MAT ON UNIT AVAILING EXEMPTION U/S 80IB.
This query is : Resolved
16 September 2010
WE HAVE ESTABLISHED A NEW MFG COMPANY IN LAST YEAR AT ROORKEE WHERE WE ARE GETTING 100% EXEMPTION OF IT FOR FIRST 5 YEARS AND AFTERWARD 30% EXEMPTION FOR NEXT 5 YEARS.
WHETHER WE HAVE TO PAY MAT ON BOOK PROFIT ?
WHETHER WE HAVE TO PAY MAT ON BOOK PROFIT ?
16 September 2010
yes.. MAT will apply on the book profit.
16 September 2010
We are also an STPI organisation, availing IT exemption under section 10A.
MAT applies to us too.
MAT applies to us too.
16 September 2010
According to my senior proffesional freind,
As per Section 115JA, AT THE TIME OF CACULATION OF BOOK PROFIT , PROFIT FROM SUCH UNDERTAKING WILL BE REDUCED, I,E BOOK PROFIT WILL BE NIL, AND NO MAT WILL BE CACULATED .
As per Section 115JA, AT THE TIME OF CACULATION OF BOOK PROFIT , PROFIT FROM SUCH UNDERTAKING WILL BE REDUCED, I,E BOOK PROFIT WILL BE NIL, AND NO MAT WILL BE CACULATED .
16 September 2010
Deemed income relating to certain companies.
115JA. (1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, being a company, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 2[but before the 1st day of April, 2001] (hereafter in this section referred to as the relevant previous year) is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit.
(2) 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 (1 of 1956):
Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) :
Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year.
Explanation.—For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by—
(a) the amount of income-tax paid or payable, and the provision therefore; or
(b) the amounts carried to any reserves by whatever name called; or
(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or
(d) the amount by way of provision for losses of subsidiary companies; or
(e) the amount or amounts of dividends paid or proposed; or
(f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies;
10[(g) the amount or amounts set aside as provision for diminution in the value of any asset,
if any amount referred to in clauses (a) to (g) is debited to the profit and loss account, and as reduced by,—]
(i) the amount withdrawn from any reserves or provisions if any such amount is credited to the profit and loss account :
Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 3[but ending before the 1st day of April, 2001] shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation; or
(ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or
4[(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.
Explanation.—For the purposes of this clause,—
(a) the loss shall not include depreciation;
(b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or]
(iv) the amount of profits derived by an industrial undertaking from the business of generation or generation and distribution of power; or
(v) the amount of profits derived by an industrial undertaking located in an industrially backward State or district as referred to in 5[sub-section (4) and sub-section (5) of section 80-IB], for the assessment years such industrial undertaking is eligible to claim a deduction of hundred per cent of the 6[profits and gains under sub-section (4) or sub-section (5) of section 80-IB]; or
(vi) the amount of profits derived by an industrial undertaking from the business of developing, maintaining and operating any infrastructure facility 7[as defined in the Explanationto sub-section (4) of section 80-IA and subject to fulfilling the conditions laid down in that sub-section]; or
(vii) the amount of profits of sick industrial company for the assessment year commencing from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.
Explanation.—For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga)of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); 8[or]
9[(viii) the amount of profits eligible for deduction under section 80HHC, computed under clause (a), (b) or (c) of sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in sub-sections (4) and (4A) of that section;
(ix) the amount of profits eligible for deduction under section 80HHE, computed under sub-section (3) of that section.]
(3) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74 or sub-section (3) of section 74A.
(4) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section.]
--------------------------
Notes :-
1. Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-4-1997.
2. Inserted by the Finance Act, 2000, w.e.f. 1-4-2001.
3. Inserted by the Finance Act, 2000, w.e.f. 1-4-2001.
4. Substituted by the Finance Act, 2002, w.r.e.f. 1-4-1997. Prior to its substitution, clause (iii) and the Explanation thereto read as under :
"(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.
Explanation.—For the purposes of this clause, the loss shall not include depreciation; or"
5. Substituted for "sub-clause (b) or sub-clause (c) of clause (iv) of sub-section (2) of section 80-IA" by the Finance Act, 1999, w.e.f. 1-4-2000.
6. Substituted for "profits and gains under sub-section (5) of section 80-IA" by the Finance Act 1999, w.e.f. 1-4-2000.
7. Substituted for "under sub-section (12) of section 80-IA, and subject to fulfilling the conditions laid down in sub-section (4A) of section 80-IA" by the Finance Act, 1999, w.e.f. 1-4-2000.
