Under Section 115JB of the Income-Tax Act, 1961, a company is required to pay a minimum tax on its book profits, if the tax payable on the total income as computed under the Act is less than such minimum. The rate of the minimum tax is 10 per cent of the book profits. `Book profits' carry a separate definition under Section 115JB. The Finance Bill, 2009 proposes to increase the MAT rate from 10 per cent to 15 per cent. Simultaneously, to provide relief to companies paying MAT, an amendment is carried out in Section 115JAA(3A) providing that the amount of tax credit determined under sub-section (2A) shall be allowed to be carried forward and set off up to the 10th assessment year immediately succeeding the assessment year in which the tax credit become allowable under sub-section (1A). Finance Act, 2005 inserted the provision for MAT credit w.e.f. April 1, 2006. The credit represents the difference of the tax paid for any assessment year under Section 115JA(1) and the amount of tax payable on the total income as computed under the Act. No interest is payable on such credit. Such carry-forward of tax credit is allowed for seven assessment years at present. Set off is allowed in a year when tax becomes payable on the total income as computed in accordance with the various provisions of Act. Finance Bill, 2009 provides for such set off for 10 assessment years. At present, the effective MAT rate is 11 per cent, which includes the 10 per cent surcharge. Hiking the MAT rate to 15 per cent will mean an effective rate of 17 per cent on book profits. Zero tax companies will suffer a higher cash outflow. The tax rate was 7.5 per cent on book profits up to 2005-06. It went up to 10 per cent from 2006-07. MAT is also payable by foreign companies having Permanent Establishment (PE) in India.
RAISING THE BASE FOR MAT

The expression `book profit' is defined in Explanation 1 to Section 115JB(2). While adjusting the profit and loss figures from the balance sheet, the assessing officer (AO) has only to examine whether the books of accounts are maintained in accordance with the Companies Act. He does not have the jurisdiction to go behind the net profit shown in the P&L account except to the extent provided in the Explanation. He has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, as certified by the statutory auditors. The AO cannot embark upon a fresh enquiry with regard to entries in the books of accounts. This was the law laid down by the Supreme Court in the Apollo Tyres case. The Supreme Court has held (in 305 ITR 409) that the provision for bad and doubtful debts is made to cover up probable diminution in the value of the assets, that is, a debt, which is an amount receivable by the assessee. This cannot be said to be a provision for a liability. Finance Bill, 2009 amends Explanation 1 in Section 115JB so as to provide that if any provision for diminution in the value of any asset has been debited to the P&L account, it shall be added to the net profit as shown in the P&L account for computation of book profits.

RETROSPECTIVE EFFECT