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 taxmann.com 314 (Mumbai - Trib.)

Charitable trust can’t avail of Sec. 24(a) relief

A charitable trust, claiming exemption under section 11(1)(a), could only claim deduction of expenditure actually incurred to earn rental income. However, its claim for standard deduction under section 24(a) could not be allowed.

Facts:

a)  The assessee, a charitable trust, was engaged in various objects such as promotion of education, medical relief, etc. It filed return claiming exemption under section 11(1)(a). ;

b)  It also claimed deduction under section 24(a). The Assessing Officer (‘AO’) held that the net income of trust was to be considered for exemption under section 11 and no separate deduction under section 24 would be available;

c)  The CIT (A) upheld the order of AO. Aggrieved-assessee filed the instant appeal.

The Tribunal held as under:

1)  The income of a charitable trust, subject to its application for charitable purposes, is exempt from tax under Chapter III (sections10 to13B). The said income does not form part of the total income of the entity to which it arises or accrues or is received;

2)  It is only the income forming part of the total income which would be subject to the computational provisions of Chapter IV (sections 14 to 59) of the Act;

3)  An income exempt under Chapter III of the Act, not forming part of the total income, would not enter the computation process to determine the quantum of income under the relevant head of income, each of which has its own computational provisions;

4)  Only the income as reflected in the accounts of the trust, is to be applied or deemed to have been applied for charitable purposes, and which, therefore, has to be computed in the commercial sense;

5)  This was even otherwise patent inasmuch as a trust could only apply the income as available with it, i.e., as arrived at following the accepted principles of commercial accounting. The computational provisions of the Act do not come into play, so that the said computation of the income would be de hors the same;

6)  Thus, accordingly, the assessee-trust could not claim standard deduction under section 24. – ACIT v. Nandlal Tolani Charitable Trust [2014] 42 taxmann.com 154 (Mumbai - Trib.)