision for future losses Provisions for liquidated damages Provision towards leave encashment of employees Provision for site restoration expenses 99 8 PROVISION FOR LOSSES OF SUBSIDIARY COMPANIES 8.1 Addition of provision for losses of subsidiary companies to net profits Share of loss from a firm DIVIDENDS PAID OR PROPOSED 9.1 Addition to net profits of dividends paid or proposed EXPENDITURES RELATED TO TAX-FREE INCOMES 10.1 Addition of expenditures related to tax-free incomes to net profit Share of loss from firm No basis for the argument that only direct expenses have to be added back Which amount to be added to book profit-amount debited to P&L or disallowance computed under rule 8D? 104

7 I-15 CONTENTS 11 EXPENDITURE RELATABLE TO SHARE OF INCOME IN AOP/BOI 11.1 Expenditure relatable to company s share of income in any AOP OR BOI Relatable to EXPENDITURE RELATABLE TO INCOME OF FOREIGN COMPANY TAXABLE AT LESS THAN MAT RATE OF 18.5% 12.1 Expenditure relatable to foreign company s income taxable at less than MAT rate of 18.5% Relatable to NOTIONAL LOSS OF SPONSORS OF REITs AND INVITs ON EXCHANGE OF SHARES IN SPV FOR UNITS OF REIT/INVIT OR DUE TO CHANGE IN VALUE OF UNITS OR LOSS ON TRANSFER OF UNITS 13.1 Notional Loss/Actual Loss from on its of REIT/InVIT to sponsor - Company EXPENDITURE RELATABLE TO ROYALTY INCOME IN RESPECT OF PATENTS TAXABLE UNDER SECTION 115BBF 14.1 Expenditure relatable to resident company s royalty income from patents chargeable to tax u/s (i.e. at less than MAT rate of 18.5%) Relatable to 116

8 CONTENTS I AMOUNT OF DEPRECIATION 15.1 Accounting for depreciation Adjustments to net profit related to depreciation AMOUNT OF DEFERRED TAX AND PROVISION THEREFOR 16.1 Addition to/deduction from net profits of deferred tax Deferred tax does not refer to deferred sales tax AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET 17.1 Amount or amounts set aside as provision for diminution in the value of any asset Examples of provisions for diminution in the value of assets Write-off of Bad Debts v. Provision for Doubtful Debts Withdrawals from provisions for diminution in assets/reversals of such provisions REVALUATION RESERVE IN RESPECT OF ASSET RETIRED/DISPOSED OF 18.1 Revaluation reserve balance in respect of asset disposed of retired Objective of clause (j) Case Studies and Illustrations on MAT 138

9 I-17 CONTENTS 19 ACTUAL LOSS TO SPONSOR OF REIT/INVIT ON TRANSFER OF UNITS 19.1 Actual loss to Sponsor of REIT/InVIT on transfer of units carried in books at Fair Value WITHDRAWALS FROM RESERVES OR PROVISIONS 20.1 Deduction of withdrawals from reserves/provisions from net profit Reduction from net profit of withdrawals from reserves Meaning of credit to profit and loss account Reduction from net profit of withdrawals from provisions Intent behind clause (i) of Explanation TAX-FREE INCOMES UNDER SECTION 10/11/ Tax-free incomes - Deduction from net profit Would an item of receipt not falling under definition of income be excluded from Book Profit? Profit on sale of rural agricultural land If any such amount is credited to the profit and loss account SHARE OF INCOME FROM AOP/BOI OF WHICH THE COMPANY IS A MEMBER 22.1 Backdrop Share of income from AOP/BOI to be excluded from book profit 160

10 CONTENTS I INCOME OF FOREIGN COMPANY TAXABLE AT LESS THAN THE MAT RATE OF 18.5% 23.1 Applicability of clause (iid) of Explanation Conditions for exclusion of income of foreign company from MAT NOTIONAL GAIN ON EXCHANGE OF SHARES OF SPV FOR UNITS OF REIT/INVIT & ACTUAL GAIN FROM TRANSFER OF SUCH UNITS 24.1 Notional/Actual gain from units of REIT/InVIT (In case of sponsor-company) ACTUAL LOSS TO SPONSOR OF REIT/INVIT ON TRANSFER OF UNITS 25.1 Actual loss to sponsor of REIT/InVIT on transfer of units of REIT/InVIT carried at fair value ROYALTY INCOME OF PATENTEE - COMPANY TAXABLE U/S 10% 26.1 Concessional rate of 10% on royalty income from patent MAT Treatment of royalty income taxable u/s 10% 169

11 I-19 CONTENTS 27 LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION 27.1 Loss brought forward/unabsorbed depreciation to be deducted from net profit Where company does not own any depreciable asset Where arrears of depreciation charged in current year s P&L Account Whether arrears of depreciation disclosed in notes to accounts can be considered for the purposes of clause (iii) of Explanation 1? Set off of losses of amalgamating company Whether deduction under clause (iii) can be denied by resorting to section 79 of the Act? Brought forward losses at the beginning of the year becomes nil at the end of year due to reduction of capital PROFITS OF A SICK INDUSTRIAL COMPANY 28.1 Profits of sick industrial company to be deducted from net profits Net worth AMOUNT OF DEFERRED TAX CREDITED TO P&L ACCOUNT 29.1 Deferred Tax to be deducted only if credited to P&L Clause (viii) of Explanation 1 not applicable to deferred sales tax 185

