Factual Background:

*The assessee had claimed an exemption under section 54EC of the Income Tax Act for  AY 2003-04. However, the Assessing Officer computed MAT liability  disallowing the exemption under section 54EC by placing reliance upon the judgments of Hon’ble Apex Court in the case of Apollo Tyres(1)  Bombay High Court in the case of Veekaylal Investment(2), Kerela High Court judgment in the case of N.K Bose(3).

Subsequently, appeals were filed before CIT(Appeals)  and the Income tax Appellate Tribunal, at the instance of the Assessee and thereafter the Revenue which were decided in favour of the Assessee. The revenue thereafter, filed an appeal before Hon’ble Madras High Court to assail the Tribunal’s order.

High Court’s Observations:

The Hon’ble High Court dismissed the Revenue’s appeal on following grounds:-

  1. The High Court observed that provisions of sub-section (5) of s.115 JB open the tax liability  under MAT to the applicability of all other provisions contained in the Income tax Act except if specifically barred by that section itself. S.115 JB (5) reads as follows;

          ‘(5) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee,  being a company, mentioned in this section”

  1. Placing reliance on the provision of Section 115-JB(5), the High Court further opined that the adjusted book profits would be further eligible to the benefits set out in the other provisions of the Act.
  2. The judgments cited by Revenue- Veekaylal Investment (supra) and NK Bose (supra) were distinguished. The High Court observed that the above mentioned judgments were rendered in the context of section 115J which did not contain a provision analogous to sub-section(5) of 115-JB/ sub-section (4)_ of 115-JA which opened the applicability of other provisions of the Act. Hence, the ratio laid down in those judgments were held to be inapplicable for computing MAT Liability under section 115JB(5)
  3. Basically, the High Court distinguished section 115J from 115-JB/115-JA on the ground that the later contained provisions which opened the applicability of other provisions (including exemption provisions)

Our Comments:-

The judgment goes by the plain and literal reading of 115-JB(5) and invites the applicability of other provisions of the Act (including exemption and deduction provisions) for computation of MAT liability of the companies.

However, if one goes through the legislative background for the enactment of this provision [115 JB(5)], it appears the provision was introduced to make applicable provisions relating to interest, penalty and assessment in other parts of the Income Tax Act and not for computation of book profits which is specifically governed by 115 JB(1).

Hence, in an alternative opinion, the computation of MAT Liability part finds its place within the meaning of “save as otherwise provided in this section” and not within the meaning of “other provisions of the Act”. This view is supported by the judgment of Hon’ble Gujarat High Court in the case of Ganesh Housing Corporation(4) . In this case, the Hon’ble High Court refused to allow deduction under section 80-IB(10) for computation of book profit under section 115-JB. It further held that computation provisions are specifically governed by sub-section (1) and sub-section (5) would not apply with respect to computation mechanism under MAT.

Further in the CBDT Circular No. 13 of 2001, dated 9-11-2001, it has been clarified that 115-JB(5) has been enacted to make applicable all provisions of the Act except for substitution of tax payable and the manner  of computation of book profits under the provision. Hence, the Circular also is in line with the view taken  in the case of Ganesh Housing (supra). The relevant extract of the Circular is reproduced herein below:-

  1. ……..Sub-section (5) specifies that save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company mentioned in that section. In other words, except for substitution of tax payable under the provision and the manner of computation of book profits, all the provisions of the tax including the provision relating to charge, definitions, recoveries, payment, assessment, etc., would apply in respect of the provisions of this section”

Also, it has been argued that if exemptions/deductions provisions are held to be applicable for computation of MAT Liability, than the purpose behind introduction of MAT which was to tax zero- taxing paying companies at a minimum tax rate, would become otiose.

Footnotes:

* [2019] 415 ITR 123 (Mad)

(1). [2002] 255 ITR 273 (SC)

(2)  [2001] 249 ITR 597 (Bom)

(3)  [2010] 321 ITR 132 (Ker)

(4) Tax Appeal No. 1077, 1078 of 2009 (Guj)