Company chargeable to tax under MAT

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: The concept of taxing the zero tax companies was introduced in the Income Tax Act, 1961 ("the Act") by the Finance Act, 1983 by inserting section 80VVA which enumerated various tax incentives which could not be availed of by a company beyond 70% of its pre-incentive profits. Section 80VVA was in operation till assessment year 1987-88 which was then replaced by new section 115J by the Finance Act 1987 with effect from assessment year (AY) 1988-89. Section 115J provided that where the total income of the company as computed under the Income tax Act is less than 30% of its book profit, the total income of the company chargeable to tax shall be deemed to 30% of such book profit.

The issue arose if the company was paying tax under minimum alternate tax (MAT) scheme, whether the company was liable to pay advance tax and thus whether interest could be levied for non-payment of advance tax. The main contention was that the book profit as per the accounts can be known only after the year is over. Further, section 115J creates a legal fiction by which the total income is deemed to be 30% of the book profit. Such legal fiction should be restricted only for the purpose of this section and should not create further deeming fiction so as to include other provisions of the Act which are not specifically made applicable. Therefore, advance tax provisions do not apply to the company paying MAT and no interest can be charged u/s 234B and 234C of the Act for non-payment of advance tax. The Karnataka High Court (HC) in the case of Kwality Biscuits Ltd (243 ITR 519) upheld the view of non-charging the interest. However, Madhya Pradesh HC in the case of Itarsi Oil and Flours (P) Ltd (250 ITR 686) and Gauhati HC in the case of Assam Bengal Carrier Ltd (239 ITR 862) held that section 234B and 234C are attracted when there is non-payment of advance tax even if the company is paying tax under MAT. The Bombay HC in the case of Kotak Mahindra Finance Ltd (265 ITR 119) and Madras HC in the case of Holiday Travels (P) Ltd (263 ITR 307) and Punjab and Haryana HC in the case of Upper India Steel Mfg. (279 ITR 123) also took the same view.