Calicut University Curriculum Compliance — Module II Overview

Course Code: COM6EJ313 (7) • Course Title: Corporate Taxation and Tax Planning • Semester: VI • Credits: 4 • Contact Hours: 60
Module II Title: COMPUTATION OF TAXABLE INCOME, TAX LIABILITY & MAT (15 Contact Hours)
Syllabus Units Covered: Unit 5: Computation of Gross Total Income (GTI) of Companies across Heads of Income (House Property, PGBP u/s 28–44DB, Capital Gains, Other Sources) • Key Business Disallowances: Section 40(a)(ia) [TDS Defaults], Section 40A(2) [Excessive Payments to Relatives], Section 40A(3) [Cash Payments > ₹10,000], Section 43B [Actual Payment Basis for Statutory Dues] • Unit 6 & 7: Special Statutory Provisions & Computation of Total Income of Corporate Assessees • Unit 8: Determination of Corporate Tax Liability — Normal Tax Regimes vs. Concessional Regimes (Sec 115BAA @ 22% & Sec 115BAB @ 15%), Surcharge Matrices & 4% Health & Education Cess • Minimum Alternate Tax (MAT) under Section 115JB — Concept of "Zero-Tax Companies", Step-by-Step Computation of Book Profit u/s 115JB(2) (Prescribed Positive and Negative Adjustments), MAT Tax Rate (15%), MAT Credit Mechanism u/s 115JAA (15-Year Carry Forward & Set-Off) • Unit 9: Taxation of Distributed Profits — Abolition of Dividend Distribution Tax (DDT) u/s 115-O, Return to Classical System of Dividend Taxation in Shareholders' Hands u/s 56(2)(i), TDS u/s 194, Section 80M Inter-Corporate Dividend Deduction, Taxation of Income Distributed by Business Trusts (REITs / InvITs) u/s 115UA • Calicut University Academic Examination Bank (Part A: 2 Marks, Part B: 5 Marks, Part C: 10/15 Marks with Comprehensive Practical Problems).

1. Computation of Gross Total Income (GTI) of a Company

The Gross Total Income (GTI) of a corporate assessee is computed by aggregating taxable incomes across four applicable heads (since a company cannot earn "Salaries"):

1. Income from House Property (Sections 22 to 27): Annual value of buildings or lands appurtenant thereto owned by the company, less municipal taxes and standard deduction u/s 24(a) @ 30% and interest on borrowed capital u/s 24(b).
2. Profits and Gains of Business or Profession (Sections 28 to 44DB): The core income stream. Computed by taking net profit as per commercial P&L and adjusting for tax depreciation u/s 32, allowable deductions, and specific statutory disallowances.
3. Capital Gains (Sections 45 to 55A): Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) arising from transfer of capital assets. Under Section 50, capital gains arising from the transfer of depreciable assets forming part of a block are always treated as Short-Term Capital Gains.
4. Income from Other Sources (Sections 56 to 59): Dividend income from domestic and foreign companies, interest on bank fixed deposits, interest on securities, and royalty income.

Critical Statutory Business Disallowances for Corporate Assessees PGBP Adjustments

Section	Nature of Statutory Restriction	Tax Treatment & Add-back Rule
Section 40(a)(ia)	Failure to deduct Tax Deducted at Source (TDS) or failure to deposit deducted TDS on or before the due date of filing ITR u/s 139(1) on payments made to residents.	30% of the expenditure is disallowed and added back to business profits in the current year. (Allowed in the year TDS is paid).
Section 40A(2)	Expenditure incurred on goods, services, or facilities where payment is made to a related party or person having substantial interest (directors, holding companies) at an excessive or unreasonable rate.	The excessive or unreasonable portion above fair market value is disallowed by the Assessing Officer.
Section 40A(3)	Payment or aggregate of payments made to a single person in a single day in respect of an expenditure exceeding ₹10,000 otherwise than by an account payee cheque, account payee draft, or electronic clearing system (ECS).	100% of the expenditure is completely disallowed and added back to taxable profits. (Limit is ₹35,000 for payments to transport operators).
Section 43B	Certain statutory liabilities (GST, customs duty, employer PF/ESI contributions, interest on bank loans, bonus/commission to employees, leave encashment).	Allowable ONLY on actual payment basis on or before the due date of filing ITR u/s 139(1). Unpaid amounts are added back to profits.