12 CONTENTS I MAT CREDIT 30.1 Principles governing carry forward and set off of MAT credit What happens to unutilised MAT credit when company converts itself into a LLP How should the advance tax be calculated when the company has MAT credit? APPLICABILITY OF AUDIT UNDER SECTION 115JB 31.1 Applicability of audit u/s 115JB Every company to whom this section applies Scope of audit under section 115JB Report under section 115JB i.e. Form No. 29B Respective responsibilities of the accountant and the company Scope of examination AUDIT REPORT : PARA 1 OF FORM NO. 29B 32.1 Examination of accounts and records Nature of business Where statutory audit under Companies Act/tax audit is not complete A AUDIT REPORT : PARA 2(a) OF FORM NO. 29B 32A.1 Certification of computation of book profit and income-tax payable under section 115JB A.2 Reporting against para 2(a) 205

13 I-21 CONTENTS 33 AUDIT REPORT : PARA 3 OF FORM NO. 29B 33.1 Certification of particulars in Annexure A True and correct AUDIT REPORT : ANNEXURE A TO FORM NO. 29B 34.1 Columns 1 to 4 of Annexure A - Routine Details Column 5 - Total income of the company under the Income-tax Act Column 6 - Income-tax payable on total income Column 7 - Whether profit and loss account is prepared in accordance with the provisions of Parts II & III of Schedule VI to the Companies Act, 1956 (1 of 1956) [now Part II of Schedule III to the Companies Act, 2013] Column 8 - Differences/variation in accounting policies, accounting standards, methods and rates of depreciation Column No. 9 - Net profit according to profit and loss account referred to in (7) above Column Nos. 10 and 11 - Adjustments to net profit as per Explanation Columns 12 & 13 - Book profit figure and MAT Liability Column 14 - Where income-tax payable by company in column 6 is less than 18.5% of book profits Signing of Form No. 29B by CA (Partner/proprietor of CA firm) AUDIT REPORT : MODEL AUDIT REPORT IN FORM NO. 29B u Audit Report : Model audit report in Form No. 29B 218

14 CONTENTS I-22 DIVISION TWO ALTERNATE MINIMUM TAX (AMT) 36 AMT REGIME - APPLICABLE TO ALL NON-CORPORATE ASSESSEES W.E.F. A.Y Extension of AMT to all non-corporate assessees w.e.f. A.Y Generally only non-corporate assessees having business income would be covered under section 115JC AMT not applicable to LLPs incorporated abroad Applicability of AMT to assessees covered by presumptive tax under section 44AD Applicability of AMT to assessees covered by presumptive tax under section 44ADA [i.e. professionals covered by section 44AA(1)] Applicability of AMT to assessees covered by presumptive tax under sections 44AE, 44B, 44BB, 44BBA and 44BBB Precondition for applicability of AMT to firms and LLPs Precondition for applicability of AMT to non-corporate assessees other than firms and LLPs Applicability of AMT to co-operative societies Whether AMT applicable if total income is nil and no regular income tax is payable? Steps for calculating AMT for LLPs and firms Steps for calculating AMT for individuals, HUFs, AOPs, BOIs and AJPs Deductions under Chapter VIA-C Tax credit for AMT Carry forward of tax credit (AMT) in case of conversion of firms into LLPs/conversion of firms/llps into companies Variation of tax credit Whether AMT credit treated as advance tax paid for sections 234A, 234B and 234C 244

15 I-23 CONTENTS Certificate required from accountant Application of other provisions of this Act - Section 115JE Whether AMT credit treated as advance tax paid for sections 234A, 234B and 234C APPLICABILITY OF AUDIT UNDER SECTION 115JC(3) 37.1 Form No. 29C Notified for Audit Report u/s 115JC(3) Form 29C - Auditor s report under section 115JC Comparison of Form No. 29B and Form No. 29C Scope of audit u/s 115JC(3) Respective responsibilities of the accountant and the company Scope of examination AUDIT REPORT : PARA 1 OF FORM NO. 29C 38.1 Examination of accounts and records Nature of business AUDIT REPORT : PARA 2(a) OF FORM NO. 29C 39.1 Certification of computation of ATI and AMT Reporting against Para 2(a) AUDIT REPORT : PARA 3 OF FORM NO. 29C 40.1 Certification of particulars in Annexure A 265

16 CONTENTS I AUDIT REPORT : ANNEXURE A TO FORM NO. 29C 41.1 Columns 1 to 4 of Annexure A - Routine details Column 5 - Total income of the assessee computed before giving effect to Chapter XII-BA Column 6 - Income-tax payable on total income referred to in column Column 7 - Amount of deduction claimed under any section included in Chapter VI-A under the heading C. Deductions in respect of certain incomes Column 8 - Amount of deduction claimed under section 10AA Column 9 - Adjusted total income of the assessee ( ) No column in the annexure for section 35AD deduction Alternate minimum tax (18.5% of adjusted total income computed in column 9 above) AUDIT REPORT : MODEL AUDIT REPORT IN FORM NO. 29C u Audit report : Model audit report in form No. 29C APPENDICES u APPENDIX 1 : RELEVANT EXTRACTS OF INCOME-TAX ACT, u APPENDIX 2 : COMPANIES (INDIAN ACCOUNTING STAN- DARDS) RULES, u APPENDIX 3 : REPORT OF MAT - IND AS COMMITTEE 295 u APPENDIX 4 : SCHEDULE III OF COMPANIES ACT, u APPENDIX 5 : RELEVANT FORMS OF INCOME-TAX RULES,