8. Inserted by the Finance Act, 1997, w.e.f. 1-4-1998.
9. Inserted by the Finance Act, 1997, w.e.f. 1-4-1998.
10. Substituted vide Finance (No.2) Act, 2009, w.e.f. 1-4-1998, before it was read as, "if any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by,—"
115JA. (1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, being a company, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 2[but before the 1st day of April, 2001] (hereafter in this section referred to as the relevant previous year) is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit.
(2) 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 (1 of 1956):
Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) :
Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year.
Explanation.—For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by—
(a) the amount of income-tax paid or payable, and the provision therefore; or
(b) the amounts carried to any reserves by whatever name called; or
(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or
(d) the amount by way of provision for losses of subsidiary companies; or
(e) the amount or amounts of dividends paid or proposed; or
(f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies;
10[(g) the amount or amounts set aside as provision for diminution in the value of any asset,
if any amount referred to in clauses (a) to (g) is debited to the profit and loss account, and as reduced by,—]
(i) the amount withdrawn from any reserves or provisions if any such amount is credited to the profit and loss account :
Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 3[but ending before the 1st day of April, 2001] shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation; or
(ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or
4[(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.
Explanation.—For the purposes of this clause,—
(a) the loss shall not include depreciation;
(b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or]
(iv) the amount of profits derived by an industrial undertaking from the business of generation or generation and distribution of power; or
(v) the amount of profits derived by an industrial undertaking located in an industrially backward State or district as referred to in 5[sub-section (4) and sub-section (5) of section 80-IB], for the assessment years such industrial undertaking is eligible to claim a deduction of hundred per cent of the 6[profits and gains under sub-section (4) or sub-section (5) of section 80-IB]; or
(vi) the amount of profits derived by an industrial undertaking from the business of developing, maintaining and operating any infrastructure facility 7[as defined in the Explanationto sub-section (4) of section 80-IA and subject to fulfilling the conditions laid down in that sub-section]; or
(vii) the amount of profits of sick industrial company for the assessment year commencing from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.
Explanation.—For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga)of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); 8[or]
9[(viii) the amount of profits eligible for deduction under section 80HHC, computed under clause (a), (b) or (c) of sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in sub-sections (4) and (4A) of that section;
(ix) the amount of profits eligible for deduction under section 80HHE, computed under sub-section (3) of that section.]
(3) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74 or sub-section (3) of section 74A.
(4) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section.]
--------------------------
Notes :-
1. Inserted by the Finance (No. 2) Act, 1996, w.e.f. 1-4-1997.
2. Inserted by the Finance Act, 2000, w.e.f. 1-4-2001.
3. Inserted by the Finance Act, 2000, w.e.f. 1-4-2001.
4. Substituted by the Finance Act, 2002, w.r.e.f. 1-4-1997. Prior to its substitution, clause (iii) and the Explanation thereto read as under :
"(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.
Explanation.—For the purposes of this clause, the loss shall not include depreciation; or"
5. Substituted for "sub-clause (b) or sub-clause (c) of clause (iv) of sub-section (2) of section 80-IA" by the Finance Act, 1999, w.e.f. 1-4-2000.
6. Substituted for "profits and gains under sub-section (5) of section 80-IA" by the Finance Act 1999, w.e.f. 1-4-2000.
7. Substituted for "under sub-section (12) of section 80-IA, and subject to fulfilling the conditions laid down in sub-section (4A) of section 80-IA" by the Finance Act, 1999, w.e.f. 1-4-2000.
8. Inserted by the Finance Act, 1997, w.e.f. 1-4-1998.
9. Inserted by the Finance Act, 1997, w.e.f. 1-4-1998.
10. Substituted vide Finance (No.2) Act, 2009, w.e.f. 1-4-1998, before it was read as, "if any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by,—"
16 September 2010
The provisions of MAT are applicable to infrastructure companies, who otherwise enjoy the benefits of the provisions of section 80-IA of the Act. These companies are usually incurring losses in the initial phase of their start up and make profits only after a long gestation period. On account of the MAT provisions, these companies are liable to pay MAT.
16 September 2010
THANKS FOR FEEDBACK VINOD JI.
OUR COMPANIES IS COVERED U/S 80IB.
