Section 115JB — Minimum Alternate Tax (MAT)

Section 115JB of the Income-tax Act, 1961, mandates the Minimum Alternate Tax (MAT) for companies. This provision ensures that companies with substantial book profits pay a minimum amount of tax, even if their taxable income is low due to various deductions and exemptions. The MAT is calculated at a specified percentage of the book profit, which is determined according to the profit and loss account prepared as per the Companies Act. The significance of Section 115JB lies in its role in preventing tax avoidance by companies that report high profits in their financial statements but pay little or no tax due to tax planning strategies. The statutory test involves computing the book profit and applying the MAT rate, with the burden of proof on the taxpayer to justify any adjustments. In practice, this section affects companies with significant book profits but low taxable income, ensuring a fair contribution to the tax revenue.

Common Litigation Flashpoints

1. Interpretation of book profits
2. Applicability of MAT to foreign companies
3. Adjustments for deferred tax liabilities
4. Exemptions and deductions under MAT

Judgments on Section 115JB — Minimum Alternate Tax (MAT)

• Assistant Commissioner of Income-tax vs M/s Chiripal Poly Films Ltd. — ITAT,
  The DCF method is an acceptable method for share valuation under Rule 11UA, and the onus under Section 68 is discharged if the assessee provides sufficient documentation to prove identity, creditworth
• Nuvama Wealth Management Limited vs DCIT — ITAT,
  ESOP discount represents consideration for services rendered by employees and is therefore deductible as business expenditure.
• Nuclear Power Corporation of India Ltd. vs Deputy Commissioner of Income-tax — HC,
  Reopening of assessment based on a change of opinion without new tangible material is not justified.
• Income Tax Officer (Exemption) vs Wrestling Federation of India — ITAT,
  The proviso to Section 2(15) does not apply if the receipts are incidental to the fulfillment of the charitable objectives and not used as business receipts.
• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Radhasoami Satsang, Saomi Bagh, Agra vs Commissioner of Income Tax — SC,
  A fundamental aspect permeating through different assessment years, if sustained by not being challenged, should not be changed in a subsequent year without material change.
• Anand Education Society vs Asstt. Director of Income Tax(E) — ITAT,
  The AO must substantiate claims of excessive payments to relatives with evidence of unreasonableness compared to market standards.
• Aditya Birla Nuvo Limited vs The Deputy Director of Income-tax — HC,
  The beneficial ownership of shares, despite being registered in the name of a permitted transferee, determines the taxability of capital gains in India.
• Mukand Limited vs The Income Tax Officer 3(2)(2) — ITAT, 2020
  The starting point for computation of book profits under section 115JB should include prior period adjustments as per the profit and loss account.