Capital gain exempted under sec. 47 isn't liable to MAT as it doesn't fall in definition of income
IT : If a receipt/gain is not "income" within the meaning of section 2(24), it cannot be subjected to MAT u/s 115JB .Capital gains from transfer of asset by holding company to its Indian Wholly Owned Subsidiary which is tax exempt u/s 47(iv) is not chargeable to capital gains and consequently is not "income" within meaning of section 2(24)(vi) and hence cannot be included in computation of "book profit" for MAT purposes u/s 115JB
• 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" for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax u/s 115JB of the Act also, except otherwise specifically provided for.
• 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.
• The logic of these provisions is that an item of receipt which falls under the definition of "income", are excluded for the purpose of computing "Book Profit", since the said receipts are exempted u/s 10 of the Act while computing total income. 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.
• 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" u/s 115JB of the Act.
• The profits and gains arising on transfer of capital asset by holding company to its Wholly Owned Indian Subsidiary is not falling under the definition of "transfer" and consequently, the same does not fall within the purview of the definition of "income" given u/s 2(24) (vi) of the Act.
• Since the said profit does not fall under the definition of "income" at all and since it does not enter into the computation provisions at all, there is no question of including the same in the Book Profit as per the scheme of the provisions of sec. 115JB of the Act.
Regards
Prarthana Jalan
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