MAT - Minimum Alternative Tax - Method of computation of depreciation for the purpose of Book Profit - Settled position once again unsettled awaiting the final decision of Larger Bench of Apex Court

Relevant provision of Income Tax Act, 1961

Section 115J

Section 115JA

Section 115JB

In a landmark decision in the matter of "Apollo Tyres Ltd. Versus Commissioner of Income Tax" [2008 -TMI - 6081 - Supreme Court] in 2002, a 3 member bench of apex court has held that,

"Therefore, we are of the opinion, the Assessing Officer while computing the income under section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J."

The above decision has been followed in various decisions subsequently. In the matter of "Malayala Manorama Co. Ltd. Versus CIT, Trivandrum" [2008 -TMI - 3612 - SUPREME COURT], the two member bench of the Apex court, while reversing the decision of high court in "Commissioner of Income Tax Versus Malayala Manorama Co. Ltd." [2008 -TMI - 13098 - KERALA High Court], has held that,

"Therefore, once the amount of depreciation actually debited to the profit and loss account is certified by the auditors, then, as per the decision of the apex court in the case of Apollo Tyres Ltd. [2002] 255 ITR 273, question No. 2 has to be answered in the negative and in favour of the assessee."

The matter relating to rate of depreciation for the purpose of calculation of book profit under MAT once again went upto the Supreme Court in the matter of M/s. Dynamic Orthopedics Pvt. Ltd. Versus Commissioner of Income Tax, Cochin [2010 -TMI - 35345 - SUPREME COURT]. During examination of the case, the two member bench of the apex court found that the decision of the Apex Court in the matter of Malayala Manorama Co. Ltd. Versus CIT, Trivandrum" [2008 -TMI - 3612 - SUPREME COURT], was wrong.

Therefore, the matter has been referred to the Larger Bench for appropriate directions / decision. The following questions are likely to be answered by the larger bench of Apex Court:

1.    Whether the rate of depreciation under Chapter XIV of the Companies Act, 1956 are minimum?

2.    Whether an assessee choose to claim higher depreciation than minimum prescribed rate of depreciation under companies act?

3.   Where an assessee claim higher depreciation for the purpose of book profit and books of account are audited, whether AO can modify the book profit to calculate the depreciation as per the rates prescribed under Chapter XIV of the Companies Act, 1956