2. Corporate Tax Rates: Normal vs. Concessional Regimes

The corporate tax landscape in India underwent a historic structural overhaul via the Taxation Laws (Amendment) Act, 2019, introducing alternative concessional tax regimes:

Tax Regime Option	Base Corporate Tax Rate	Applicable Surcharge & Cess	Effective Tax Rate & MAT Applicability
Old / Normal Regime (Turnover $\leq$ ₹400 Cr in base year)	25%	• 7% (Total Income ₹1 Cr to ₹10 Cr) • 12% (Total Income > ₹10 Cr) • Plus 4% Cess	• 26.00% (Income $\leq$ ₹1 Cr) • 27.82% (₹1 Cr to ₹10 Cr) • 29.12% (> ₹10 Cr) MAT Applicable u/s 115JB
Old / Normal Regime (Turnover > ₹400 Cr)	30%	• 7% (Total Income ₹1 Cr to ₹10 Cr) • 12% (Total Income > ₹10 Cr) • Plus 4% Cess	• 31.20% (Income $\leq$ ₹1 Cr) • 33.38% (₹1 Cr to ₹10 Cr) • 34.94% (> ₹10 Cr) MAT Applicable u/s 115JB
Section 115BAA (Any Domestic Company)	22% Flat	Flat 10% Surcharge irrespective of income level + 4% Health & Education Cess	25.168% Flat Effective Rate MAT is COMPLETELY EXEMPT (Zero MAT liability u/s 115JB(5A))
Section 115BAB (New Manufacturing Companies)	15% Flat	Flat 10% Surcharge irrespective of income level + 4% Health & Education Cess	17.160% Flat Effective Rate MAT is COMPLETELY EXEMPT

3. Minimum Alternate Tax (MAT) under Section 115JB

Historically, many highly profitable corporate conglomerates generated substantial accounting profits and declared hefty dividends to shareholders, but paid zero or negligible corporate income tax by exploiting accelerated depreciation, investment allowances, and Chapter VI-A deductions. These were termed "Zero-Tax Companies".

To ensure every profitable company contributes a minimum fair share to the national exchequer, Parliament enacted Section 115JB (Minimum Alternate Tax — MAT).

The Core Statutory Mechanism of Section 115JB
1. The Dual Tax Comparison:
A company must compute its tax liability under two parallel tracks:
• Track A: Normal Corporate Income Tax on Total Taxable Income.
• Track B: Minimum Alternate Tax (MAT) = 15% of Book Profit (+ Surcharge + 4% Cess).
The Final Tax Payable is Track A or Track B, WHICHEVER IS HIGHER.

A. Step-by-Step Computation of Book Profit [Section 115JB(2)]

"Book Profit" means the Net Profit as shown in the Statement of Profit and Loss prepared in accordance with Schedule III of the Companies Act, 2013, subject to specific statutory additions and deletions:

Statutory Adjustments to Net Profit for Book Profit Section 115JB(2)

MANDATORY ADDITIONS (IF DEBITED TO P&L)

• Income-tax paid or payable, and the provision therefor (including interest, surcharge, cess).
• Amounts carried to any reserves (general reserve, debenture redemption reserve).
• Provisions made for meeting liabilities other than ascertained liabilities (e.g., provision for bad & doubtful debts, provision for contingent losses).
• Provision for losses of subsidiary companies.
• Dividend paid or proposed.
• Expenditure relatable to any income exempt under Section 10.
• Depreciation debited to P&L (added back in full).

