Exclusion of Capital Profit/Loss & Profit & Loss on Sale of Fixed Assets & Investments in computing Book Profit for the purpose of Levy of MAT u/s 115JB
Sec 115JB of the Income-tax Act, 1961 read with first proviso to Section 10(38) of the Act.
Under the general arrangement of the provisions in the Act under each head of income, normally the charging provision is accompanied by a set of provisions for computing the income subject to that charge. The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus, the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. In this regard, it is pertinent to note that capital receipt which does not have any element of ‘income’ or ‘profit’ embedded therein is neither chargeable to tax under the Income tax Act nor includible in P&L A/c prepared as per Schedule III to the Companies Act, 2013. The expression ‘income’ has been defined in Section 2(24) of the Act. The said section defines the expression ‘income’ in an inclusive manner and has been expanding from time to time. Several items have been brought within the definition of ‘income’ from time to time by various amending Acts. Any receipt may partake any of the two character, either revenue nature or capital nature. Receipt in revenue nature only amounts to income which is chargeable to tax. On the other hand, capital receipts are not income, and accordingly, they are not subject to income tax levy. Above view has been fortified by the Hon’ble Apex Court in the case of Padmaraje R. Kadambande v CIT (1992) 195 ITR 877 (SC) wherein it has been held that capital receipt are not income within the meaning of section 2(24) of the Act. The above decision of the Apex Court clearly lays down that a capital receipt, in principle, is outside the scope of income chargeable to tax. A receipt, which is not in the nature of income, cannot be taxed as income. When the accounts are prepared in accordance with Schedule III of the Companies Act, 2013 and while making adjustments as per the provisions of section 115JB, to compute book profits, the amounts which are not taxable or exempt are excluded, because such amounts do not really reflect a receipt in the nature of income.
It is suggested that:
(i) Section 115JB may be suitably amended so that capital profit/loss & Profit & Loss on Sale of Fixed Assets & Investments is excluded in computing Book Profit u/s 115JB;
(ii) the first proviso to Section 10(38) of the Act, 1961 be also omitted.
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