TaxTMI 
TaxTMI 
Report regarding framework for computation of book profit for the purposes of levy of Minimum Alternate Tax (MAT) under section 115JB of the Income-tax Act, 1961 for Indian Accounting Standards (Ind AS) compliant companies in the year of adoption and thereafter
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....ct') for Indian Accounting Standards (Ind AS) compliant companies in the year of adoption and thereafter. The Committee discussed in detail the provisions of section 115JB of the Act, Ind AS and relevant sections of the Companies Act, 2013 during its meetings held for suggesting framework for computation of books profit of Ind AS compliant companies. 2. The provisions of section 115JB of the Act provide for levy of MAT on the basis of "book profit" i.e. the net profit disclosed in the profit and loss account prepared in accordance with the provisions of the Companies Act. For determining the book profit, section 115JB of the Act provides for certain adjustments mainly for items relating to income-tax, appropriation of profit, adjustment for brought forward loss/unabsorbed depreciation, revaluation of assets, distribution of dividend, etc. The adjustment for brought forward loss/unabsorbed depreciation is provided on the basis of the provisions contained in section 205 of the Companies Act, 1956 which provides computation machinery for determining the amount available for distribution of dividend. The adjustments indicate that the provisions of section 115JB of the Act seek t....
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....of free reserve under section 2(43) of the Companies Act, 2013 provides for exclusion of notional/unrealised gains only and is silent about the treatment of notional/unrealised losses. 6. Section 197 of the Companies Act, 2013 provides that total managerial remuneration payable by a public company should not exceed 11% of the net profit for that year. Section 198 of the Companies Act which contains the mechanism for computation of profit for this purpose inter alia provides that profit for this purpose shall not include any changes in the carrying amount of an asset or of a liability recognized in equity, including surplus in profit and loss account on measurement of the asset or the liability at fair value. 7. In view of the above differing requirements in the Companies Act for treatment of unrealised/notional gains and losses, the Committee issued a letter dated 27th July, 2015 (enclosed as Annexure A) requesting the CBDT for seeking clarifications on these issues from Ministry of Corporate Affairs (MCA). 8. The MCA vide letter from File No. 17/134/2015 CL V dated 11th January, 2016 (enclosed as Annexure B) intimated that all notional/ unrealized gains included in Net ot....
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....ompanies Act and the tax base for levying MAT, no further adjustments are required to be made to the net profits (excluding net other comprehensive income) of Ind AS compliant companies, other than those already specified under section 115JB of the Act. II. As discussed, the net profits (excluding net other comprehensive income) under Ind AS may include a sizeable amount of notional/unrealised gains or losses. In the event that the MCA prescribes any further adjustments to the current year profits (excluding net other comprehensive income) for computation of distributable profits, the requirement for any additional adjustments to the book profit under section 115JB may be examined. III. As discussed in para 3 above, the net other comprehensive income includes certain items that will permanently be recorded in reserves and hence never be reclassified to the statement of profit and loss account/ included in the computation of book profits. The Committee recommends that these items should be included in book profits for MAT purposes at an appropriate point of time. An illustrative list of such items along with the recommended treatment for MAT is given below - SI.....
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....time to time, the Committee in the given time has not been able to complete its deliberation on examining the Ind AS/ ICAI guidance notes for the purpose of identifying the areas where additional ICDS need to be notified. (M P Lohia) Convener of MAT - Ind AS Committee Encl : as above ANNEXUR-A M.P. LOHIA Ex IRS Convenor MAT - Ind AS Committee Mumbai 274 July, 2015 Smt. Anita Kapur The Chairperson Central Board of Direct Taxes North Block, New Delhi-110001. Madam, Sub : Request for seeking clarification/guidance from MCA in respect of application of certain provisions of Companies Act, 2013 to Ind As compliant companies - reg. Kindly refer to the Order of Central Board of Direct Taxes (CBDT) from F. No. 133/23/2015- TPL dated 8th June, 2015 constituting this Committee to inter alia suggest the framework for computation of book profit for the purposes of levy of Minimum Alternate Tax (MAT) under section 115JB of the Income-tax Act, 1961 ('the Act') for Indian Accounting Standards (Ind AS) compliant companies in the year of adoption and thereafter. The Committee discussed in detail the provisions of section 115JB of the....
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....sets, or any change in carrying amount of an asset or of a liability recognized in equity, including surplus in profit and loss account on measurement of the asset or the liability at fair value. 4. Section 129 of the Companies Act, 2013 requires laying of financial statement in the annual general meeting For an Ind AS Compliant company, the financial statements shall include balance sheet, profit & loss account and statement of change in equity. An Ind AS compliant company shall be required to bifurcate its profit and loss account into following three parts :- A. Net profit or loss for the year; B. Net other comprehensive income to be reclassified to profit or loss in subsequent periods (the items included in this part shall be routed to the profit and loss account of the future period on happening of certain events); and C. Net other comprehensive income not to be reclassified to profit or loss in subsequent periods (the items included in this para shall never be routed to the profit and loss account of the future period). 5 Section 123 of the Companies Act, 2013, as discussed above, prohibits distribution of dividend out of reserves containing no....
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.... view of this, it is requested that the MCA may be requested to intimate that whether the MCA is proposing to issue any guidance for calculating the said distributable surplus or base for managerial remuneration for ensuring uniformity in application by Ind AS compliant companies. 7. Further, the definition of free reserve under section 2(43) of the Companies Act, 2013 provides for exclusion of notional/unrealised gains only and is silent about the treatment of notional/unrealised losses. Hence, the MCA may also be requested to provide clarity for treatment of notional/unrealised losses for the purposes of computation of free reserve. With introduction of Ind AS, the computation of the profits after excluding the unrealized / notional gains / losses would involve complex computations. It is therefore necessary also to ascertain from MCA that whether they are considering any change in the law for avoiding such complex computations for determining the profits for distribution of profits or managerial remuneration, etc. 8. As per the order dated 8th June, 2015 referred to above, the Committee was supposed to submit its interim report on the issue of MAT calculation of Ind AS com....