Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Minimum Alternate Tax (MAT) – CA Final DT Question Bank is designed strictly as per the latest syllabus and exam pattern.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Question 1.
ABC Pvt. Ltd. made a provision of ₹ 30 lakhs for doubtful debts by debit to statement of profit and loss account. The A.O. while computing ‘Book Profit’ u/s 115JB wants to add back the provision. Is the A.O. justified in making such addition for computing Book Profit? [CA Final May 2010] [2 Marks]
Answer:
As per Fixplamuion 1 to See. 115JB, for the purpose of computing book profit “any provision for diminution in the value of any asset” shall be added back to the Profits computed as per Schedule III of the Com- panics Act, 2013.

Since, the provision for bad and doubtful debts is a provision for diminution in the value of debtors (which is an asset), such provision shall be added back in the compulation of Book Profits of the Company.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Question 2.
The profit of TGP Ltd. as per Statement of Profit & Loss Account for the previous year 2020-21 is ₹ 100 lakhs after debiting/crediting the following items:
(i) Proposed Dividend : ₹ 25 lakhs
(ii) Provision for Income-tax : ₹ 20 lakhs
(iii) Provision for Deferred tax : ₹ 8 lakhs
(iv) Depreciation debited to Statement of Profit & Loss Account is ₹ 12 lakhs. This includes depreciation on revaluation of asset to the tune ₹ of ₹ 2 lakhs.
(v) Profit from unit established in Special Economic Zone : ₹ 30 lakhs
(vi) Provision for permanent diminution in value of investments : ₹ 2 lakhs
Brought forward losses and unabsorbed depreciation as per books of company are as follows: (₹ in lakhs)

Previous year Brought forward loss Unabsorbed Depreciation
2017-18 3 6
2018-19 2
2019-20 10 4

Compute book profit of the company u/s 115JB for A.Y. 2021-22. [CA Final Nov. 2010] [9 Marks]
Answer:
Computation of book profit of ABP Ltd. u/s 115JB for A.Y. 2021-22
Minimum Alternate Tax (MAT) – CA Final DT Question Bank 1
Note: Profit from unit established in SEZ, though deductible u/s 10AA, but is not to be deducted for compulation of book profit u/s 115JB.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Question 3.
ABC Ltd. has claimed exemption on Long Term Capital Gains u/s 54EC by investing in bonds of NHAI within the prescribed time. In the computation of “Book Profit” u/s 115JB, the company claimed exclusion of Long Term Capital Gains because of exemption available on it by virtue of section 54EC. The A.O. included long term capital gains for the purpose of levy of MAT u/s 115JB. Is the action of the A.O. justified in law? [CA Final Nov. 2011] [4 Marks]
Answer:
As per the Kerala High Court in the ease of N.J. Jose and Co. P. Ltd. v. ACIT (Ker.) while computing book profit, il the long term capital gain is included in statement of P & L account, (hen such amount cannot be deducted u/s 115JB, since there is no specific exclusion for long term capital gain. So the action of the A.O. is correct.

Question 4.
XYZ Limited’s Profit & Loss Account for the year ended 31sl March; 2021 shows a net profit of ₹ 75 lakhs after debiting/crediting the following items:
(i) Depreciation ₹ 24 lakhs (including ₹ 4 lakhs on revaluation).
(ii) Interest to financial institution not paid before due date of filing return of income ₹ 6 lakhs.
(iii) Provision for doubtful debts ₹ 1 lakh.
(iv) Provision for unascertained liabilities ₹ 2 lakhs.
(v) Transfer to General Reserve ₹ 5 lakhs.
(vi) Net Agricultural Income ₹ 16 lakhs
(vii) Amount withdrawn from Reserve created during 2017-18 ₹ 3 lakhs. (Book profit was increased by the amount transferred to such reserve in Assessment Year 2018-19)

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Other Information:
Brought forward loss and unabsorbed depreciation as per books are ₹ 12 lakhs and ₹ 10 lakhs, respectively.
Compute minimum alternate tax under section 115JB for A.Y. 2021-22. [CA Final May 2013] [8 Marks]
Answer:
Computation of ‘Book Profit’ for levy of MAT u/s 115JB for A.Y. 2021-22
Minimum Alternate Tax (MAT) – CA Final DT Question Bank 2

