On 1 february 2017, the finance minister presented the finance bill, 2017 the bill which contained a number of. Mat provisions us 115jb an exhaustive overview of landmark. Tribunals decision a bare reading of explanation 1iii to section 115jb of the act provides that while computing the book profits, the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of accounts, is required to be reduced. 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. Oct 05, 2017 book profit simply means profit as computed in accordance with the provisions but before remuneration paid to partner. Minimum alternate tax mat us 115jb of income tax act. Section 115jb special provision for payment of tax by. Computation of book profits would be calculated as under a stepi. Step 2 adjustment to net profit to convert it into book profit which are given under explanation 1 to section 115jb 2 book profit is arrived at after making specified adjustments to the profit as shown in the statement. The said explanation to section 115jb is silent and does not compel the.
Conundrum on brought forward loss treatment under mat taxsutra. Calculation of book profits for the purpose of mat section 115jb. The procedure for the computation of book profit as per. Step 1 find out net profit before other comprehensive income oci as per statement of profit and loss of the company. First of all calculate tax as per normal provisions of income tax.
In case incometax payable by the company referred to at sl. Indian tribunal holds book profits not subject to transfer pricing. Cbdt issues faqs on computation of book profit for levy of. 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. Minimum alternate tax part iii computation of book profits. 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. Book profit simply means profit as computed in accordance with the provisions but before remuneration paid to partner. Tribunals decision a bare reading of explanation 1iii to section 115jb of the act provides that while computing the book profits, the amount of loss brought forward or unabsorbed depreciation, whichever is. Book profit under section 115jb the purpose of computing.
The submission of ld ar that tax includes surcharge and education cess as per explanation 2 of section 115jb is correct to the extent that explanation 2 was inserted to clarify the meaning of tax as contemplated in clause a of explanation 1 with respect to. 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. 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. Explanation 2 of section 115jb only define the meaning of. This books profit meaning is provided in explanation 1 of subsection 2 of section 115jb. Meaning of assets, depreciation and relevant terms accounting standard 6 and 10 relating to depreciation and fixed assets defines various relevant terms as under. Whether unabsorbed depreciation includes unabsorbed. Special provision for payment of tax by certain companies. Since the assessee is a company, the provisions of sec. Upholds capital gains exclusion from book profit calculation us 115jb, grants sec 54ec benefit itat. Mat is calculated under section 115jb of the incometax act.
Book profit a gain on an investment that has not yet been realized. The tribunal reasoned that section 115jb of the income tax act, which contains the mat provisions, is a selfcontained tax code and that only adjustments to book. Section 115jb, incometax act, 1961 2015 7special provision for payment of tax by certain. Calculation of book profits for the purpose of matmaximum alternate tax section 115jb step 1 find out net profit before other comprehensive income oci as per statement of profit and loss of the company. Calculation of book profits for the purpose of mat. Minimum alternate tax mat section 115jb provision of mat minimum alternate tax for payment of tax by certain companies section 115jb book profit how to determine section 115jb analysing computation of total income and book profit. Step 2 adjustment to net profit to convert it into book profit which are given under explanation 1 to section 115jb 2 book profit is arrived at after making specified adjustments to the profit as shown in the statement of profit and loss so prepared. Then, the tribunal referred to the order passed in the case of essar teleholdings ltd. 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.
This means long term capital gain exemption under section 1038 are subject to mat. The explanation 1iii to section 115jb of the act is limited and operates only for deciding the quantum and not methodology for setoff of the amount to be reduced from the net profit as per books in order to arrive at the book profit under section 115jb. Minimum alternate tax mat us 115jb of income tax act, 1961. Book profit is defined in section 115jb of the act. 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. Calculation of mat credit applicability of minimum alternate tax. 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. 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. For the purposes of this section, book profit means the 61profit as shown in the 60statement of profit and loss for the relevant previous year prepared under subsection 2, as increased by a the amount of incometax paid or payable, and the provision therefor. 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. Minimum alternate tax part v computation of book profits. Book profit financial definition of book profit financial dictionary. Definition of book profit in the financial dictionary by free online english. Taxpayers methodology to set off and carry forward.
Provision of mat minimum alternate tax for payment of tax by certain companies section. Section 115jb, incometax act, 1961 2015 7special provision for payment of tax by certain companies. Income tax act 1961 section 115jb page 2 judgments. 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. 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. Tribunals ruling the tribunal has explained its position through the following illustration. Section 115jb provides for certain adjustments for determining book profit, mainly for. Book profit us 115jb to be reduced by exempted capital gain.
The minimum alternate tax mat on companies challenges and way forward 09. If a company whose tax payable works out to less than 15% amended in finance act, 2009 from 10% of book profit then the company has to pay tax at 15% of book profit. To compute book profit, on should take profit and loss account and make additions and deletions. No marginal relief, since the income does not exceed. The assessee did not offer the above said amount of rs. 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. Profit as per profit and loss account in the current year. Transition amount means the amount or aggregate of the amount adjusted in other. For computation of book profit, one may proceed as follows. Mat provisions require book profit off to the lower number. Step 2 adjustment to net profit to convert it into book profit which are given under explanation 1 to section 115jb2. Mat minimum alternate tax 115jb income tax act, 1961. The mat provisions begin with a nonobstante clause, and thus, are a sacrosanct and selfcontained code.
Q3 as per explanation to section 115jb 2c of the act, the convergence date is defined as the. Q3 as per explanation to section 115jb2c of the act, the convergence date is defined as the. Cbdt issues faqs on computation of book profit for. As per explanation 1 to section 115jb2 book profit for the. Book profit the cumulative book income plus any gain or loss on disposition of assets. The minimum alternate tax mat on companies challenges. The term book profit has been defined in the respective sections. Complexity in computing the book profit under mat provisions. It requires that every company shall pay tax on its book profits arrived by preparing its.
Step 2 adjustment to net profit to convert it into book profit which are given under explanation 1 to section 115jb2 book profit is arrived at after making specified adjustments to the profit as shown in the statement. Aug 15, 2015 for the purpose of calculating book profit under section 115jb of income tax act, 1961. 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. Conundrum on brought forward loss treatment under mat. 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. A2 starting point for computing book profits for ind as compliant companies shall be profit before other comprehensive income item number xiii in part 2 statement of profit and loss of division ii of schedule iii to the companies act, 20.
The minimum alternate tax mat on companies challenges and. 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. As per section 115jb 2, book profit means net profit in the statement of profit. Many a time, firms and companies avail all the benefits in tax laws and end up paying a paltry sum as tax or pay no tax at all, on account of excellent tax planning. 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 there for. Mat provisions require book profit to be adjusted against lower of brought forward unabsorbed loss and unabsorbed depreciation and.
Calculation of book profits for the purpose of mat section. Mat stands for minimum alternate tax, as per income tax act, 1962. As a result, there is the possibility that the book profit might be erased if the price goes back down. Claimed as per accounts and under 115jb from year 1 to year 3. Section 115jb of income tax act, 1961 sets out provision for calculation of minimum alternate tax. Section 115jb of income tax act, 1961after budget 2016.
Aug 29, 2016 advanced understanding minimum alternate tax concepts computation of book profits in most easiest manner by mr. It is calculated under section 115jb of the income tax act. Apr 06, 2011 explanation 1 to section 115jb of the act defines the word book profit to mean net profit as shown in the profit and loss account prepared as per section 115jb2 of the act, and as further increased by the amounts mentioned in clauses a to i upward adjustments and as reduced by amounts covered under clauses i to viii. Mat is calculated as 15% of the book profit of the tax assesse. Capital receipts and book profits mat no longer a self.
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