Published on December 12, 2016
1. ASSESSEMENT OF COMPANIES
2. DEFINITIONS COMPANY [Section 2 (17)]: As per section 2 (17), company means, 1. Any Indian company, or 2. Any body of corporate incorporated by or under the law of a country outside India, or 3. Any institution, association or body which was assessed as a company for assessment year under the Income–Tax Act,1922 or was assessed under this Act as a company for any assessment year commencing on or before 1-4-1970, or 4. Any institution, association or body, whether incorporated or not whether Indian or Non-Indian, which is declared by a general or special order of CBDT.
3. INDIAN COMPANY [Section 2(26)]: ‘Indian company’ means a company formed and registered under the Companies Act, 1956 and includes- i. A company formed and registered under any law relating to companies formerly in force in any part of India(other than the state of Jammu and Kashmir and the Union Territories); i. (a) any corporation established by or under central, state or provincial Act; i. (b)Any institution, association or body which is declared by the Board to be a company; ii. In the case of the state of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that state; iii. In a case if any Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry, a company formed and registered under any law for time being in force in the Union Territory.
4. A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED [Section 2 (18)] Section 2 (18) of the Income Tax Act, has defined “A company in which public are substantially interested”. It Includes: i. A Company owned by Government or RBI. ii. A Company having Govt. participation, i.e. A company in which not less than 40% of the shares are held by Govt. or the RBI or a corporation owned by RBI. iii. Companies registered u/s 25 of the Indian Companies Act, 1956. Companies registered u/s 25 of the Indian Companies Act, 1956 are companies which are promoted with special object such as promotion of commerce, art, science charity, religion etc and these companies do not have profit motive. iv. A company declared by CBDT. v. Mutual benefit finance company, where the principal business of the company is the acceptance of deposits from the members and which has been declared by the Central Government to be a Nidhi or Mutual Benefit Society. vi. A company having co-operative society participation: It is a company in which at least 50%or more equity shares have been held by one or more co-operative societies. vii. A public limited company: A company is deemed to be public limited company if it is not a private company as defined by the Companies Act, 1956 and is fulfilling either of the following two conditions: a) Its equity shares were listed on a recognised stock exchange; as on the last date of the relevant previous year; or b) Its equity shares carrying at least 50% of the voting power (in case of an industrial company the limit is 40%) were beneficially held throughout the relevant previous year by Govt., a statutory corporation, a company in which public is substantially interested or a wholly owned subsidiary of such a company.
5. WIDELY HELD COMPANY: • It is a company in which the public are substantially interested. CLOSELY HELD COMPANY: • It is a company in which the public are NOT substantially interested. DOMESTIC COMPANY [Section 2(22A)]: • A domestic company means an Indian company or any company which in respect of its income, liable to tax under the Income–Tax Act, has made the prescribed arrangement for the declaration and payment within India, of the dividends (including dividends on preference shares) payable out of such income. FOREIGN COMPANY [Section 2(23A)]: • Foreign company means a company which is not a domestic company.
6. INDUSTRIAL COMPAY: • Industrial Company means a company whose business consists mainly of the construction of ships or other manufacturing or processing of goods or in mining the generation or distribution of electricity or any other from of power. INVESTMENT COMPANY: • Investment company means a company whose gross total income consist mainly of income which is chargeable under the heads Income from house property, Capital gains and Income from other sources.
7. SECTION-115 JB DEEMED INCOME RELATING TO CERTAIN COMPANIES ALSO KNOWN AS: MINIMUM ALTERNATIVE TAX (MAT)
8. TAX PAYABLE FOR ANY A.Y. CAN NOT BE LESS THAN 18.5% OF BOOK PROFIT: • Where in the case of a company, the tax on total Income (@3o %) is less than 18.5% of Book Profit (MAT) the tax payable shall be the tax at 18.5% of Book Profit. In other words, tax @ 30% on Total Income or 18.5% of Book Profit, whichever is more shall be tax payable. HOW TO COMPUTE BOOK PROFIT U/S 115 JB? • ‘Book Profit’ is arrived at after making specified adjustments to the net profit as shown in the Profit and Loss account so prepared.
9. PARTICULAR AMOUNT AMOUNT Net profit or loss as per Profit and Loss account xxx Add: (a) Provision or payment of income tax xxx (a) The amounts carried to any reserves xxx (a) The amount set aside to provisions made for meeting liabilities, other then ascertained liabilities. xxx (a) The amount by way of provision for losses of subsidiary companies xxx (a) Dividend proposed or paid xxx (a) The amount of expenditure related to any income to which Sec. 10, 11 or 12 applies. xxx (a) The amount of depreciation xxx (a) The amount of deferred tax & provision therefor xxx (a) The amount set aside as provision for diminution in value of any asset xxx xxx Less: (a) Amount withdrawn from any reserves or provisions, if such amount is credited to P & L a/c. xxx (a) The amount of income to which the provision of Sec. 10,11,12 or 80-I AB applies , if any such amount is credited to profit and loss account. xxx (a) The amount of depreciation debited to the profit and loss account (excluding the depreciation on account of revaluation of assets) xxx (a) The amount withdrawn from revaluation reserve and credited to profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation. xxx (a) The amount of loss brought forward or unabsorbed depreciation, whichever is less as per book of account xxx (a) The amount of profits of sick industrial company xxx (a) The amount of profit derived from the activities of a tonnage tax company xxx (a) The amount of deferred tax, if any such amount is credited to profit and loss account xxx BOOK PROFIT XXXX COMPUTATION OF BOOK PROFIT
10. FURNISHING OF REPORT OF AN ACCOUNT: • Every company to which this section applies, shall furnished a report in From No. 29 B from a chartered accountant certifying that the book profit has been computed in accordance with the provision of this section. ALLOWING TAX CREDIT IN RESPECT OF TAX PAID ON DEEMED INCOME UNDER MAT PROVISIONS AGAINST TAX LIABILITY IN SUBSEQUENT YEARS: SECTION 115 JAA Provides that where any amount of tax is paid u/s 115 JB (1) by a company for any assessment year beginning on or after 1-4-2006, credit in respect of tax so paid for such A.Y. shall be allowed on the difference of the tax paid u/s 115 JB and the amount of tax payable by the company on its total income computed in accordance with other provisions of the Act. [In simple words, According to Sec. 115 JAA if the tax is paid as per MAT (18.5% of Book Profit) tax credit will be allowed on the difference between taxes on Total Income (30%) and tax on Book Profit (18.5%). However, if tax is paid on total income, no tax credit shall be available but at the same time tax credit is allowed to be set – off] • No carry forward shall be allowed beyond the Tenth A.Y. • No interest shall be allowed on tax credit available u/s 115JAA.
11. CARRY FORWARD AND SET OFF OF LOSSES IN CASE OF CERTAIN COMPANIES [SECTION 79] • In the case of closely held companies where a change in shareholding has taken place in a previous year, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous years unless on the last day of the previous year in which loss is set off and the last day of the previous year in which loss was incurred, the shares of the company carrying not less than 51% of the voting power were beneficially held by the same persons. • This provision s shall not apply to a change in the voting power consequent upon: a) The death of a shareholder; or b) On account of transfer of shares by way of gift to any relative of the shareholders making such gifts; and c) Any change in the shareholding of an Indian company which is a subsidiary of a foreign company arising as a result of amalgamation or demerger of a foreign company subject to the conditions that 51% of the shareholders of the amalgamating or demerged foreign company continue to remain the shareholders of the amalgamated or the resulting foreign company.