Capital gain and mat

Net sale consideration to be taken in to account for the purpose of sec 115 JB so the benefir of indexation will not be available,similar kind of decision has been given in a case by Mumbai Bench of Income Tax Appelllate Tribunal.

Originally posted by : Jitendra Khalpada
	As per section 115JB , Income from Capital Gain which is exempt u/s 10(38) shall not be allowed to deduct from Book Profit. In hypothetical case , The Long term Capital Gain Without Indexation is Say Rs. 100 Lacs & with Indexation is say only Rs. 10 Lacs. Which figure should we account in Books? What is the intention of legislature to tax? 10lacs or 100 Lacs?

Dear Jitendra!

First thing to be noted here is that accounting is different from taxation. Taxation normally do not affect our accounting (unless we are trying to play with taxation). In books, we account the figure which is just the difference between sale consideration and the cost of acquistion.

Since, 115JB taxes our profits as per books and profits includes the profit on sale of assets/investments. therefore we shall reverse the profit on sale of assets i.e. profit without indexation.

The intention of Legislature is to tax the income on capital gains under MAT provisions even when they are exempt as per normal tax provisions. Hence it means that the income from LTCG shall remain credited to P&L account and will not be deducted from net profit. Similarly, expenses incurred to earn such income shall remain debited to P&L account and shall not be added back to calculate book profit u/s 115JB.

And as stated by Naman, benefit of indexation is for taxation purposes only and hence book profit from sale of investments have to be accounted normally and expenses thereof to be claimed,if any, as stated above.

Please correct me if I am wrong.

KARNATAKA STATE INDUSTRIAL INFRASTRUCTURE DEVELOPMENT CORPORATION LTD vs DEPUTY COMMISSIONER OF INCOME TAX ITA. No. 1660/Bang/2013 (assessment year 2010-11).

It is held by ITAT Bangalore that benefit of Indexation is available while calculating Book profit as per Section 115JB.

"Bangalore ITAT allows assessee’s (a Government undertaking) appeal for AY 2008-09, holds that long term capital gains (‘LTCG’) arrived at by reducing indexed cost of acquisition from asset’s sale proceeds to be considered for computing MAT liability u/s 115JB; Observes that clause (ii) to Explanation to Sec. 115JB provides that amount of income u/s 10 [other than provisions of Sec. 10(38)/ 11/ 12], credited to P&L a/c shall be reduced from book profits for MAT computation; Further observes that the term 'any income’ used in Sec. 10(38) refers to only the amount of LTCG as computed u/s 48 which provides for computation of capital gains after the reduction of cost of acquisition; Thus rules that the “benefit of indexation of cost of acquisition should be given to the assessee while computing long term capital gain for the purpose of section 115J8 of the Act”,

Please let me know your opinion after reading the said case law.