Book Profit under Section 115JB: deferred tax and dividend distribution tax are outside the permitted MAT adjustments.

Section 115JB permits only the specific adjustments listed in its Explanation to arrive at book profit. Deferred tax liability recognised under Accounting Standard 22, being a timing-difference item and not income-tax payable, a reserve, or an unascertained liability, cannot be added back. Tax paid under section 115-O on distributed dividends is likewise a levy on profit distribution and not income-tax paid or payable on income earned, so it also cannot be added back. The stated position is that both items fall outside the permitted MAT adjustments and therefore do not increase book profit.

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Issues: (i) Whether deferred tax liability debited to the profit and loss account could be added back while computing book profit under section 115JB of the Income-tax Act, 1961 under clauses relating to income-tax payable, reserves, or provisions for unascertained liabilities; and (ii) whether tax paid under section 115-O of the Income-tax Act, 1961 on distributed dividends could be added back while computing book profit under section 115JB.

Issue (i): Whether deferred tax liability debited to the profit and loss account could be added back while computing book profit under section 115JB of the Income-tax Act, 1961 under clauses relating to income-tax payable, reserves, or provisions for unascertained liabilities.

Analysis: Deferred tax under Accounting Standard 22 represents the tax effect of timing differences between accounting income and taxable income and is separately recognised from current tax. It is not the same as income-tax paid or payable, is not a reserve capable of unilateral reversal or appropriation, and, when computed on the prescribed accounting basis, is not an unascertained liability. The adjustment mechanism in section 115JB is confined to the specific additions enumerated in the Explanation, and deferred tax does not fall within those categories.

Conclusion: Deferred tax liability could not be added back in computing book profit under section 115JB, and the deletion of the addition was correct.

Issue (ii): Whether tax paid under section 115-O of the Income-tax Act, 1961 on distributed dividends could be added back while computing book profit under section 115JB.

Analysis: Tax on distributed profits is a levy on dividend distribution and is distinct from income-tax paid or payable on income earned. It is imposed at the stage of appropriation of profits and does not answer to the description of income-tax in the Explanation to section 115JB. The treatment accorded by the Central Board of Direct Taxes to fringe benefit tax supported the view that taxes of this kind are not to be added back to book profit in the same manner as income-tax.

Conclusion: Tax under section 115-O was not liable to be added back in computing book profit under section 115JB, and the assessee's claim was rightly allowed.

Final Conclusion: The Revenue's challenge to the computation of book profit failed on both issues, and the assessment order's additions were not restored.

Ratio Decidendi: For section 115JB, only the specific adjustments enumerated in the Explanation can be made to net profit; deferred tax liability arising from timing differences and dividend distribution tax do not constitute income-tax paid or payable, reserve additions, or unascertained liabilities within that Explanation.

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