MANDATORY DEDUCTIONS (IF CREDITED TO P&L)

• Amount withdrawn from any reserves or provisions (if credited to P&L).
• Incomes exempt from tax under Section 10 (except Section 10AA).
• Depreciation excluding depreciation on revaluation of assets.
• Amount withdrawn from revaluation reserve, to the extent of revaluation depreciation.
• Brought forward loss OR unabsorbed depreciation, WHICHEVER IS LESS, as per the books of account (excluding revaluation depreciation).
• Crucial Rule: If either brought forward loss or unabsorbed depreciation is NIL, deduction is NIL!

B. MAT Credit and Carry Forward [Section 115JAA]

MAT Credit Carry Forward & Set-Off Mechanism
Computation of MAT Credit:
$MAT Credit Generated = Tax Paid under MAT (Sec 115JB) - Normal Corporate Income Tax Liability$

Carry Forward & Set-Off Rules:
• Carry Forward Period: MAT credit can be carried forward for up to 15 Assessment Years immediately succeeding the year in which it was generated.
• Set-Off Condition: Can be set off only in an assessment year in which Normal Tax Liability EXCEEDS MAT Liability.
• Quantum of Set-Off: Set-off is strictly capped at the difference between Normal Tax and MAT in that year $Normal Tax - MAT$ .

4. Taxation of Distributed Profits and Inter-Corporate Dividends

The Finance Act, 2020, dismantled the historical Dividend Distribution Tax (DDT) under Section 115-O, which previously levied a flat tax on the distributing domestic company.

The Classical System of Dividend Taxation (AY 2021-22 Onwards) Direct Tax Architecture

1. TAXATION IN HANDS OF SHAREHOLDERS

• Dividends are taxable directly in the hands of recipient shareholders at their applicable slab rates (for individuals) or normal corporate tax rates (for companies) under Section 56(2)(i).
• The distributing company pays zero DDT.

2. TDS COMPLIANCE UNDER SECTION 194

• A domestic company distributing dividends must deduct TDS under Section 194 @ 10% if the aggregate dividend paid to a resident individual shareholder exceeds ₹5,000 in a financial year.

3. SECTION 80M — PREVENTING CASCADING INTER-CORPORATE TAXATION

Where a domestic company receives dividend from another domestic company, a foreign company, or a business trust, it can claim a deduction under Section 80M equal to the dividend income received, provided the company re-distributes that dividend to its own shareholders on or before the due date (one month prior to the due date of filing ITR u/s 139(1)).

5. Practical Numerical Problems on Book Profit and MAT

Practical Problem 1: Step-by-Step Computation of Book Profit & MAT Liability
Case Data: The Statement of Profit and Loss of Titan Electronics Ltd (a domestic company with turnover of ₹250 Crores, taxable under normal provisions at 25%) for the previous year ended 31st March 2026 shows a Net Profit of ₹85,00,000 after debiting/crediting the following items:
• Provision for Income Tax: ₹12,00,000
• Proposed Dividend: ₹8,00,000
• Provision for Unascertained Contingent Liabilities: ₹5,00,000
• Provision for Bad and Doubtful Debts: ₹3,50,000
• Total Depreciation debited to P&L: ₹22,00,000 (which includes ₹4,00,000 depreciation on revaluation of assets)
• Amount transferred to General Reserve: ₹6,00,000
• Agricultural income credited to P&L (exempt u/s 10(1)): ₹5,00,000
• Amount withdrawn from General Reserve (credited to P&L): ₹3,00,000
• As per books of account, brought forward business loss is ₹14,00,000 and unabsorbed depreciation is ₹10,00,000.
• Normal Total Taxable Income computed under Income Tax Act = ₹32,00,000.
Requirement: Compute the Book Profit u/s 115JB and the final tax liability of Titan Electronics Ltd for AY 2026–27.

Step 1: Computation of Book Profit under Section 115JB(2):
Net Profit as per Statement of Profit & Loss = ₹85,00,000

Add: Positive Adjustments u/s 115JB(2):
• Provision for Income Tax = + ₹12,00,000
• Proposed Dividend = + ₹8,00,000
• Provision for Unascertained Liabilities = + ₹5,00,000
• Provision for Bad & Doubtful Debts = + ₹3,50,000
• Amount transferred to General Reserve = + ₹6,00,000
• Total Depreciation debited to P&L = + ₹22,00,000
Total Additions = + ₹56,50,000 → Sub-total = ₹1,41,50,000.