Computation of MAT liability u/s 115JB

15% of book prolit

Add: Health & Education Cess @ 4%

8,70,000

34,800

Minimum Alternate Tax liability 9,04,800

Notes:

  1. Since, interest to financial institution not paid before due date is not specifically mentioned under Explanation 1 to Sec. 115JB, it cannot be adjusted from the profit for computing book profit.
  2. Amount withdrawn from reserve is to be excluded while computing “Book Profit” as the said amount was added and increased the book profit of the earlier assessment year.
  3. As per section 115JB, the amount of brought forward loss or unabsorbed depreciation as per books, whichever is less, has to be reduced from profit. In the present question, unabsorbed depreciation is ₹ 10,00,000 and brought forward loss is ₹ 12,00,000 and therefore, ₹ 10,00,000 shall be deducted.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Question 5.
Examine and explain in the context of provisions contained in the Act as to correctness of the action taken by the A.O. of making adjustments for the following items while assessing the Book Profits of Sonu Pvt. Ltd. for the year ended 31.03.2021:

  1. Prior period expenses of ₹ 3 Lakhs debited in statement of profit and loss account.
  2. Depreciation computed at 9.5% as per useful life prescribed under Schedule II of the Companies Act, 2013 charged for whole of the year on the Car valuing ₹ 20 Lakhs purchased on 01.01.2021 in statement of profit and loss account. [CA Final Nov. 2013] [4 Marks]

Answer:
While computing the Book Profit u/s 1 15JB, only those adjustments as provided in the Explanation 1 to section 115JB should be applied.

Any other provisions of the Income Tax Act should not be applied in computation ot Book Profit. All other adjustments under the Act shall be considered only in compulation of Total Income.
Therefore,
(i) Prior period expense cannot be added back, if it is in consonance with the accounting principles and accounting standards adopted by the Company for presentation of accounts at its AGM.

(ii) Depreciation on car I or the period of 9 months prior to its purchase can be added back, since the Companies Act recognizes time proportionate depreciation for assets put to use for part of the year. In such case, depreciation added back = ₹ 20 lakhs × 9.5 % × 9/12 = ₹ 1,42,500.

Alternative view for Depreciation:
The rates prescribed under Schedule II of the Companies Act constitute for maximum useful life. In case the Company has been regularly following the policy of charging full rate of depreciation irrespective of the date of asset purchase, in such case, the amount of depreciation cannot be added back.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Question 6.
Maitri Jeans (P) Ltd. is in the business of manufacturing jeans. For the assessment year 2021-22 it paid tax @ 15% on its book profit computed u/s 115JB. The A.O. though satisfied that it is liable to pay book profit tax u/s 115JB, wants to charge interest u/ss 234B and 234C as no advance tax was paid during the financial year 2020-21. The company seeks your opinion on the proposed levy of interest. Advice. [CA Final May 2015, Nov. 2013] [4 Marks]
Answer:
In the case of JCITv. Rolta India Ltd., the Supreme Court observed that sec. 115JB(5) provides that all other provisions of the Act shall apply to every assessee, being a company mentioned in that section. Based on this provision, the liability of Advance Tax is attracted on MAT. So, if a company defaults in payment of Advance Tax, it would be liable to pay interest u/ss 234B and 234C.

Therefore, even though Maitri Jeans (P) Ltd. is assessed on the basis of its book profit u/s 1 15JB for A.Y. 2021-22, it is liable to pay advance tax. Since Maitri Jeans (P) Ltd. has not paid any advance tax during the financial year 2020-21, the levy of interest u/ss 234B and 234C is valid.

Question 7.
Sona Ltd., a resident company, earned a profit of ₹ 15 lakhs after debit/credit of the following items to its Statement of Profit and Loss for the year ended on 31.03.2021:
(i) Items debited to Statement of Profit and Loss: ₹
Provision for the loss of subsidiary : 70,000
Provision for doubtful debts : 75,000
Provision for income tax : 1,05,000
Provision for gratuity based on actuarial valuation : 2,00,000
Depreciation : 3,60,000
Interest to financial institution (unpaid before filing of re-turn) : 1,00,000
Penalty for infraction of law : 50,000

(ii) Items credited to Statement of Profit and Loss:
Profit from unit established in special economic zone : 70,000
Share in income of an AOP as a member : 75,000
Income from units of UTI : 1,05,000
Long term capital gains : 2,00,000

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Other Information:
(i) Depreciation includes ₹ 1,50,000 on account of revaluation of fixed assets.
(ii) Depreciation as per Income-tax Rules is ₹ 2,80,000.
(iii) Balance of Statement of Profit and Loss shown in Balance Sheet at the asset side as at 31.03.2020 was ₹ 10 lakhs which includes unabsorbed depreciation of ₹ 4 lakhs.
(iv) The capital gain has been invested in specified assets under section 54EC
(v) The AOP, of which the company is a member, has paid tax at maximum marginal rate.
(vi) Provision for income-tax includes ₹ 45,000 of interest payable on income-tax.

