Minimum Alternate Tax : More clarifications Required

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: It is an irony that a simple system of tax on book profits which is in vogue in a number of countries has not been able to find its feet in India. There has been a long and historical debate on whether corporate India should be subject to such a tax simply because the disclosed book profit were more than taxable income. In India, the concept of tax on book profits was first introduced by the Finance Act, 1987 by inserting section 115J with effect from April 01, 1988. However provisions of this section remained in force only for a limited period before being withdrawn by the Finance Act, 1990 with effect from April 01, 1990. Later, a modified version of tax on book profits was introduced by Finance (No 2) Act, 1996 with effect from April 01, 1997. The provisions of this section remained in force for four years before being withdrawn by the Finance Act, 2000 with effect from April 01, 2001. This scheme, however, differed from the earlier one as it offered a facility of carry forward and set off of the Minimum Alternate Tax (MAT) credit for a period of five years under section 115JAA which was introduced by the Finance Act, 1997 with effect from April 01, 1997. Again the Finance Act, 2000 with effect from April 01, 2001 introduced section 115JB where under tax at the rate of 7.5% on book profits is being levied. This was modified by Finance Act, 2002 (with retrospective effect from April 01, 2001) to provide where the income tax payable on the total income is less than seven and half percent of the book profits, such book profit shall be deemed to be the total income of the assessee and the assessee shall pay tax at 7.5% plus surcharge on such book profits. In the long history of 14 years of MAT so far, there have been plethora of legal cases involving various issues. These have primarily cropped up on account of poor drafting.