Book profit under MAT cannot include exempt gain from sale of rural agricultural land

Profit from the sale of rural agricultural land, being outside the definition of capital asset under section 2(14)(iii), was treated as agricultural income exempt under section 10(1). Because the first Explanation to section 115JB permits reduction for income covered by sections 10, 11 or 12, and MAT operates only as an alternate computation mechanism, the resulting profit could not be included in book profit. The issue was decided in favour of the assessee.

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Issues: Whether profit arising from the sale of agricultural land, which was not a capital asset under section 2(14)(iii), could be included in book profit for the purpose of section 115JB.

Analysis: The land sold by the assessee was rural agricultural land and was accepted to be outside the definition of capital asset. The income arising from its transfer was treated as agricultural income and, therefore, as income exempt under section 10(1). The adjustment mechanism in the first Explanation to section 115JB permits reduction of income to which sections 10, 11 or 12 apply. Since the receipt itself was not taxable under the normal provisions, and the MAT provision is only an alternative computational mechanism, the profit from sale of such land could not be brought to tax as book profit under section 115JB.

Conclusion: The profit from sale of agricultural land was not includible in book profit under section 115JB and the issue was decided in favour of the assessee.

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