In a significant judgment, the Delhi High Court has clarified that long-term capital gains (LTCG) exempt under Section 10(38) of the Income Tax Act must still be included when computing book profits under Section 115JB, which pertains to Minimum Alternate Tax (MAT). This ruling underscores the distinct treatment of income for regular tax assessments and MAT calculations.
Background
The case involved an assessee who had earned LTCG amounting to ₹247.52 crores, claiming exemption under Section 10(38). During the assessment, the Assessing Officer (AO) noted that these gains were not reflected in the Profit and Loss (P&L) account and, consequently, were excluded from the book profits calculation under Section 115JB. The Commissioner of Income Tax (Appeals) [CIT(A)] ruled in favor of the assessee, a decision later upheld by the Income Tax Appellate Tribunal (ITAT). Challenging these decisions, the Revenue approached the Delhi High Court.
Court's Analysis
The Division Bench, comprising Acting Chief Justice Vibhu Bakhru and Justice Swarana Kanta Sharma, examined the interplay between Sections 10(38) and 115JB. Section 10(38) exempts income from the transfer of long-term capital assets, such as equity shares, from total income. However, the proviso to Section 10(38), introduced by the Finance Act, 2006, stipulates that such exempted income must be included when computing book profits under Section 115JB.
The court emphasized that the proviso's intent is to ensure that even if LTCG is exempt from regular taxation, it should be considered in the MAT computation. This inclusion prevents companies from avoiding MAT by excluding exempted income from their book profits. The court noted that the Explanation to Section 115JB was amended to exclude expenditures related to exempt income from the book profits calculation, reinforcing the need to include exempted income itself in the computation.
Conclusion
The Delhi High Court dismissed the Revenue's appeal, affirming that LTCG exempt under Section 10(38) must be included in the book profits calculation for MAT purposes under Section 115JB. This judgment clarifies that exemptions applicable under regular tax provisions do not extend to MAT computations, ensuring a broader tax base for MAT and preventing potential tax avoidance strategies.
This ruling has significant implications for corporate taxpayers, highlighting the necessity of including exempted income in book profits for MAT calculations, even when such income is excluded from regular taxable income. Tax professionals and corporations must carefully consider this distinction to ensure compliance and accurate tax reporting.
0 Comments
Thank you for your response. It will help us to improve in the future.