Dividends under MAT = double taxation?

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Hello, I would just like some clarification regarding the method of taxing dividends under the Minimum Alternate Tax computation (for a domestic company).

 

MAT computation states that the total book profit must be increased by the dividend amount declared. And since dividends can only be paid out of the profits of the company(as per Companies Act), will the same profit not be included twice in the calculation of MAT? Is this not akin to double taxation of the same income?

 

Any clarification would be appreciated, thank you.

Replies (3)
Again the dividend is deducted

Section 115JB (Explanation 1): For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by—

......

.......

(i) the amount or amounts set aside as provision for diminution in the value of any asset,

[if any amount referred to in clauses (a) to (i) is debited to the profit and loss account, and as reduced by,—]]]

It is to be only added when u start with profits for computation of book profit which is arrived at after deduction of Dividend. And this was introduced only because  of Vertical format of B/S wherein profits apportioned towards dividend were shown in B/S and so companies took that profit.

Thank you Vineet. I understand now, if the dividend was debited to the P/L account it is added back, if not the P/L stays as it is(i.e reflecting the pre-dividend profit). Thus there is no case of double taxation.

 

However, could you elaborate more on how the dividend profit was apportioned? Because I thought that the final P/L Account serves as the basis for IT calculation(normal and MAT) and thus the profit apportioned will only affect the P/L Appropriation Account and not the P/L Account. Am I correct?

 

Thanks in advance, I'm just an engineering student interested in accounting to help with my family's business so any help will be appreciated.


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