AS PER SECTION 115JA
BOOK PROFIT REDUCED BY
(v) the amount of profits derived by an industrial undertaking located in an industrially backward State or district as referred to in 5[sub-section (4) and sub-section (5) of section 80-IB], for the assessment years such industrial undertaking is eligible to claim a deduction of hundred per cent of the 6[profits and gains under sub-section (4) or sub-section (5) of section 80-IB];
PLEASE GIVE YOUR VALUABLE ADVISE ON ABOVE FACTS.
OUR COMPANIES IS COVERED U/S 80IB.
AS PER SECTION 115JA
BOOK PROFIT REDUCED BY
(v) the amount of profits derived by an industrial undertaking located in an industrially backward State or district as referred to in 5[sub-section (4) and sub-section (5) of section 80-IB], for the assessment years such industrial undertaking is eligible to claim a deduction of hundred per cent of the 6[profits and gains under sub-section (4) or sub-section (5) of section 80-IB];
PLEASE GIVE YOUR VALUABLE ADVISE ON ABOVE FACTS.
16 September 2010
SORRY FRIENDS.
SECTION 115JA VALIDITY UPTO 2001 , HENCE IT IS NOT VALID AS NOW.
WHAT IS PRESENT STATUS OF MAT IN CASE OF 80IB COMPANIES
SECTION 115JA VALIDITY UPTO 2001 , HENCE IT IS NOT VALID AS NOW.
WHAT IS PRESENT STATUS OF MAT IN CASE OF 80IB COMPANIES
16 September 2010
Presently section applicable for MAT is 115JB of the Income Tax Act.
In the said section there are many permissible reductions from net profit like loss brought forward or unabsorbed depreciation, whichever is less, section 80HHC, 80HHE, 80HHF, income exempt u/s 10. Also the said section is not applicable toto the income accrued or arising on or after the 1st day of April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be.
So in your case Section 80IB profits is not there is any of the permissible reductions and hence MAT will have to be on the book profits as computed u/s 115JB.
In the said section there are many permissible reductions from net profit like loss brought forward or unabsorbed depreciation, whichever is less, section 80HHC, 80HHE, 80HHF, income exempt u/s 10. Also the said section is not applicable toto the income accrued or arising on or after the 1st day of April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be.
So in your case Section 80IB profits is not there is any of the permissible reductions and hence MAT will have to be on the book profits as computed u/s 115JB.
16 September 2010
My understanding says, Aditya Ji's observation is corect.
17 September 2010
SOME OF PROFESSIONAL ARE GIVING THE SAME OPINION ACCORDING TO SECTION 115JB.
BUT IF WE HAVE TO PAID MAT, THEN WHAT IS THE BENEFIT OF TAX EXEMPTION .
NOW WE HAVE TO PAID MAT AND CLAIMING SET OFF OF THIS MAT AFTER 5 YEARS WHEN THE COMPANY HAS TO PAY TAX.
ONE OF MY CA FREIND TOLD THAT THERE IS A CASE LAW REGARDIGN THIS , BUT HE IS REMINDING IT AT NOW.
BUT IF WE HAVE TO PAID MAT, THEN WHAT IS THE BENEFIT OF TAX EXEMPTION .
NOW WE HAVE TO PAID MAT AND CLAIMING SET OFF OF THIS MAT AFTER 5 YEARS WHEN THE COMPANY HAS TO PAY TAX.
ONE OF MY CA FREIND TOLD THAT THERE IS A CASE LAW REGARDIGN THIS , BUT HE IS REMINDING IT AT NOW.
17 September 2010
The section now being referred is 115JB and not 115JA. There was a specific reduction in 115JA whereas the same is not there in 115Jb hence MAT has to be paid.
Now for the general query of granting an allowance and then making to pay tax on it is wrong but i think the same is given so that small industries like proprietorship & partnerships firms can develop and set off factories out there in the backward areas and not only big companies do business there and get the benefit as the benefit for companies is reduced as they are made to pay MAT on the income. So though the big companies set up factories there but leave some space for small units also.
Though i do not acutally know what is the reason but i think this could be the reason to encourage SSI units and not be an attraction for big companies only.
Now for the general query of granting an allowance and then making to pay tax on it is wrong but i think the same is given so that small industries like proprietorship & partnerships firms can develop and set off factories out there in the backward areas and not only big companies do business there and get the benefit as the benefit for companies is reduced as they are made to pay MAT on the income. So though the big companies set up factories there but leave some space for small units also.
Though i do not acutally know what is the reason but i think this could be the reason to encourage SSI units and not be an attraction for big companies only.
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