MAT exclusion for sick industrial companies continues through the year net worth first equals accumulated losses.

The MAT exclusion for a sick industrial company under clause (vii) of Explanation 1 to section 115JB continues up to and including the assessment year in which the company's net worth first becomes equal to or exceeds its accumulated losses. On the facts, the assessee remained a sick industrial company through the relevant assessment year, and its net worth turned positive in that year itself. The deduction from book profit was therefore allowable for that year and would cease only from the succeeding assessment year.

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Issues: Whether deduction under clause (vii) of Explanation 1 to sub-section (2) of section 115JB of the Income-tax Act, 1961 was available to a sick industrial company for the assessment year in which its net worth became equal to or exceeded its accumulated losses.

Analysis: The relevant provision permits reduction of the profit of a sick industrial company from book profit from the assessment year in which the company became sick and continues until the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. On the facts, the assessee was a sick industrial company up to the relevant assessment year, and the net worth became positive in that year itself. The benefit, therefore, could not be denied for that year; it would cease only for the subsequent assessment year.

Conclusion: The deduction under clause (vii) of Explanation 1 to sub-section (2) of section 115JB was allowable to the assessee for the year under consideration.

Ratio Decidendi: The MAT exclusion for a sick industrial company continues up to and including the assessment year in which its net worth first becomes equal to or exceeds accumulated losses, and is unavailable only from the succeeding assessment year.

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