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Direct Tax Alert - CBDT notifies Rule for computing MAT relief for secondary adjustment and Advance Pricing Agreement

12 August 2021

Section 115JB of the Income-tax Act, 1961 (IT Act) provides for computing Minimum Alternate Tax (MAT) at the rate of 15% of book profit, where the total income of a company computed under the normal provisions of the Act is less than 15% of book profit. Book profit for this purpose is computed by making certain adjustments to the profit disclosed in the profit and loss account prepared by the taxpayer. Finance Act, 2021 inserted a new sub-section (2D) in section 115JB of the IT Act to provide for filing of rectification application by taxpayer in whose case book profits of current fiscal year are higher on account of inclusion of income from APA or a secondary adjustment. In such case, the tax authorities shall recompute the book profit of past year(s) and tax payable, if any, for the current fiscal year in such manner as may be prescribed. The amendment further provides that provision of section 154 of the IT Act shall be applicable to such application and the period of 4 years specified in Section 154(7) of the IT Act, shall be reckoned from end of the fiscal year in which application is received by the tax authorities.

Recently, the Central Board of Direct Taxes (CBDT) has notified1 new Rule 10RB to provide the computation mechanism for computing the relief contained in section 115JB(2D) of the IT Act. We, at BDO in India, have summarised this Notification and provided our comments on its impact hereunder:

How is the relief under section 115JB(2D) of the IT Act computed?

The tax payable under section 115JB(1) of the IT Act for the fiscal year shall be reduced by the following amount, namely

                        (A – B) – (D – C)

where,

A

tax payable by the taxpayer under section 115JB(1) of the IT Act on the book profit of the fiscal year including the past income

B

tax payable by the taxpayer section 115JB(1) of the IT Act on the book profit of the fiscal year after reducing the book profit with the past income

C

Aggregate of tax payable by the taxpayer under section 115JB(1) of the IT Act on the book profit of those past year(s) to which the past income belongs

D

Aggregate of tax payable by the taxpayer under section 115JB(1) of the IT Act on the book profit of past year(s), referred to in item C, after increasing the book profit with the relevant past income of such year(s)

 

What will happen if the result of the formula is in negative?

If the value of (A-B)-(D-C) in the formula is negative, its value shall be deemed to be zero.

 

If there is no tax payable under section 115JB(1) of the IT Act in earlier year(s), how will the value of “A”, “B”, “C” and “D” be computed?

  • The value of amount “A” in the formula shall be deemed to be zero, if there is no tax payable under section 115JB(1) of the IT Act on the book profit of that previous year including the past income
  • The value of amount “B” in the formula shall be deemed to be zero, if there is no tax payable under section 115JB(1) of the IT Act on the book profit of that previous year after reducing the book profit with the past income.
  • For the purposes of calculation of amount “C” in the formula, if in any past year or years there is no tax payable under section 115JB(1) of the IT Act on the book profit of that year or years, the tax payable for that year or years shall be deemed to be zero.
  • For the purposes of calculation of amount “D” in the formula, if in any past year or years there is no tax payable under 115JB(1) of the IT Act on the book profit of that year or years after increasing the book profit with the relevant past income of such year or years, the tax payable for that year or years shall be deemed to be zero.

 

Which income will be regarded as past income?

Past income shall be the amount of income of past year or years included in the book profit of the previous year on account of an advance pricing agreement entered into by the taxpayer under section 92CC of the IT Act or on account of secondary adjustment required to be made under section 92CE of the IT Act.

 

What will happen to the MAT credit of earlier year(s)?

The tax credit allowed to the taxpayer under section 115JAA of the IT Act shall be reduced by the amount which is equal to the amount of reduction that has been allowed under Rule 10RB(1) of the IT Rules.

 

Whether any Form have been prescribed for making application to the Tax Officer?

Yes. The taxpayer has to make an application in Form 3CEEA. This Form is to be submitted electronically by uploading signed printout of said Form in the manner specified by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be.

 

Who can sign Form 3CEEA?

Form 3CEEA can be signed by any person who is authorised to verify taxpayer’s tax return under section 140 of the IT Act.

 

BDO comments

The amendment in section 115JB of the IT Act is retrospective from Fiscal Year (FY) 2020-21. With the deadline approaching, the taxpayer could compute the tax impact of this Notification to its set of facts. Following example will help getting more clarity about the formula:

Particulars

FY 2020-21

FY 2019-20

Book Profit (excluding adjustment)

900

(50)

Add: Secondary / APA adjustment

100

100

Book Profit (including adjustment)

1,000

50

A = Tax on Book Profit (including adjustment)

150

 

B = Tax on Book Profit (excluding adjustment)

135

 

C = Tax on Book Profit (excluding adjustment)

 

NIL

D = Tax on Book Profit (including adjustment)

 

7.5

Relief = (A-B) – (D-C) = (150 – 135) – (7.5 – NIL) = 7.5


1Notification No. 92/2021 / F. No. 370142/21/2021-TPL (Part)] dated 10 August 2021