Compute minimum alternate tax u/s 115JB of the Income-tax Act, 1961, for A.Y. 2021-22. [CA Final May 2016] [10 Marks]
Answer:
Computation of “Book Profit” for levy of MAT u/s 115JB for A.Y. 2021 -22
Minimum Alternate Tax (MAT) – CA Final DT Question Bank 3

Computation of MAT liability u/s 115JB

15% of book profit

Add: Health & Education Cess @ 4%

2,13,750

8,550

Minimum Alternate Tax liability 2,22,300

Notes:
(1) As per Explanation 2 to section 115JB, income tax shall include, inter alia, any interest charged under the Act, therefore, the amount of provision for income-tax including ₹ 45,000 towards interest payable has to be added.

(2) In a case, where AOP has paid tax on its total income at maximum marginal rate, no income-tax is payable by the company, being a member of AOP, in accordance with the provisions of section 86. Therefore, as per clause (iic) of Explanation 1 to section 115JB, share ; in income of an AOP on which no income-tax is payable in accordance with the provisions of section 86, would be reduced while computing book profit, since the same has been credited to statement of profit and loss account.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

(3) As per the amendment made by the Finance Act, 2020, w.e.f. A.Y. 2021-22, the income from units of UTI is not exempt u/s 10(35) but shall be taxable in the hands of unitholders and therefore, it shall not be reduced while computing book profits.

(4) As per clause (iii) of Explanation 1 to section 115JB, lower of unabsorbed depreciation ₹ 4,00,000 and brought forward business loss ₹ 6,00,000 as per books of account has to be reduced while computing the book profit.

(5) Items which are not specifically mentioned under Explanation 1 to section 115JB cannot be adjusted from the profit for computing book profit for levy of MAT and therefore, the following items since not specifically mentioned thereunder cannot be adjusted for computing book profit:

  • Interest to financial institution (unpaid before filing of return) and
  • Penalty for infraction of law

(6) Provision for gratuity based on actuarial valuation is an ascertained liability [CIT v. Echjay Forgings (P) Ltd. (2001) (Bom.)]. Hence, the same should not be added back to compute book profit.

(7) As per proviso to section 115 JB(6), the profits from unit established in special economic zone cannot be excluded while computing the book profit, and hence, such income would be liable for MAT.

(8) Long-term capital gains cannot be deducted while computing book profit even if such amount of capital gains is invested in specified assets under section 54EC, since book profit has to be computed by adding/ deducting the items mentioned under Explanation 1 to section 115JB alone. Capital Gains reflected in the statement of profit and loss shall be part of book profit under section 115JB. Capital gains exempted under section 54EC cannot also be excluded for computing book profit. [CIT v. Veekaylal Investment Co. P. Ltd. (2001) (Bom.)’& N Jose and Co. (P) Ltd. v. ACIT (2010) (Ker.)]

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Question 8.
Share of member of an AOP/BOI in the income of the AOP/BOI is to be reduced from net profit for computing “book profit” for levy of minimum alternate tax with effect from Assessment Year 2016-17. Explain the rationale behind the amendment. [CA Final Nov. 2016] [4 Marks]
Answer:
Under section 86, no income-tax is payable on the share of a member of an AOP/BOI in the income of the AOP/BOI in certain circumstances. A company which is a member of an AOP is also not required to pay tax in respect of its share in the income of the AOP/BOI in such cases.

However, under section 115JB, a company which is a member of an AOP/ BOI was liable to pay Minimum Alternate Tax (MAT) on such share, since such income was not excluded from the book profit while computing the MAT liability of the member, being a company upto A.Y. 2015-16.

It may be noted that in the case of a partner of a firm, t he share in the profits of the firm is exempt in the hands of the partner as per section 10(2A) and no MAT is payable by the partner on such profits, since income in respect of which any provision of section 10 [other than section 10(38)] applies, has to be reduced for computing book profit for levy of MAT.

