An analysis on provisions of Alternate Minimum Tax as applicable in case of assessee other than companies.

[CA DEV KUMAR KOTHARI]

Relevant links and references:

Chapter XII-BA consisiting of Sections  115JC , 115JD, 115JE, 115JEE and 115JF and related provisions about meaning of  total income S. 2 (45)  section 5  - scope of total income and Gross Total Income – section 80B (5).

Alternate Minimum Tax (AMT):

Alternate Minimum Tax (AMT) was introduced by the  Finance Act, 2011 w.e.f. 01.04.2012 on Limited Liability Partnerships (LLP). Later on by the FA 2012 this has been extended to all assesses other than companies. For companies we find separate provisions for MAT, at present u/s 115JB and related provisions in Chapter XII-BA.

The applicability of AMT:

The AMT will apply only to those assesses who prefer claim of exemption under section 10AA  and deductions under Chapter VIA- C – in relation to certain incomes (except deduction u/s S.80P).

 In case of individual, HUF, AOP and BOI  further relaxation from AMT  is provided if the adjusted total income does not exceed Rs.20 lakh.

Effective sections for AY 2013-14 which will be hit by AMT:

Section 10AA- SEZ units.

Sections of Chapter VIA- C:

Many of deductions under Chapter VIA- C, have been phased out and only few are still in force. The effective deductions shall also have limited effective life and they will be phased out or become ineffective gradually over some years.

The effective sections under which claims against certain incomes are likely to be  available   and which will be hit by provisions of AMT are as follows:

Section 80-IA – infrastructure development

Section 80-IAB – development of SEZ.

Section 80 IB- certain industrial undertakings and enterprises .

Section 80-IC- undertakings in certain special category states.

Section 80-ID- hotel and convention centers in specified area.

Section 80-IE- certain undertaking in North Eastern States.

Section 80JJA- collection and processing of bio degradable waste.

Section 80JJAA- employment of new workman.

Section 80LA – offshore banking units  and international financial service center.

Section 80 QQB- certain royalty to authors of books.

Section 80RRB – Royalty on patents.

Option in hands of assessee:

If an assessee does not want to fall under provisions of AMT, he can avoid the same by not preferring claims under specified sections. Thus where regular tax is nil, or where there is loss or where it is prudent to pay regular tax, as per regular computation, assessee may not make a claim of exemption u/s 10AA and deductions under chapter VIA-C. In such situations provisions of Chapter XII-BA will not apply.

Analysis of provisions:

Analysis of provisions of Chapter  XII-BA:

 In the following table, in  left column provision is reproduced with highlight for analysis and in right column analytical remarks are made for easy understanding.

CHAPTER XII-BA

Special provisions for payment of tax by certain persons other than a company w.e.f.01.04.2013 (Asst. year 2013-14 relating to PYE 31.03.2013)

	Remarks:
Special provisions for payment of tax by certain persons other than a company 115JC. Special provisions for payment of tax by certain persons other than a company. 115JC. (1) Notwithstanding anything contained in this Act, where the regular income-tax payable for a previous year by a person, other than a company, is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of that person for such previous year and he shall be liable to pay income-tax on such total income at the rate of eighteen and one-half per cent.	The provisions as amended  will apply w.e.f. 01.04.2013 , that is  previous year which will  end on 31.03.2013  on wards. The amended provisions shall apply to all assesses other than companies for which separate MAT provisions are found in S.115JB. The primary condition for applicability is normal tax should be  less than alternate minimum tax (AMT). AMT  will be  18.5% of adjusted total income.
(2) Adjusted total income referred to in sub-section (1) shall be the total income before giving effect to this Chapter as increased by— (i)  deductions claimed, if any, under any section (other than section 80P) included in Chapter VI-A under the heading "C.—Deductions in respect of certain incomes"; and (ii)  deduction claimed, if any, under section 10AA.	The other condition for application of AMT  is that  assessee  should have  claimed deduction under Chapter VI-A {except S.80(P)} and section 10AA. In case there is no such claim than question of AMT will not apply. In those cases these deductions shall be added back to regular income to determine adjusted total income.
(3) Every person to whom this section applies shall obtain a report, in such form as may be prescribed, from an accountant, certifying that the adjusted total income and the alternate minimum tax have been computed in accordance with the provisions of this Chapter and furnish such report on or before the due date of furnishing of return of income under sub-section (1) of section 139.]	A report from CA is required in prescribed form that is Form 29C under Rule 40BA. The report is to be furnished to the Assessing Officer before due date u/s 139(1).
[1]Tax credit for alternate minimum tax.— 115JD. (1) The credit for tax paid by 2[a person under section 115JC shall be allowed to him] in accordance with the provisions of this section. (2) The tax credit of an assessment year to be allowed under sub-section (1) shall be the excess of alternate minimum tax paid over the regular income tax payable of that year. (3) No interest shall be payable on tax credit allowed under sub-section (1). (4) The amount of tax credit determined under sub-section (2) shall be carried forward and set off in accordance with the provisions of subsections (5) and (6) but such carry forward shall not be allowed beyond the tenth assessment year immediately succeeding the assessment year for which tax credit becomes allowable under sub-section (1). (5) In any assessment year in which the regular income-tax exceeds the alternate minimum tax, the tax credit shall be allowed to be set off to the extent of the excess of regular income-tax over the alternate minimum tax and the balance of the tax credit, if any, shall be carried forward. (6) If the amount of regular income-tax or the alternate minimum tax is reduced or increased as a result of any order passed under this Act, the amount of tax credit allowed under this section shall also be varied accordingly.	Tax credit for  excess of AMT  over regular tax, can be availed if the assessee has regular tax payable in excess of AMT in any of ten years subsequent to the year to which AMT payment relates.
115JE. Application of other provisions of this Act.—Save as otherwise provided in this Chapter, all other provisions of this Act shall apply to a person referred to in this Chapter.	Other provisions of the Act shall apply.
Application of this Chapter to certain persons.      1[115JEE. (1) The provisions of this Chapter shall apply to a person who has claimed any deduction under—   (a)  any section (other than section 80P) included in Chapter VI-A under the heading "C.—Deductions in respect of certain incomes"; or  (b)  section 10AA.  (2) The provisions of this Chapter shall not apply to an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, or an artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2, if the adjusted total income of such person does not exceed twenty lakh rupees.]	The provisions of this section will apply to  assessee  who make   claim of  deduction under Chapter VI-A {except S.80(P)} and section 10AA. In case there is no such  eligible claim or the assessee does not make such a claim,  than the provisions of this chapter shall not apply. Thus it is optional on assessee to make a claim or not to make a claim. He can refrain by not making claim and by not filing prescribed report.  Furthermore in case of individual, HUF AOP and BOI the provisions shall not apply if the adjusted total income of such person does not exceed Rs. twenty lakh.
Interpretation in this Chapter.— 115JF. In this Chapter— (a) “accountant” shall have the same meaning as in the Explanation below sub-section (2) of section 288; (b) “alternate minimum tax” means the amount of tax computed on adjusted total income at a rate of eighteen and one-half per cent; (d) “regular income-tax” means the income-tax payable for a previous year by a person on his total income in accordance with the provisions of this Act other than the provisions of this Chapter.’

