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MAT Relief for companies facing insolvency and foreign companies

February 1, 2018 1850 Views
Abhishek Worah

MAT Provisions in brief

Minimum Alternate Tax (MAT) provisions are contained in section 115JB of the Income Tax Act, 1961. The section provides for levy of tax @ 18.5% (plus surcharge and cess) on 'book profits' of the company (provided the tax payable under normal provisions of the Act is less than the tax payable under MAT).

The term 'book profit' has been defined to mean profit as shown in statement of profit and loss subject to prescribed adjustments.

Among the prescribed adjustment is the allowability of reduction of the amount of brought forward loss or unabsorbed depreciation, whichever is less as per books of account while computing book profits. No deduction is however allowed where amount of brought forward loss or unabsorbed depreciation is Nil.

Insolvency and Bankruptcy code (IBC)

The IBC has been in place since 2016. The object of the IBC is streamline the process of reorganization and insolvency resolution of various persons including corporates. Under the IBC the National Company law Tribunal (NCLT) is the Adjudicating Authority for initiating the insolvency proceedings of a company upon an application made to it.

MAT relief in budget 2018

In the budget 2018, considerable relief has been provided for the companies facing insolvency proceedings through amendment in section 115JB. It has been provided that in case of companies whose application for insolvency has been admitted by the Adjudicating Authority aggregate amount of unabsorbed depreciation and brought forward loss (excluding unabsorbed depreciation) would be allowed to be reduced while computing book profits for MAT purposes.

The above amendment gives legal status to the circular issued by the CBDT on the subject in January 2018. The amendment would be effective from assessment year 2018-19 onwards.

The amendments are in line with the relief provided under MAT provisions for a sick industrial company as per the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 (since repealed). Under the same profits of sick company from the year when it became sick and ending with the year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses was allowed to be reduced from book profits for MAT.

MAT relief for foreign companies paying tax under presumptive tax sections

A retrospective amendment has been made to provide that MAT provisions would not apply to a foreign company covered by the provisions of section 44B/44BB/44BBA/44BBB of the Act where income has been offered to tax at the rates specified in the section.

Section 44B provides for taxability of a foreign company engaged in business of operation of ships, where 7.5% of amount received by such company is taxable as business income.

Section 44BB deals with foreign company engaged providing services or facilities in connection with or supplying plant and machinery on hire for use in the prospecting for, or extraction or production of, mineral oils, where 10% of the amount is taxed as business income.

Section 44BBA deals with foreign company engaged in business of operation of aircraft, wherein 5% of amount received by such company is taxable as business income.

Section 44BBB deals with foreign company engaged in business of civil construction or erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government wherein 10% of amount received by such company is taxable as business income.

The amendment is applicable with retrospective effect from assessment year 2001-02. The amendment is welcome as it settles any confusion on the issue.

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