In order to ensure equity, with effect from A.Y 2016-17, it has been provided that, as per clause (iic) inserted in Explanation 1 to section 115JB, the share of a member of an AOP or BOI, in the income of the AOP or BOI, on which no income-tax is payable in accordance with the provisions of section 86, should be reduced while computing book profit for levy of MAT, if any such amount is credited to profit and loss account.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Question 9.
Viraj Exports Limited, a domestic company, earned profit of ₹ 95 lakhs as per statement of Profit and Loss Account for the year ended 31.3.2021, after debiting or crediting the following items:
Minimum Alternate Tax (MAT) – CA Final DT Question Bank 4

Other Information:
(a) Depreciation as per the Income-tax Act, 1961 ₹ 3,50,000.
(b) Depreciation (as per books) includes ₹ 1,90,000 on account of revaluation of assets.
(c) Interest on borrowed capital ₹ 1,00,000 payable to Y, not debited to profit and loss account.
(d) Profit and Loss account in balance sheet on the assets side as at 31.03.2020 was ₹ 4,70,000 which included unabsorbed depreciation of ₹ 4,10,000.
(e) The company is an eligible assessee as per the provision of section 115BBF of Income Tax Act 1961.
Compute the minimum alternate tax (MAT) under section 115JB of the Income-tax Act, 1961. [CA Final May 2017] [10 Marks]
Answer:
Computation of “Book Profit” for levy of MAT under section 115JB for A.Y. 2021-22
Minimum Alternate Tax (MAT) – CA Final DT Question Bank 5

Notes:
(1) As per Explanation 2 to 115JB(2), income tax shall include, inter alia, any interest charged under the Act. So the whole amount of provision for income-tax including ₹ 50,000 towards interest payable has to be added.

(2) As per Explanation 1 to 115JB(2), amount carried to any reserve, by whatever name called shall be added back for computing book profit.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

(3) Net agricultural income shall be reduced as per Explanation 1 to section 115JB(2), since it is exempt under section 10(1). However, dividend income shall not be reduced, since as per the amendment made by the Finance Act, 2020, the dividends are not exempt u/s 10(34) but shall be taxable in the hands of shareholders.

(4) Long term profit on sale of rural agricultural land is not chargeable to tax under the normal provisions of the Income-tax Act, 1961, since rural agricultural land is not a capital asset as per section 2(14). However, the same cannot be reduced while computing book profit, since no express provision is there u/s 115JB to exclude such profits while computing book profit. Therefore, profit on sale of rural agricultural land reflected in the statement of profit and loss shall be part of book profit, though the same is not chargeable to tax as per normal provisions.

Note: An alternate view is possible that the capital gains on sale of rural agricultural land is to be reduced while computing book profit, by considering the same as agricultural income [based on the interpretation derived from a plain reading of clause (a) of section 2(1A) along with Explanation 1 thereto],

(5) As per proviso to section 115JB(6), the profits from unit established in SEZ cannot be excluded while computing book profit, and hence, such income would be liable for MAT.

(6) As per Explanation 1 to section 115 JB, income from royalty in respect of patent developed and registered in India shall be .excluded from book profit, since the same is chargeable to tax u/s 115BBF.

(7) No adjustment is required in respect of interest on borrowed capital of ₹ 1,00,000 payable to Y, not debited to profit and loss account, since the profit as per the Statement of Profit and Loss prepared as per the Companies Act and the items specified for exclusion/inclusion under section 115 JB alone have to be considered while computing the book profit for levy of MAT.

(8) As per Explanation 1 to section 115JB(2), lower of unabsorbed depreciation ₹ 4,10,000 and brought forward business loss ₹ 60,000 as per books of account has to be reduced while computing the book profit.

