Court :Supreme Court
Citation :Ajanta Pharma Ltd. (Taxpayer) (Civil Appeal No. 7518 of 2010)
Brief :In a recent ruling Supreme Court (SC) in the case of Ajanta Pharma Ltd. (Taxpayer) (Civil Appeal No. 7518 of 2010) on the issue of deductibility of export profits from the net profit while computing ‘book profit’ for determining minimum alternate tax (MAT) liability under the Indian Tax Law (ITL) ruled that, while computing ‘book profit’, the net profit has to be reduced by the amount of export profits ‘eligible’ for deduction in the computation under the normal provisions of the ITL (normal computation) and not by the ‘quantum’ of deduction under that provision.
Thus, even though the quantum of deduction was phased out in the normal computation during the tax years 2000-01 to 2003-04, the Taxpayer was entitled to full deduction of such profit from ‘book profit’ for MAT purposes.
Background
- ·MAT provisions, inserted by Finance Act, 2000, substituting the erstwhile comparable provision, apply to a company and provide for taxation based on ‘book profit’. Taxation under MAT provisions is triggered when tax liability, computed at specified percentage of ‘book profit’, is higher than that under the normal computation.
- · The ‘book profit’ is computed by adopting the net profit as per Profit & Loss Account, prepared in compliance with the relevant provisions of the Indian Company Law and further adjusting it by upward and downward adjustments as specified under MAT provisions.
- · One of the downward adjustments is reducing the amount of profits eligible for deduction under Section 80HHC (export incentive provision), computed under the provisions of that Section and subject to the conditions specified therein.
- · Until the tax year 2000-01, in the normal computation, the export incentive provision allowed a deduction of profits derived from Currently 18% exports, where a taxpayer is engaged in the business of export of any goods or merchandise. The Finance Act, 2000 amended the export incentive provision to provide for a phase-out in the normal computation of the allowable deduction of profits derived from exports. It curtailed the allowable deduction to 80%, 70%, 50% and 30% for tax years 2000-01, 2001-02, 2002-03 and 2003-04 respectively. It further provided that no deduction shall be allowed for tax year 2004-05 or for any subsequent year.
Facts