Crucial words and expressions:

We find the following crucial words and expressions used in provisions:

In s. 115JC (1) “regular income-tax payable”, and “is less than the alternate minimum tax payable”

In S. 115JD.  (2) :

‘the excess of alternate minimum tax paid’  over the ‘regular income tax payable of that year’

Therefore, it appears that computation of ‘total income’ computed in regular manner and tax payable on such income that is “regular income-tax payable” is a precondition for applicability of the above provisions.

In case there is no ‘total income’ and “regular income-tax payable”, the charging section 115JC (1) will not apply.

In case for any year there is no  “regular income-tax payable”, then ‘the excess of alternate minimum tax paid’  over the ‘regular income tax payable of that year’ cannot be computed. Because one has to deduct regular tax payable.  In absence fo such regular tax payable, the provisions of S.115JD cannot be applied.

Thus on overall reading of the Chapter XII- BA read with meanings of ‘gross total income’ and ‘total income’ and other relevant  provisions it appears that computation of gross total income, total income and tax payable on total income and  playability of   “regular income-tax”  are  preconditions to attract applicability of Chapter XII- BA. Failing which the charging provision and computation provisions will fail and the Chapter XII- BA may  not apply at all.

One more important aspect is about computation provisions. The scheme of computation requires that there should be computation of income under different heads, then set off of eligible losses for the year will be made, thereafter there will be set off of past losses. Then sums of income remaining under different heads will be the ‘Gross Total income’, from the Gross Total Income one has to make deduction of deductions under Chapter VI-A. After such deductions, the remaining income can be called ‘chargeable income’ from which depreciation worked out as allowable u/s 32(1) will be deducted to the extent of chargeable income. If any portion  of deprecation allowable u/s 32(1) cannot be allowed then such un-allowed portion shall be carried forward.

We will find the ‘the total income’  only when there is excess of gross total income over deductions under Chapter VIA and depreciation. Otherwise there will be no ‘gross total income’ and there will be no ‘total income’ and ‘tax payable’ on such normal ‘total income’. Therefore, the process of computation will not be completed. Accordingly when computation cannot be made, as per prescribed manner, the charging section shall also not apply because the computation provisions and charging provisions are integrated code.

Note: many have  idea, including some rulings of Supreme Court,  that depreciation is to be allowed   before allowing deduction under Chapter VIA. However, in those rulings the difference of S. 32(1) – allowable depreciation and  S.32(2)  amount of depreciation which can be allowed depending to the extent of chargeable  profits or gains ( that is total income)  was not considered. The term ‘chargeable income’ as used in S.32(2) is equal to base amount on which tax can be charged, that is the total income means gross total income minus deductions under Chapter VI-A.

If this view is not applied, then the expression ‘profits or gains chargeable for that previous year’ as used in S.32(2) will not be applied and depreciation shall be allowed even if there is no profits or gains chargeable for that previous year’, and that is not plain meaning of S. 32. The deductions under chapter VIA are incentives whereas depreciation allowance is a privilege and it is to be allowed in such a manner that the assessee get actual deduction against income chargeable to tax and not against notional income.