22. Clarification regarding add back of ‘deferred tax’, ‘dividend distribution tax’, etc. for calculating book profit under section 115JB
22.1 Section 115JB of the Income-tax Act provides for levy of minimum alternate tax (MAT) on the basis of book profits of a company. As per the Explanation after sub-section (2), the expression “book profit” means net profit as shown in the profit and loss account prepared in accordance with the provisions of Part II and III of Schedule VI to the Companies Act, 1956, as increased or reduced by certain adjustments, as specified in that section. Clause (a) of the aforesaid Explanation, inter-alia, provides for increasing the book profits by income-tax paid or payable and the provision therefor; if debited to profit and loss account. The intention behind these add backs is that the items which mainly appear “below the line” in the profit and loss account should be added back to arrive at the “book profit” if they appear “above the line” in the profit and loss account. Section 115JB has not specifically provided for add back of some such “below the line” items like deferred tax, dividend distribution tax, etc. as they were thought to be included in the term “income-tax”. However, there has been some ambiguity regarding add back of these items, if debited to profit and loss account.
22.2 With a view to clarifying the intention, a new clause has been inserted after clause (g) of the Explanation 1, as so numbered, so as to provide that the book profit shall be increased by the amount of deferred tax and the provision thereof, if debited to profit and loss account.
22.3 Further, it has also been clarified that the amount of income tax shall include,-
(i) tax on distributed profits under section 115-O or distributed income under section 115R;
(ii) any interest charged under this Act;
(iii) surcharge, if any, as levied by the provisions of the Central Acts from time to time;
(iv) Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and
(v) Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time.
22.4 Applicability – These amendments have been made applicable retrospectively with effect from 1st April, 2001 and will accordingly apply in relation to assessment year 2001-02 and subsequent assessment years.
Extract from Explanatory Notes to The Provisions of the Finance Act, 2008 vide circular no. 1/ 2009, dated 27th Mar, 2009.