(9) Items which are not specifically mentioned under Explanation 1 to section 115JB(2) cannot be adjusted from the profit for computing book profit for levy of MAT and therefore, the following items since not specifically mentioned thereunder cannot be adjusted for computing book profit:

  • Sale tax liability
  • Interest to financial institution (unpaid before filing of return) and
  • Penalty for infraction of law.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Question 10.
Arnold Ltd. (incorporated in UK) has a branch office (PE) in India. The Net Profit of the Branch as per the statement of profit and loss for the year ended 31.03.2021 was ₹ 83 lakhs. It includes the following:
(i) Dividend from Indian companies (listed) ₹ 8,00,000.
(ii) Dividend from Indian companies (unlisted) ₹ 4,00,000.
(iii) Interest received from MMS Ltd. of Mumbai ₹ 7,00,000. The amount was received by the Indian company MMS Ltd. in foreign currency as per loan agreement dated 01.04.2016 (Sec. 194LC applicable).
(iv) Fee for technical services received from Barun Co. Ltd., Kolkata ₹ 25,00,000. The agreement was made on 10.08.2009 and was approved by Central Government. Expenditure incurred for providing technical service amounts to ₹ 6,00,000.

Additional information:
Total income chargeable to tax as per regular provisions of the Income-tax Act, 1961 (Act) is ₹ 20,00,000 (without considering the items (i) to (iv) above).
Compute the book profit and tax u/ s 115JB for the A.Y. 2021 -22 and also the total income-tax liability of the assessee. [CA Final May 2018 (Old Syllabus)] [10 Marks]
Answer:
Computation of Book Profit of Arnold Ltd. u/s 115JB for A.Y. 2021-22

Net Profit as per the statement of Profit and loss account

Less: Net Profit to be decreased [As per Explanation 1 to Sec. 115JB]

Interest received from MMS Ltd. of Mumbai [Note 2]

83,00,000

(7,00,000)

Book Profit as per Sec. 115JB 76,00,000

Computation of Tax payable as per the provisions of MAT

15% of book profit

Add: Health & Education cess @ 4%

11,40,000

45,600

11,85,600

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Notes:
1. As per Explanation 1 to Sec. 115JB, income which is exempt u/s 10 shall be reduced from the net profit while computing book profit. However, from A.Y. 2021-22, the dividends are not exempt u/s 10(34) but are taxable in the hands of the shareholders. Therefore, it shall not be reduced from net profit while computing book profit.

2. As per Explanation 1 to Sec. 115JB, interest received by a foreign company and chargeable to tax at the rates specified in Chapter XII which is less than the rate specified in Sec. 115JB(1) i.e. 15%, shall be reduced from the net profit while computing book profit. The interest received from MMS Ltd. of Mumbai shall be chargeable under Chapter XII @ 5% and therefore, it shall be reduced from the net profit.

3. Fees for technical services has not been reduced from the net profit by assuming that Arnold Ltd. has choose to tax the same on the net income basis u/s 44DA.

Computation of Total Income of Arnold Ltd. as per Normal Provisions
Minimum Alternate Tax (MAT) – CA Final DT Question Bank 7

Computation of Tax payable as per Normal Provisions

Tax u/s 115A(1) (a) (₹ 7,00,000 × 5%)

Tax on Balance Amount (₹ 51,00,000 × 40%)

35,000

20,40,000

Total tax

Add: Health & Education cess @ 4%

20,75,000

83,000

Total Tax Liability 21,58,000

Since, the tax liability of Arnold Ltd. under the normal provisions is higher that the tax liability under the provisions of MAT, Arnold Ltd. will be liable to pay the tax under the normal provisions and its tax liability shall be ₹ 21,58,000.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Question 11.
Zenith Formulations Ltd., an Indian Company engaged in pharmaceutical formulations in Tamil Nadu, started adoption of Ind AS compliance with effect from 1st April, 2019. The following particulars are furnished for the year ended 31st March, 2021:

(i) The book profits after adjustments of all items specified in section 115JB(2) amounted to ₹ 52.26 lakhs (except the adjustment for brought forward losses), for the year ended 31.3,2021.
(ii) Brought forward losses as per books are as under : (₹ In lakhs)

Financial Year Business loss Depreciation
2017-18 4.60 4.90
2018-19 1.75 2.20

(iii) The business loss of ₹ 4,60 lakhs and ₹ 1.75 lakhs have been deducted h while computing book profits u/s 115JB for the assessment years 2019-20 & 2020-21, respectively.
(iv) The particulars of Other Comprehensive Income for the year ended 31.03.2021: (₹ In lakhs)
Minimum Alternate Tax (MAT) – CA Final DT Question Bank 6
(v) The transition amount as on convergence date (01-04-2019) stood at ₹ 52.50 lakhs (credit balance) include capital reserve of ₹ 8 lakhs and adjustment of ₹ 4.50 lakhs relating to translation difference in a foreign operation.

