MINIMUM ALTERNATIVE TAX : AN OVERVIEW
Section 115J which was a special provision applicable to a company if its total income as computed under the Income tax was less than thirty per cent of its book profit was introduced with effect from 1.4.1988 but was discontinued with effect from 1.4.1991. It was revived as Section 115J with effect from 1.4.1997 as a provision deeming total income equal to thirty per cent of book profit of companies referred to earlier. This provision was also discontinued with effect from 1.4.2001 but was substituted by Section 115JB effective from the same date. This provision follows concept of minimum alternate tax.
As provided cut in the Explanatory Memorandum to the Finance Bill, 2000, the Minimum Alternate Tax had been levied from the assessment year 1997-98 as the number of zero tax companies and companies paying marginal tax had proliferated. The efficacy of that provision, however, had declined in view of the exclusion of various sectors from the operation of MAT and the text credit systems. Hence, in its place the new provision of Section 155JB were inserted which are simpler in application. They provide that all companies having book profits under the Companies Act shall have to pay a minimum alternate tax at a rate of 15%. These provisions are applicable to all corporate entities. However, the profits received in convertible foreign exchange and eligible for deduction under Section AA have to exclude while working out book profits. According to this section, if the income tax payable by a company on its total income as computed under the income Tax Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2007, is less than 15% of such book profit plus surcharge if applicable, the tax payable for the relevant previous year shall be deemed to be 15% of such book profit plus surcharge as may be applicable from time to time. This non-absolute provision will override any other provision of the Income Tax Act.
Sub-section (2) of this section requires the company in this case will prepare its profit and loss account for the relevant previous year in accordance with the provisions of part II and III o0f Schedule VI of the companies Act, 1956. However, while preparing the annual accounts including profit and loss account—
The accounting policies;
The accounting standards followed for preparing such accounts including profit and loss accounts; and
The methods and rates adopted for calculating then depreciation,
Shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provision of Section 210 of the companies Act, 1956. But where the company has adopted or adopts the financial year, which is different from the previous year under the Income Tax Act, (a), (b) and (c) aforesaid shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for the financial year or a part of such financial year falling within the relevant previous year.
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