Alternate Minimum Tax(AMT) - Definition / Legal Terminology - Income Tax

As per section 115JF(b) of the Income tax Act 1961- Alternate Minimum Tax means the amount of tax computed on adjusted total income, (i) in case of an assessee being a unit referred to in clause (i) of sub-section (4) of section 115JC, at the rate of nine per cent.; (ia) in case of an assessee, being a co-operative society referred to in clause (ii) of sub-section (4) of section 115JC, at the rate of fifteen per cent.; (ii) in any other case, at a rate of eighteen and one-half per cent.; MAHARASHTRA STATE ELECTRICITY BOARD.- [ 2001 (8) TMI 310 - ITAT MUMBAI] 11. Section 115J was introduced by the Finance Act, 1987 in the shape of MINIMUM CORPORATE TAX ON BOOK PROFITS of the ZERO TAX COMPANIES. This was on the pattern of ALTERNATE MINIMUM TAX (AMT) introduced in USA in 1986. In United States, the proposal for the levy of AMT was laid on the presumption that a good number of U.S. companies did not pay their FAIR SHARE of taxes. To justify the imposition 'real income' theory was stressed and it was held that the companies cannot be allowed to have two faces, one for shareholder and another for taxman. Section 115JA was enacted by restructuring the provisions of section 115J with certain minor changes. The provisions of section 115JA are, by and large similar to the provisions of section 115J. The scope and effect of the section 115JA was elaborated in the Departmental Circular No. 762 dated 18-2-1998 . The relevant portion is reproduced here as under:-- Alternate minimum tax on companies-- 46.1 In recent times, the number of zero- tax companies and companies paying marginal tax has grown. Studies have shown that in spite of the fact that companies have earned substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. 46.2 The Finance (No. 2) Act, 1996, has inserted a new section 115JA of the Income-tax Act, so as to levy a minimum tax on companies who are having book profits and paying dividends but are not paying any taxes. The scheme envisages the payment of a minimum tax by deeming 30 per cent of the book profits computed under the Companies Act, as taxable income, in a case where the total income as computed under the provisions of the Income-tax Act, is less than 30 per cent of the book profit. Where the total income as computed under the normal provisions of the Income-tax Act, is more than 30 per cent of the book profit, tax shall be charged on the same. 12. Memorandum explaining the provisions in the Finance (No. 2) Bill, 1996 categorize the amendment under the caption Rationalisation and Simplification . The relevant portion is reproduced here as under:-- RATIONALISATION AND SIMPLIFICATION Minimum Alternative tax on companies In recent times, the number of zero-tax companies and companies paying marginal tax has grown. Studies have shown that inspite of the fact that companies have earned substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. The new proposal provides for those companies to pay tax on 30% of the book profits, whose total income as computed under the Income tax Act is less than 30% of the book profits as per the books of account prepared in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. Book profits is defined and certain adjustments are provided in the proposed section. The proposed amendment will take effect from 1-4-1997, and will accordingly, apply in relation to assessment year 1997-98 and subsequent years. 13. The Apex Court in the case of Surana Steels (P.) Ltd. v. Dy. CIT [1999] 237 ITR 777,783 considered the Legislative intent for the introduction of section 115J. It was found that the section was introduced to take care of the phenomenon of prosperous zero-tax companies which had continued inspite of the enactment of section 80VVA. These were companies which were paying no income-tax though they had profits and were declaring dividends. A minimum corporate tax was sought to be ensured on prosperous companies.