MAT - Minimum Alternate Tax - 115JB Income Tax Act, 1961

Section 115JB of Income Tax Act, 1961 sets out provision for calculation of Minimum Alternate tax.

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. For example if a company has Rs.100 crores as taxable income and its liability is to pay 33.99% tax (after adding surcharge) which works out to Rs.33.99 crores. However if for this company the book profit is Rs.600 crores and 15% of this Rs.600 crores is Rs.90 crores. Then the company is liable to pay Rs.101.97 crores (effective rate of MAT is 16.95% after adding surcharge and cess on 15%) as income tax and not Rs.33.99 crores.

For purpose of arriving at book profit section 115JB comes out with specific guidelines for addition, and ofcourse creates innumerable complications.

To add to these set of complications in this budget of 2009-10 a new amendment has been carried out in section 115JB retrospectively from 1.4.2001 (to negate a Supreme court judgement in CIT Vs HCL Comnet Systems and Services Ltd. (2008) 305 ITR409), under which “any amount set aside as a provision for diminution in the value of any asset would also be added back for calculation of book profit” – meaning thereby any provision for bad debts would require to be added back while calculating book profit.

Question which comes to every one’s mind is – why give all the exemptions, and then try to tax companies which avail of these exemptions? Is this efficient tax administration? On top of taxing allowing them to avail credit of this tax for next 10 years when they have actual taxable income more than 15% of book profit!!

Are these value additions!! I have serious doubts as this leads to innumerable interpretations and takes time away from the courts.