The concept of MAT was introduced under ITA to tax companies making high profits and declare dividends to their shareholders but have no significant taxable income because of exemptions, deductions and incentives.
The primary cause is not tax evasion or a lack of adequate government policies but the feature of tax system – incentives, deduction and exemptions
The intent of introducing MAT was to ensure that no taxpayer with substantial income can avoid tax liability by using exclusions, deductions and incentives.
The Companies Act and Income Tax Act deals in different situation hence they both have different provisions regarding allowable expenditures.
The expenses disallowed under companies act are also disallowed under income tax act, but there are some expenditure which are disallowed under income tax but still allowed to be deducted while calculating the profits under Companies Act.
With the result of such provisions the companies are able to reduce their profits and pay low revenue to the credit of government.
For example: In the judgment Echjay Forgoings P Ltd.
It was decided: if the sum is debited to the profit and loss a/c under the provisions of companies act, it will not be added to compute Book profit, even if the same is disallowed under the income tax act.
Procedure of MAT:
Presently MAT is applicable to Companies (Domestic and Foreign)
But here only MAT on company’s u/s 115JB is discussed.
Under the provisions of Section 115JB, where the income tax calculated under the income tax act is less than 18.5 % of the book profit, then such book profit shall be deemed to the total income of the assessee and tax payable by the assessee shall be 18.5 % on book profits.
How to compute Book profit is already discussed.
No additions or subtraction can be made from the profit declare by the company in accordance with the provisions of companies act, other than the items mentioned under section 115 JB (i.e. items mentioned – how to calculate the book profit for MAT applicability)
Advance tax is applicable, if tax is computed on the 18.5% of book profits.
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