Minimum Alternate Tax - Impact of proposals of Finance Bill '12

S. 115JB creates a legal fiction regarding the total income of the assessees which are Companies and the book profit of the Company is deemed to be total income of the assessee in the specified circumstances. It also provides that every assessee, being a company shall for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. Currently various companies engaged in business of banking or insurance are required to prepare their accounts in the form and manner as laid down by the applicable respective banking or insurance laws. Erstwhile S. 115J specifically excluded Electricity Company within its ambit. However no such exclusion has been specially provided u/s 115JB. Hence issue arisen whether provision of minimum alternative tax are applicable to banking and insurance companies. In the series of decisions it was held that the under the applicable banking or electricity Act these companies are required to maintain their accounts in a different form than the one contemplated under section 115JB(2) ie Parts II and III of Schedule VI to the Companies Act, 1956. It was also observed that no obligating was casted on these companies to prepare another profit and loss account as prescribed under section 115JB(2) for the purpose of the Income-tax Act. Accordingly it was finally held that provisions of MAT are not applicable to Banking and Electricity companies. [Ref Kerala State Electricity Board v. DCIT [2011] 196 Taxman 1 (Ker), Union Bank of India v. ACIT [2012] 49 SOT 32 (Mum.), Maharashtra State Electricity Board v. JCIT [2002] 82 ITD 422 (Mum.)]

In order to nullify these decisions clause 46(i) of the Finance Bill proposes to replace sub-section (1) w.e.f. 1-4-2013. It is now provided that –

      a.       Every company, governed by special Acts and not required to prepare accounts as per the provisions of S.211(2) of Companies Act, 1956 shall prepare its profit and loss account as per the provisions of the Act governing such company;

     b.      Every other company for the purposes of S. 115JB, shall prepare its profit and loss account as per the Part II of Schedule VI to the Companies Act, 1956
      and such profit & loss account shall be considered as basis for computing the book profit u/s 115JB.

Proposed amendment would be applicable only with respect to those companies who are company and are exempted from preparation of profit & loss account as per the provisions Schedule VI of Companies Act, 1956. Post amendment, these categories of companies would fall within the ambit of MAT. In case entities not incorporated under Companies Act but are treated as company for the purposes of income-tax may still continue to remain outside the ambit of MAT. This position may also hold good even for foreign company.

Considering the omission of part III in revised the Schedule VI of the Companies Act, 1956 reference to part III has also been omitted in the replaced sub-section (1). However this may create certain anomaly for the companies during AY 2012-13, since revised Schedule VI is applicable to the companies having financial year beginning on or after 1-4-2011, whereas replaced provisions referring revised Schedule VI is applicable from previous year 2012-13. [Considering representation appropriate amendments has been made on this point at the time of passing Finance Bill '12 in the parliament]

(extracts from the article on Finance Bill 2012 published in Income Tax Review April 2012 Issue)