Less: Negative Adjustments u/s 115JB(2):
• Agricultural Income exempt u/s 10(1) = − ₹5,00,000
• Amount withdrawn from General Reserve = − ₹3,00,000
• Depreciation excluding revaluation depreciation (₹22,00,000 − ₹4,00,000) = − ₹18,00,000
• Brought forward loss OR unabsorbed depreciation, whichever is lower as per books:
Lower of Loss (₹14,00,000) vs Unabsorbed Depr (₹10,00,000) = − ₹10,00,000
Total Deductions = − ₹36,00,000.

$Book Profit u/s 115JB = Rs. 1, 41, 50, 000 - Rs. 36, 00, 000 = Rs. 1, 05, 50, 000$
Step 2: Track A — Normal Corporate Tax Liability:
• Total Taxable Income = ₹32,00,000.
• Normal Tax @ 25% = ₹8,00,000.
• Surcharge (Income $\leq$ ₹1 Cr) = Nil.
• Health & Education Cess @ 4% = ₹32,000.
$Normal Tax Payable = Rs. 8, 32, 000$
Step 3: Track B — MAT Liability u/s 115JB:
• Base MAT @ 15% on Book Profit (₹1,05,50,000) = ₹15,82,500.
• Surcharge (Book profit exceeds ₹1 Crore but $\leq$ ₹10 Crores) @ 7% = ₹1,10,775.
• Sub-total = ₹16,93,275.
• Health & Education Cess @ 4% = ₹67,731.
$MAT Liability = Rs. 17, 61, 006$
Step 4: Final Tax Liability Determination:
The company must pay Normal Tax or MAT, whichever is higher:
$Final Tax Payable = Rs. 17, 61, 006 (MAT applies)$
MAT Credit Generated u/s 115JAA:
$MAT Credit = Rs. 17, 61, 006 - Rs. 8, 32, 000 = Rs. 9, 29, 006$
This ₹9,29,006 can be carried forward for up to 15 assessment years to be set off when normal tax exceeds MAT.

6. Comprehensive Calicut University Academic Examination Bank

Calicut University Question Bank — Part A (Short Answer Questions: 2 Marks) Target: 2 to 4 Sentences Each

Q1. What is Minimum Alternate Tax (MAT)?

Answer: Minimum Alternate Tax (MAT) is a mandatory direct tax levy under Section 115JB requiring companies that declare high book profits and dividends but pay little or no tax under normal provisions to pay a minimum tax of 15% on their adjusted book profit.

Q2. What is the tax rate under Section 115BAA of the Income Tax Act?

Answer: Section 115BAA provides a concessional flat base tax rate of 22% for domestic companies (effective rate of 25.168% inclusive of flat 10% surcharge and 4% cess), with complete exemption from MAT, provided the company foregoes specified Chapter VI-A deductions and exemptions.

Q3. State the rule regarding deduction of brought forward loss for computing Book Profit u/s 115JB.

Answer: Under Section 115JB(2), the amount of brought forward business loss OR unabsorbed depreciation, whichever is less as per the books of account, is deductible; however, if either figure is nil, zero deduction is permitted.

Q4. How long can MAT credit be carried forward under Section 115JAA?

Answer: MAT credit can be carried forward for a maximum of 15 Assessment Years immediately succeeding the assessment year in which the credit was generated, and can be set off only when normal corporate tax liability exceeds MAT.

Q5. Explain the tax treatment of dividend income received by a domestic company.

Answer: Following the abolition of DDT by Finance Act 2020, dividends received by a domestic company are taxable under "Income from Other Sources" at applicable corporate rates, subject to inter-corporate deduction under Section 80M.

Q6. What is the disallowance under Section 40A(3)?