(vi) The National Company Law Tribunal (NCLT), Chennai Bench has admitted an application under section 7 of Insolvency and Bankruptcy Code, 2016 (IBC) made by financial creditor against the company for initiation of Corporate Insolvency Resolution Process on 30lh March, 2021.

Compute the MAT liability for the assessment year 2021-22. applying the provisions relating to Ind AS compliant companies.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Assuming that the income tax under normal provisions of Income-tax Act, 1961 for the assessment year 2021-22 works out to ₹ 7.20 lakhs, compute the tax credit, if any, to be carried forward by the company including the period up to which it will be available to be carried forward. [CA Final Nov. 2018 (Old Syllabus)] [10 Marks]
Answer:
Computation of Book Profit of Zenith Formulations Ltd. u/s 115JB for A.Y. 2021-22
Minimum Alternate Tax (MAT) – CA Final DT Question Bank 8

Computation of Tax Payable as per provisions of MAT
Minimum Alternate Tax (MAT) – CA Final DT Question Bank 9
In the present case, since income-tax payable (computed) on total income as per the provisions of the Act is less than 15% of book profit, the book profit of ₹ 63,96,000 is deemed to be the total income and income-tax is payable @15% thereof plus Health & Education cess @ 4%. The tax liability, therefore, works out to be ₹ 9,97,776.

Section 115JAA provides that where tax is paid in any assessment year in relation to the deemed income under section 115 JB( 1), the excess of tax so paid, over and above the tax payable under the other provisions of the Income-tax Act, 1961, will be allowed as tax credit in the subsequent years.

The said tax credit is allowed to be carried forward for 15 assessment years succeeding the assessment year in which the credit became allowable.

Such credit is allowed to be set-off against the tax payable on the total income in an assessment year in which the tax is computed in accordance with the provisions of the Act, other than section 115JB, to the extent of excess of such tax payable over the tax payable on book profits in that year.
Minimum Alternate Tax (MAT) – CA Final DT Question Bank 10

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Question 12.
Anustup Chandra Flour mills Ltd, a domestic company engaged in manufacture of wheat flow, furnishes the following information pertaining to the year ended 31.3.2021:

(i) Net profit as per the statement of Profit and Loss is ₹ 77 lakhs, after considering the items listed in (ii) to (vi) below.

(ii) The company i§ a member of Vishnu Food & Co., an AOP in which the members’ shares are determinate and their shares in profit/loss are clearly known. The entire income of the AOP is from business activities. During the year, the company has derived share income of ₹ 9 lakhs frorfi the AOP. The company has spent a sum of ₹ 90,000 towards earning such income.

(iii) The company has provided for income-tax (including interest under sections 234B and 234C of ₹ 62,000) for ₹ 3 lakhs, and ₹ 5 lakhs towards share in loss of foreign subsidiary.

(iv) Amount debited to the statement Profit and Loss towards interest to a public financial institution is ₹ 12 lakhs. Of this, ₹ 4 lakhs was paid on 12-12-2020 only.

(v) The company committed breach of building norms while extending the factory building. The City Corporation initiated proceedings against the company and the company settled the issue by paying compounding fee of ₹ 1 lakh. This amount forms part of general expenses, which has been debited to the statement Profit and Loss.

(vi) In the administrative expenses, the company has debited a sum of ₹ 70,000 towards fee for delayed filing of statement of TDS under section 234E of the Income-tax Act, 1961.

(vii) The company has credited revaluation surplus of ₹ 10 lakhs on fair valuation of assets under Ind AS 16 and Ind AS 38 to other equity.

(viii) The company has credited ₹ 5 lakhs to other comprehensive income ! on fair valuation of equity instruments in which the company has Investment.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

During the current year, the depreciation charged as per books of account of the company is the same as allowable under the IT Act, 1961 [before considering the provisions of section 32(2)]. The company proposes to adopt this practice consistently in the future years.

