Landmark Cases on Presumptive and Book Profits (MAT)

A provision written back and not considered taxable income for the year is not added to computed loss.

Receipts that are exempt from tax under the Income Tax Law cannot be included when computing book profits under Section 115JB of the Act.

Amendments to explanations under Sections 234B and 234C were clarificatory, confirming that assessees were entitled to credit for MAT paid under Section 115JAA even before the amendment, by virtue of Section 140A.

The purpose behind introducing Section 115J of the Income-tax Act, 1961, was to bring into the tax net companies that were showing substantial book profits but paying no tax.

Only deductions and adjustments specifically provided for in Explanation 1 to section 115JB are permissible when computing book profits for Minimum Alternate Tax (MAT) purposes. No further deductions or allowances are available beyond those stipulated.

The Supreme Court in Dynamic Orthopedics P.Ltd. expressed disagreement with its earlier decision in Malayala Manorama Co. Ltd. regarding the computation of depreciation for MAT purposes under Section 115J of the Income Tax Act.

MAT credit under section 115JAA of the Income-tax Act, 1961, includes surcharge and cess in the calculation of the entire component of taxes.

Amounts set aside for debenture redemption reserve cannot be treated as a 'reserve' or an amount set apart for unascertained liabilities under Section 115JB(1) Explanation clauses (b) or (c) if they represent an ascertained liability.

MAT credit under Section 115JAA of the Income-tax Act includes tax, surcharge, and cess for calculating the credit, as the bifurcation is for administrative convenience and does not change the character of the payment as 'tax'.

For the purpose of Section 115JB, the Assessing Officer has the power to examine the company's accounts beyond their face value to ensure they comply with the Companies Act, 1956.

Income exempt under Section 10 of the Income Tax Act, if credited to the Profit & Loss account, must be reduced from book profit for Section 115JB purposes.

Profits derived by an industrial undertaking from the business of generation of power, including captive consumption, are eligible for exclusion under Explanation clause (iv) to Section 115JA of the Income-tax Act, 1961. The contention that one cannot earn profit from business with oneself is rejected.

Disallowances under section 14A are not includible in book profit computed under section 115JB for the purpose of charging Minimum Alternate Tax (MAT).

The expression 'any income' in Section 10(38) refers to long-term capital gains computed under Section 48, which includes the indexed cost of acquisition. This principle applies when computing book profits under Section 115JB.

Fringe Benefit Tax (FBT) not being part of income-tax, is not required to be added back while arriving at book profits under Section 115JB. Taxes borne by the assessee on non-monetary perquisites provided to employees, akin to FBT, do not constitute income-tax.

Where an assessee's profit declared under section 44AD presumptive taxation is accepted, the Assessing Officer cannot make separate additions by invoking other sections like 69C or 68 for expenses or cash credits.

Deductions under Section 80HHC are eligible based on the computation of profits as per Section 115JA/115JB of the Income-tax Act, which relates to book profits.

Disallowance of expenditure under Section 14A read with Rule 8D cannot be added to the book profit computed under Section 115JB of the Income Tax Act, 1961.

MAT credit under Section 115JAA of the Income Tax Act, brought forward from earlier years, is to be set off against the tax on total income, including surcharge and education cess, rather than being adjusted before charging such surcharge and cess.

Courts and tribunals cannot extend relief against explicit legislative intent, even if hardship results. The plain text of a tax law must be followed.

Courts and tribunals cannot extend relief against statutory provisions when the legislative intent is clear, adhering strictly to the letter of the law even if it appears to cause hardship.

Incentives received under the SHIS scheme are capital receipts, not chargeable under normal provisions, and are to be excluded from revenue and book profits for MAT purposes under Section 115JB.

Courts and tribunals cannot grant relief that contradicts legislative intent, even if it appears harsh, as the law must be applied as written.

The calculation of book profits under Section 115JB of the Income-tax Act, 1961, should be done on a composite and consolidated basis, not year-to-year. Unabsorbed depreciation and brought forward losses must be adjusted on an accumulated basis for set-off purposes.

The provision for bad and doubtful debts should be added back to the book profit for the purpose of computing the tax liability under Section 115JB of the Income-tax Act, 1961. This is in line with decisions from other High Courts.

Subsidies are to be excluded when computing book profits under Section 115JB of the Income Tax Act. The starting point for calculating book profits under Section 115JB is the figure after appropriations and extraordinary items, not the profit figure above the line.

Reserves created otherwise than by debit to the profit and loss account, and not withdrawn, are excludable from book profits for the purpose of Section 115JB of the Act, especially when amendments are retrospective.

Losses incurred on capital reduction are not to be added back when computing book profits under section 115JB, as the section only allows for specified additions and deductions.

Disallowances made under Section 14A of the Income-tax Act cannot be added to net profit when computing book profits under Section 115JB of the Act (Minimum Alternate Tax).

Service tax receipts collected by an assessee are to be considered part of its gross receipts for the purpose of presumptive determination of profit, similar to how sales tax collected forms part of business receipts.

Disallowances made under section 14A, including those related to book profits, are applicable when computing Minimum Alternate Tax (MAT) liability under section 115JB. The disallowance survives for MAT computation to the extent it is valid under normal provisions.

Disallowance under section 14A cannot be added back for computing book profits under section 115JB, deviating from a divergent view.

Minimum Alternate Tax (MAT) is levied on the real book profit earned by an assessee, not on artificial income credited to the profit and loss account. Capital receipts should not be included in MAT computation as it would defeat the object of sections 115JA/115JB.

Lease equalization charges can be added back to book profits for calculating tax liability under Section 115JA when the Assessing Officer adjusts book profits.

The amended provisions of Section 115BBE, increasing the tax rate to 60%, are applicable from Assessment Year 2017-18 (Financial Year 2016-17) onwards, as the amendment pertains to an increased rate rather than a new imposition of tax.

Excise duty is not includible in the valuation of closing stock if the assessee has not incurred the liability to pay the duty. The liability arises only upon manufacture and removal of excisable goods.

Section 115JB of the Income Tax Act does not apply to banking companies governed by the Banking Regulation Act, 1949, prior to the amendment made by the Finance Act, 2012. This is because such companies were not subject to the provisions of Section 115JB before this amendment.

A provision made for employee leave encashment is an ascertained and definite liability, and therefore, it cannot be added back when computing book profit for the levy of Minimum Alternate Tax (MAT) under section 115JB.

The Assessing Officer can adjust the book profit by including profits from sale of investments which are not credited to the Profit & Loss account when computing Minimum Alternate Tax (MAT) under Section 115JB.

Income not falling within the purview of total income under section 5 of the Income Tax Act cannot be included in the computation of book profit under section 115JB, as Chapter XII-B does not extend the scope of total income.

Section 115JB(1) of the Income Tax Act, read with Explanation 1(i), governs the computation of book profits for Minimum Alternate Tax (MAT) purposes.

Losses, including cash and depreciation losses, that have been adjusted or reduced from book profits in earlier assessment years continue to remain in the books of accounts and are available for further reduction from book profits in subsequent years until they are fully offset by profits.

The accounting methods prescribed by the ICAI can be relied upon for computing the turnover of shares and derivatives transactions.

Gratuity liability, if based on actuarial valuation, is an ascertained liability and deductible from book profits.