Section 115JA/SECTION 115JB l Minimum Alternate TAX
Circular No. 13 was issued by the Central Board of Direct Taxes on 11 September 2001. Its subject is Section 115JA/SECTION 115JB l Minimum Alternate TAX.
Presses companies liable to minimum alternate tax under section 115JB to pay advance tax on it. Section 115JB, inserted by the Finance Act, 2000 with effect from 1-4-2001, that is from assessment year 2001-02, differs from the earlier section 115JA in that it does not deem any part of book profit to be total income; it provides that where tax payable on total income is less than 7.5 per cent of book profit, the tax payable is 7.5 per cent of book profit. The Board points out that section 115JB is a self-contained code, sub-section (1) laying down how the tax is computed, sub-section (2) how book profit is computed, and sub-section (5) applying all other provisions of the Act to a company mentioned in the section, so the advance tax machinery applies. The record also carries an earlier press note of 24th July, 1996 setting out the salient features of section 115JA as proposed by the Finance (No. 2) Bill, 1996: a deemed 30 per cent of book profits as taxable income where total income falls below that, an effective rate of about 12 per cent of book profits, exclusion of income from free trade zones, hundred per cent export-oriented undertakings, charitable activities and other exempt income, and no levy on infrastructure and power undertakings under section 80-IA.
Instances had come to the Board's notice that a large number of companies liable under the new section 115JB were not paying advance tax.
SECTION 115JA/SECTION 115JB l MINIMUM ALTERNATE TAX
743. Minimum Alternate Tax (MAT ) on Companies
Salient features of MAT proposed to be levied on companies by the Finance (No. 2) Bill, 1996 vide proposed section 115JA.
The Government has proposed to levy a Minimum Alternate Tax (MAT) on companies, which was announced by the Finance Minister in the Budget Speech on 22nd July, 1996. A new section 115JA is being inserted in the Income-tax Act, 1961 for this purpose. The salient features of the proposed MAT are as follows :
1. Applicable to only companies except those engaged in infrastructure and power sectors [section 80-IA].
2. Payment of a minimum tax by deeming 30 per cent of the book profits computed under the Companies Act, 1956 as taxable income, in a case where the total income as computed under the provisions of the Income-tax Act, 1961 is less than 30 per cent of the book profit where the total income, as computed under the normal provisions of the Income-tax Act is more than 30 per cent of the book profit, tax shall be charged on the same.
3. The effective minimum alternate tax, at the existing rates of taxation, works out to 12 per cent of the book profits.
4. Income arising from Free Trade Zones (FTZs) [section 10A], 100 per cent Export-Oriented Undertakings (EOUs) [section 10B], charitable activities [sections 11 and 12], investment by a venture capital company and other exempted incomes [section 10] are excluded from the purview of the alternate tax.
5. Since the alternate tax is applicable only where the normal total income computed is lower than 30 per cent of the book profits, so long as the enterprises (other than FTZ units and EOUs) earning income from export profits do not have their component of export income higher than 70 per cent of the book profits, the provisions of section 115JA will not be attracted. In other words, the MAT will apply only to such cases where export profits forming part of book profits of an assessee exceed 70 per cent of the total profits.
This is illustrated as under :Company A
Book profits
100
Less : Export profits
70
Balance profits
30
[assuming that the profit rate is same in export and other activities]
The minimum alternate tax is not leviable in this case, as the non-export profits are equal to 30 per cent of the book profits. Hence, entire export profits are tax-free.Company B
Book profits
100
Less : Export profits
80
Balance profits
20
[assuming that the profit rate is same in export and other activities]
As the balance profits are less than 30 per cent of the book profits, MAT will be levied on 30 per cent of the book profits comprising 10 per cent attributable to export and 20 per cent to non-export activities (which are otherwise taxable). Thus, out of the 80 per cent of the export profits, only 10 per cent will bear tax at the effective rate of 4.3 per cent including surcharge.Company C
Book profits
100
Less : Export profits
90
Balance profits
10
[assuming that the profit rate is same in export and other activities]
As the balance profits are less than 30 per cent of the book profits, MAT will be levied on 30 per cent of the book profits comprising 20 per cent attributable to export and 10 per cent to non-export activities (which are otherwise taxable). Thus, out of the 90 per cent of the export profits, only 20 per cent will bear tax at the effective rate of 8.6 per cent including surcharge.
Keeping in view the tax burden on other companies, the tax burden on companies engaged in export business is very light.
Press Note : Dated 24th July, 1996 issued by the Central Board of Direct Taxes.
743A. Liability for payment of advance tax under new MAT provisions of section 115JB of the Income-tax Act
The Finance Act, 2000, inserted section 115JB of the Income-tax Act, 1961, with effect from 1-4-2001, i.e., from the assessment year 2001-02 providing for levy of Minimum Alternate Tax on companies. Section 115JB conceptually differs from erstwhile section 115JA, which provided for MAT on companies, so far as it does not deem any part or the whole of book profit as total income. However, the new provision of section 115JB provides that if tax payable on total income is less than 7.5% of book profit, the tax payable under this provision shall be 7.5% of book profit.
2. Instances have come to the notice of the Board that a large number of companies liable to tax under the new MAT provisions of section 115JB are not making advance tax payments. It may be emphasised that the new provision of section 115JB is a self-contained code. Sub-section (1) lays down the manner in which income-tax payable is to be computed. Sub-section (2) provides for computation of "book profit". Sub-section (5) specifies that save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company mentioned in that section. In other words, except for substitution of tax payable under the provision and the manner of computation of book profits, all the provisions of the tax including the provision relating to charge, definitions, recoveries, payment, assessment, etc., would apply in respect of the provisions of this section.
3. The scheme of the Income-tax Act also needs to be referred to. Section 4 of the Income-tax Act charges to tax the income at any rate or rates which may be prescribed by the Finance Act every year. Section 207 deals with the liability for payment of advance tax, and section 209 deals with its computation based on the rates in force for the financial year, as are contained in the Finance Act. The rates of tax are provided in the finance Act. The first provisio to section 2(8) of the Finance Act, 2001, reads as under :
"Provided that in cases to which the provisions of Chapter XII or Chapter XII-A or section 115JB or sub-section (1A) of section 161 or section 164A or section 167B of the Income-tax Act apply, ‘advance tax’ shall be computed with reference to the rates imposed by this sub-section or the rates as specified in that Chapter or section, as the case may be :"
The third proviso to section 2(8) of the Finance Act, 2001, further provides that the tax payable by way of advance tax in respect of income chargeable under section 115JB, shall be increased by a surcharge of 2%. The Finance Act, 2000, also contained similar provisions.
4. It is, thus, abundantly clear that all companies are liable for payment of advance tax having regard to the provisions contained in new section 115JB. Consequently, the provisions of sections 234B and 234C for interest on defaults in payment of advance tax and deferment of advance tax would also be applicable where facts of the case warrant.
5. This may be brought to the notice of all officers working in your region.
Circular : No. 13 of 2001, dated 9-11-2001.
In an intimation or assessment charging interest under sections 234B and 234C on a minimum alternate tax liability the company did not pay advance tax on.
A company for assessment year 2001-02 computes total income under the normal provisions giving tax of Rs. 5 lakhs, while 7.5 per cent of its book profit is Rs. 12 lakhs. Its tax payable is Rs. 12 lakhs under section 115JB. On this circular it had to estimate that liability and pay advance tax on it in the instalments, and not wait until the return.
Source: the Income Tax Department’s own published text — its page for this instrument.