You are required to compute the income-tax payable by the company for the assessment year 2021-22. The company is an Indian Accounting standard compliant company.
Note: The Turnover of company for the P.Y. 2018-19 was ₹ 400 crore. [CA Final Nov. 2018 (New Syllabus] [14 Marks]
Answer:
Computation of Total Income of Anustup Chandra Flour Mills Ltd for the A.Y. 2021-22
Minimum Alternate Tax (MAT) – CA Final DT Question Bank 11
Minimum Alternate Tax (MAT) – CA Final DT Question Bank 12

Computation of Tax Payable as per provisions of MAT

15% of book profit

Add: Health & Education Cess @ 4%

11,53,500

46,140

11,99,640

In the present case, since the income-tax payable on the total income computed as per the provisions of the Act is not less than 15% of its book profit, section 115JB will not apply for A.Y. 2021-22. So, the company’s total income is ₹ 85,90,000 and the tax liability therefore works out to be ₹ 22,33,400.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Notes:
1. As per Sec. 43B, interest paid to Public Financial Institution shall be allowed as deduction only if it is paid on or before the due date for of furnishing ROI u/s 139(1) in respect of the previous year in which the liability to pay such sum is incurred. In this case, out of ₹ 12,00,000 payable towards interest to Public Financial Institution, only ₹ 4,00,000 has been paid on 12.12.2020 and balance is still outstanding. Therefore, ₹ 8,00,000 (₹ 12,00,000 – ₹ 4,00,000) shall be disallowed u/s 43B.

2. As per Sec. 37, any expenditure incurred wholly and exclusively for the purpose of business or profession is allowed as deduction. The fee paid u/s 234E is not in the nature of penalty or interest. The Legislature has consciously used the word ‘penalty’ and ‘interest’ at other places in contradiction to the word ‘fee’. Also, there is no express provision in the Act which disallows such fee paid and therefore, fee paid u/s 234E is allowable as deduction while computing business income.

3. Since, Explanation 1 to Sec. 115JB does not provide for adjustments relating to compounding fee paid and fee paid towards delay in filing statement of TDS u/s 234E, no adjustment relating to such items has been made while computing the book profit u/s 115JB.

4. As per Sec. 115 JB(2 A), in case of a company whose financial statements are drawn up in compliance with Indian Accounting Standards, the book profit as computed in accordance with Explanation 1 to Sec. 115JB(2) shall be further increased by all amounts credited to other comprehensive income in the statement of profit and loss under the head “Items that will not be re-classified to profit and loss”. However, such provision shall not be applicable in respect of following amounts credited to other comprehensive income under the head “Items that will not be re-classified to profit and loss”:

  1. Revaluation surplus for assets as per IndAS 16 and IndAS 38;
  2. Gains or losses from investments in equity instruments designated as fair value through other comprehensive income as per IndAS 109.

Therefore, the revaluation surplus of ₹ 10,00,000 credited to other equity on fair valuation of assets and ₹ 5,00,000 credited to other comprehensive income on fair valuation of equity instruments shall not be credited while computing book profit.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Question 13.
Alpha and Beta Tyres Limited, an Indian Company engaged in the manufacture of Tyres in Andhra Pradesh has adopted Ind AS from 1-4- I 2017. The following particulars are provided for the year ended 31.3.2021:

1. Net profit as per statement of profit and loss is 20 crores after debit and credit of the following items:
Items Debited:

  1. Depreciation ₹ 18 crores. Included in depreciation is 3 crores being amount provided on revalued assets.
  2. Interest charged for delay in remittance of Tax Deducted at Source ₹ 20 lakhs.

Items Credited:

  1. Share Income from Association of Persons in which the company is a member 50 lakhs. (The AO P is charged to tax at Maximum Marginal Rate) ‘
  2. Amount of ₹ 6 crores withdrawn from revaluation reserves on account of revaluation of assets.

Other Information:

  1. The application of a financial creditor for corporate insolvency res-olution process has been admitted by the Hyderabad Bench of the National Company Law Tribunal u/s 7 of the Insolvency and Bank-ruptcy Code, 2016.
  2. Brought forward business loss and depreciation.
Assessment Year Business Loss Depreciation
2017-18 ₹ 3 crores ₹ 1 crore
2018-19 ₹ 5 crores ₹ 2 crores

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

3. Items credited to Other Comprehensive Income which will not be reclassified to profit or loss :

  1. Re-measurement of defined employee retirement benefits plan ₹ 50 lakhs.
  2. Revaluation surplus of property, plant and equipment ₹ 1 crore.

4. The transition amount as on convergence date 1-4-2017 stood at ₹ 5 crores including capital reserve of ₹ 50 lakhs (credit balance).