Answer: Section 40A(3) mandates 100% disallowance of any business expenditure where payment or aggregate of payments exceeding ₹10,000 is made to a single person in a single day otherwise than through banking channels (cash payment).

Q7. What is the TDS threshold on dividends under Section 194?

Answer: Under Section 194, a domestic company must deduct TDS @ 10% on dividends paid to a resident individual shareholder if the aggregate dividend payment exceeds ₹5,000 during the financial year.

Q8. How are capital gains on transfer of depreciable assets taxed for a company?

Answer: Under Section 50 of the Income Tax Act, any capital gain arising from the transfer of a depreciable asset forming part of a block of assets is always classified and taxed as a Short-Term Capital Gain (STCG).

Calicut University Question Bank — Part B (Short Essay Questions: 5 Marks) Target: 1.5 to 2 Pages / Structured Explanations with Calculations

Q9. Explain the concept, statutory purpose, and carry forward mechanics of MAT Credit under Section 115JAA of the Income Tax Act, 1961.

Answer:
MAT Credit under Section 115JAA prevents double economic hardship on corporate assessees:

Conceptual Rationale: When a company pays MAT under Section 115JB because MAT exceeds normal tax, it is effectively paying an advance corporate tax on accounting profits. Section 115JAA allows this excess tax paid to be preserved as a tax credit.
Calculation Formula: $MAT Credit = Tax Paid under Section 115JB - Tax Payable under Normal Provisions$
Rules for Carry Forward and Utilization:
- Carry Forward Period: Allowed for up to 15 consecutive Assessment Years.
- Set-Off Trigger: Can be utilized only in an assessment year in which the company's Normal Tax exceeds its MAT liability.
- Cap on Set-Off: The tax credit set-off in any year is strictly capped at $< s p an c l a ss = " k a t e x " >< s p an c l a ss = " k a t e x - h t m l " a r ia - hi dd e n = " t r u e " >< s p an c l a ss = " k a t e x - ba se " >< s p an c l a ss = " k a t e x - s t r u t " s t y l e = " h e i g h t : 0.7778 e m; v er t i c a l - a l i g n : - 0.0833 e m; " >< / s p an >< s p an c l a ss = " m or d " >< s p an c l a ss = " m or d " > N or ma l T a x < / s p an >< / s p an >< s p an c l a ss = " m s p a ce " s t y l e = " ma r g in - r i g h t : 0.2222 e m; " >< / s p an >< s p an c l a ss = " mbin " > - < / s p an >< s p an c l a ss = " m s p a ce " s t y l e = " ma r g in - r i g h t : 0.2222 e m; " >< / s p an >< / s p an >< s p an c l a ss = " k a t e x - ba se " >< s p an c l a ss = " k a t e x - s t r u t " s t y l e = " h e i g h t : 0.6833 e m; " >< / s p an >< s p an c l a ss = " m or d " >< s p an c l a ss = " m or d " > M A T < / s p an >< / s p an >< / s p an >< / s p an >< / s p an >$ . The company cannot use MAT credit to reduce its final tax payable below the MAT threshold for that year.

Q10. Discuss the statutory disallowances under Section 40(a)(ia) and Section 43B of the Income Tax Act, 1961, and their impact on corporate taxable income.

Answer:
Both sections enforce fiscal discipline and compliance:

Section 40(a)(ia) — TDS Default Disallowance:
- Trigger: Applicable when an assessee company fails to deduct TDS on payments made to residents (contractor fees, professional fees, interest, commission) or fails to remit deducted TDS to the government on or before the ITR filing due date u/s 139(1).
- Disallowance Quantum: 30% of the expenditure is disallowed and added back to business profits. However, in the subsequent year when the TDS is actually deposited, the disallowed 30% is allowed as a deduction.
Section 43B — Certain Deductions to be Only on Actual Payment:
- Scope: Covers statutory taxes (GST, excise, customs), employer PF/ESI contributions, interest on bank loans, and employee bonus/leave encashment.
- Rule: Even if the company follows the mercantile system of accounting, these expenses are allowed ONLY if actually paid on or before the due date of filing ITR u/s 139(1). Unpaid amounts are added back to current profits and allowed only in the year of actual payment.

