A DISCUSSION POINT ON BOOK PROFIT COMPUTATION, Income Tax

[SPIC Ltd.]

As per Section 115JA of the Income Tax Act, 1961, in case of an assessee being a Company, the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1^st day of April 1997 but before the 1^st day of April 2001 is less than 30% of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to 30% of such book profits.

As per the above provisions, if the total income computed under normal provisions, is more than 30% of the book profit of the relevant assessment year, there cannot be any MAT liability for that assessee Company during that assessment year. For the purpose of determining the requirement of book profit computation and the consequent MAT liability thereon, we have to look upon the total income computed under the provisions of the Income Tax Act i.e. whether it is exceeding 30% of the book profit or not. A bare reading of the above section will indicate that the total income computed under normal provisions by the assessee for the purpose of income tax return exceeds 30% of the book profit of that assessment year no book profit computation need be made in such situations. When there is a taxable income and tax liability thereon under normal provisions and if the assessee has got carry forward losses, the assessee is entitled to take a set off under Section 72 of the Income Tax Act, 1961 In case such set off is taken in full to the extent of taxable income, the resultant taxable income will become zero.

With the above background, following questions have to be considered:

(1)   If the total income computed by the assessee Company under normal provisions is exceeding 30% of the book profit of that relevant assessment year before availing the set off of carry forward losses, in our opinion there cannot be any book profit computation in such cases as per Section 115JA.

(2)   A different view has been taken in the above case that the total income under normal provisions for the purpose of comparison with 30% of the book profit computation has to be considered only after set off of brought forward losses. Precisely, if the total income computed by an assessee is adjusted against the brought forward losses and the resultant taxable income is nil, in that event, book profit computation has to be necessarily resorted to since tax payable by the assessee in such situations is literally nil. Whether this view taken is in order and In line with the provisions of Section 115JA?

(3)   If our view as per item (1) is in order, will it make any difference if the above situation is considered under Section 115JB wherein, the income tax payable on the total income as computed under this Act is less than the specified percentage (as applicable in the relevant assessment years) of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable on such total income shall be at the rate specified in the Act for the relevant assessment year.

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