5. Tax payable under the regular provisions of the Income Tax Act is 0.73 crores.

  1. Compute Minimum Alternate Tax payable by the company for the Assessment Year 2021-22.
  2. Compute the amount of MAT credit eligible for carried forward. [CA Final May 2019 (New Syllabus)] [8 Marks]

Answer:
Minimum Alternate Tax (MAT) – CA Final DT Question Bank 13
Minimum Alternate Tax (MAT) – CA Final DT Question Bank 14

Since, the income tax payable on total income computed as per the provisions of the Act is less than 15% of book profit, the book profit of ₹ 13.10 crores is deemed to be the total income and income tax is payable @ 15% thereof plus health and education cess @ 4%. Therefore, the tax liability works out to be ₹ 1.05 crores

Section 115JAA provides that where tax is paid in any assessment year in relation to the deemed income under section 115JB( 1), the excess of tax so paid, over and above the tax payable under the other provisions of the Income-tax Act, 1961, will be allowed as tax credit-in the subsequent years.

The said tax credit is allowed to be carried forward for 15 assessment years succeeding the assessment year in which the credit became allowable.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

Such credit is allowed to be set off against the tax payable on the total income in an assessment year in which the tax is computed in accordance with the provisions of the Act, other than section 115JB, to the extent of excess of such tax payable over the tax payable on book profits in that year.

₹ in crores
Tax on book profit under section 115JB 1.05
Less: Tax on total income computed as per the other provisions of the Act 0.73
Tax credit to be carried forward under section 115JAA 0.32

Notes:
(1) As per clause (a) of Explanation 1 to Sec. 115JB, Income tax paid or payable shall be added back while computing the book profits. Income Tax shall include, inter alia, any interest charged under this act and therefore, interest charged for delay in remittance of TDS shall be added back.

(2) In a case, where AOP has paid tax on its total income at maximum marginal rate, no income tax is payable by the company, being a member of AOP, in accordance with the provisions of Sec. 86. Therefore, as per clause (iic) of Explanation 1 to Sec. 115JB, share in income of an AOP on which no income tax is payable as per section 86, would : be reduced while computing book profits, since the same has been credited to statement of profit and loss.

(3) As per clause (iib) of Explanation 1 to Sec. 115JB, the amount with drawn from revaluation reserve and credited to statement of profit s and loss shall be reduced while computing book profits to the extent it does not exceed the amount of depreciation on account of revaluation of assets. Therefore, upto ₹ 3 crores (to the extent of depreciation on revalued assets) withdrawn from revaluation reserve shall be reduced from book profits.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

(4) As per clause (iih) of Explanation 1 to Sec. 115JB, in case of company against whom an application for corporate insolvency resolution process has been admitted by the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016, aggregate amount of unabsorbed depreciation and loss brought forward shall be reduced while computing book profit. Here, loss shall not include depreciation.

Assessment Year Business loss Depreciation B/f excluding Depreciation
2017-18 ₹ 3 crores ₹ 1 crores ₹ 2 crores
2018-19 ₹ 5 crores ₹ 2 crores₹ ₹ 3 crores
Total ₹ 3 crores ₹ 5 crores

Therefore, aggregate of unabsorbed depreciation and B/f loss shall be ₹ 8 crores (₹ 3 crores + ₹ 5 crores)

(5) As per Sec. 115JB(2A), for a company whose financial statements are drawn up in compliance to the IndAS, the book profit as computed as per Explanation 1 to Sec. 115JB shall be further increased by all amounts credited to ‘Other Comprehensive Income’ in the statement of profit and loss under the head “Items that will not be reclassified to profit or loss”.

However, the book profits shall not be increased by revaluation surplus from assets. Therefore, re-measurement of defined employee retirement benefits plan of ₹ 50 lakhs credited to ‘Other Comprehensive Income’ which will not be reclassified to profit or loss shall be added to the book profits. However, revaluation surplus of property, plant and equipment of ₹ 1 crore shall not be added to the book profit.

Minimum Alternate Tax (MAT) – CA Final DT Question Bank

(6) The book profit of the year of convergence and each of the following four previous years, shall be further increased or decreased by 1 / 5th of the transition amount. However, transition amount shall not include capital reserve.
Transition amount = ₹ 5 crores – ₹ 0.50 crores (capital reserve)
= ₹ 4.5 crores
Therefore, amount to be added to the book profit shall be ₹ 0.90 crores (1 /5th of ₹ 4.50 crores).

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