Friday, August 21, 2015

Capital gain exempted under sec. 47 isn't liable to MAT as it doesn't fall in definition of income

Whether capital gains exempted under section 47(iv) of income-tax Act (‘the Act’) would be includible in the books profit under section 115JB for computing MAT?

The Mumbai ITAT held in favour of assessee as under:

1)  The provisions of section 10 lists out various types of income, which do not form part of total income. All those items of receipts shall otherwise fall under the definition of the term "income" as defined in section 2(24) of the Act, but they are not included in total income in view of the provisions of section 10 of the Act. Since they are considered as "incomes not included in total income", the legislature, in its wisdom, has decided not to subject them to MAT.

2)   Clause (ii) of Explanation 1 to section 115JB specifically provides that the amount of income to which any of the provisions of section 10 applies (other than the provisions contained in clause (38) thereof) than it is to be reduced from the Net profit, if they are credited to the Profit and Loss account.

3)  The logic of these provisions is that an item of receipt which falls under the definition of "income" but exempted under section 10 are to be excluded for the purpose of computing "Book Profit".

4)  Thus, it is seen that the legislature seeks to maintain parity between the computation of "total income" and "book profit", in respect of exempted category of income.

5)   If the said logic is extended further, an item of receipt which does not fall under the definition of "income" at all and hence falls outside the purview of the computation provisions of Income tax Act, cannot also be included in "book profit" under Section 115JB of the Act.

6)   The profits and gains arising under Section 47(iv) is not falling under the definition of "transfer" and consequently, the same does not fall within the purview of the definition of "income" given under Section 2(24)(vi) of the Act.

7)   Therefore in the instant case the capital gains does not fall within the purview of the definition of "income", so the question of including the same in the Book Profit under section 115JB of the Act does not arise. - SHIVALIK VENTURE (P.) LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX, 8(3), MUMBAI - [2015] 60 314 (Mumbai - Trib.)