Calicut University Question Bank — Part C (Essay Questions: 10/15 Marks) Target: 3 to 4 Pages / Comprehensive Analytical & Practical Problem Depth

Q11. Critically evaluate the rationale, statutory framework, and judicial interpretation of Minimum Alternate Tax (MAT) under Section 115JB of the Income Tax Act, 1961. Explain in detail the step-by-step methodology for computing Book Profit under Section 115JB(2), detail all positive and negative statutory adjustments, examine the MAT Credit carry forward rules under Section 115JAA, and contrast the normal corporate tax regime with the concessional tax regime under Section 115BAA.

Answer Framework:
An exhaustive academic examination answer must systematically explore the following structural sections:

Introduction & Genesis of MAT:
Explain the historical context of Zero-Tax companies in India. Detail how companies made large commercial profits and distributed high dividends while paying zero corporate tax through incentives. Introduce Section 115JB as an anti-avoidance minimum tax floor.
The Mathematical Architecture of Section 115JB:
- Dual Track comparison: Higher of Normal Corporate Tax or MAT (15% of Book Profit + Surcharge + 4% Cess).
- Preparation of Profit & Loss Statement in accordance with Schedule III of the Companies Act, 2013, as the immutable starting point (Supreme Court ruling in Apollo Tyres Ltd v. CIT).
Comprehensive Adjustments to Net Profit for Book Profit [Sec 115JB(2)]:
- Positive Additions: Income tax and provisions, transfers to reserves, provisions for unascertained liabilities, losses of subsidiaries, proposed dividends, expenditure relatable to exempt income, and total depreciation debited to P&L.
- Negative Deductions: Withdrawals from reserves, exempt income under Section 10, depreciation excluding revaluation depreciation, withdrawals from revaluation reserves, and lower of brought forward business loss or unabsorbed depreciation as per books.
MAT Credit Administration under Section 115JAA:
- Quantum of credit generation: $MAT Paid - Normal Tax Liability$ .
- 15-year carry forward timeline. Restrictions on set-off strictly capped at $< s p an c l a ss = " k a t e x " >< s p an c l a ss = " k a t e x - h t m l " a r ia - hi dd e n = " t r u e " >< s p an c l a ss = " k a t e x - ba se " >< s p an c l a ss = " k a t e x - s t r u t " s t y l e = " h e i g h t : 0.7778 e m; v er t i c a l - a l i g n : - 0.0833 e m; " >< / s p an >< s p an c l a ss = " m or d " >< s p an c l a ss = " m or d " > N or ma l T a x < / s p an >< / s p an >< s p an c l a ss = " m s p a ce " s t y l e = " ma r g in - r i g h t : 0.2222 e m; " >< / s p an >< s p an c l a ss = " mbin " > - < / s p an >< s p an c l a ss = " m s p a ce " s t y l e = " ma r g in - r i g h t : 0.2222 e m; " >< / s p an >< / s p an >< s p an c l a ss = " k a t e x - ba se " >< s p an c l a ss = " k a t e x - s t r u t " s t y l e = " h e i g h t : 0.6833 e m; " >< / s p an >< s p an c l a ss = " m or d " >< s p an c l a ss = " m or d " > M A T < / s p an >< / s p an >< / s p an >< / s p an >< / s p an >$ in future surplus years.
Strategic Comparison: Normal Regime vs. Section 115BAA:
- Section 115BAA: 22% base tax + 10% surcharge + 4% cess = 25.168% effective tax. Complete exemption from MAT. Requirement to surrender Chapter VI-A deductions and accumulated MAT credit.
- Corporate Decision Matrix: When should a company migrate to Section 115BAA vs. remain in the old regime to exhaust accumulated Section 115JAA MAT credit?
Conclusion: Summarize how MAT preserves equity in corporate tax distribution while the modern optional regimes provide an attractive, simplified tax landscape for domestic industrial investment.