Background:

Minimum Alternate Tax (hereinafter referred as ‘MAT’) is levied in case of companies which have generated income during the year, however, after claiming benefits available under the provisions of Income-tax law like exemptions, deductions, depreciation, etc., the tax liability of the company has been reduced to negligible. The objective of introduction of MAT is to levy tax on such companies which in spite of having earned substantial book profits and having paid dividends, do not pay any tax due to various tax concessions and incentives.[1]

Relaxation introduced for insolvent companies:

The Central Board of Direct Taxes (hereinafter referred to as ‘CBDT’) vide notification[2] dated January 6, 2018, has eased the applicability of provisions relating to levy of MAT for companies against whom an application for corporate insolvency resolution process has been admitted under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as ‘IBC, 2016’).

Note that as per Section 115JB of the Income-tax Act, 1961, the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account of the company was allowed to be reduced from the book profit. However, the CBDT has received various representations that a lot of hardship has been faced by the companies against whom an application for corporate insolvency resolution process has been admitted under IBC, 2016, due to restriction in allowance of brought-forward loss for computation of book profit under Section 115JB of the Act.

In furtherance of the same, the CBDT has now notified that the amount of total loss brought forward (including unabsorbed depreciation) shall be allowed to be reduced from the book profit for the purposes of levy of MAT under Section 115JB of the Act. Note that such relaxation is only allowed for those companies against whom an application for corporate insolvency resolution process has been admitted by the National Company Law Tribunal under Section 7 or Section 9 or Section 10 of the IBC, 2016.

This benefit will be available from the Assessment Year 2018-19 (i.e. Financial Year 2017-18).

The CBDT also stated that appropriate legislative amendment in this regard will be made in due course. This suggests that appropriate changes will be made in the upcoming budget to be presented on 1 February.