Please Help: Applicability of MAT for Insurance Companies
Posted Date : 25-Oct-2011 , 11:05:59 am | Posted By: CA.NAVEEN K R
Category :
Income Tax | Answers :
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Comments :
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Sec 115JB:- Opening line says that, the provision applies to all and every corporate assessee,thus insurance companies also falls under this.
The provision also includes, any corporations established by or under central, sate or provincial act which includes banking, electricity companies and also includes SBI as they are incorporated under special statutes like that or similarly LIC also falls under the above said category as SBI
It also says, every corporate assessee for the purpose of this section has to prepare P&L Account as per Schd VI of Company's Act, thus Banking, Electricity Co's has to prepare 2 P&LA/c
there are certain case laws where it says it does not apply to Banking Company as the provisions of Co's Act does not apply to it
Krung Thai Bank Vs JDIT
As per my view, a case law cannot override the provisions of the act, thus i am of the opinion that it applies to Insurance Companies also?? Kindly give your valuable inputs on this!!
Section 44 read with Section 115B read with 1st Schedule to Income Tax Act says that the business of life insurance companies would be liable to pay flat & concessional rate of tax at 12.5%
Thus i am little confused as the rate of MAT is 18% & Tax rate is 12.5% in most of the cases the Mat only comes into play, thus seeking your view on this..
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Answers:
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 Answer by: Ashish Karundia |
| Dear Naveen,
The basis of computation of MAT is the profit and loss shown in the books of accounts prepared in accordance with Parts II and III of Schedule VI of the Co Act. In this regard please note that the first proviso Section 211 (1) and 211 (2) of the Companies Act, 1956 inter alia exempts banking companies from the requirements of complying with the requirements to prepare their financials in accordance with Schedule VI of the Co Act as insurance companies are governed by the provisions of the IRDA regulations and are required to prepare their financials as prescribed there under. The same proposition was held in the case of Krung Thai Bank Vs JDIT (the case mentioned by you in your query).
In other words, it can be said that Section 115JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act. Therefore, MAT provisions are not applicable on insurance companies.
I hope the above suffice.
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| Answer by: Ashish Karundia |
| Dear Unmesh,
The observation made by you is indeed a right ground which is being raised by the department for applying MAT on the companies not required to follow part II and III of Schedule VI. However,it may be noted that life insurance companies are required to pay tax @ 12.5 % and if they are asked to pay MAT @ 18.5%, then it will be harsh on their part and the rate of 12.5% will be of no use.[ Refer Section 115B and Section 44 for the rate]. It may be noted that in the case of The Timken Company, the advance ruling authority have held that foreign companies which are not required to prepare accounts as per part II and III of schedule VI ARE NOT REQUIRED TO PAY MAT i.e. MAT is not applicable on them [Refer A.A.R 836/2009].Further, in the case of Apollo Tyres, the Hon'ble Supreme Court while interpreting the provisions of Section 115J(1A) which are same as Section 115JB(2)have held that use of the words "in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act" was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, an AO under the IT Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinized and certified by statutory auditors and will have to be approved by the company in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. However, the judgment of Apollo Tyres is pending before the larger bench of Supreme Court for RECONSIDERATION.
In light of the judicial pronouncements discussed above, it can be contended/argued that MAT provisions are not applicable on insurance companies. However, the department may dispute the above view as the said issue is not settled at present and is pending before the larger bench of Supreme Court.
Any further development on the issue is highly appreciated.
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| Answer by: CA Sheekhr |
| ashish is rite
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| Comments |
| Posted By : Unmesh |
03-Nov-2011, 07:13:01 |
| Dear Ashish, now on the basis of advance ruling and high court decision you mention we can say MAT is not applicable on Insurance Company, but supreme court judgement will give more clarity on the issue. My purpose of raising concern over your first answer is achieved, as people will be able to know complete background behind the story. |
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| Posted By : Unmesh |
01-Nov-2011, 05:15:55 |
| Dear Ashish, I have a different view on this, it is rightly said that Parts II and III of Schedule VI is not applicable on Insurance company as per first proviso of Section 211 (1) and 211 (2) of the Companies Act,1956, but that is for the companies act not for the income tax act, now as Section 115JB(1) of the Income tax act clearly says that notwithstanding anything contained in any other provision of the Income tax act (So overriding everything in the Income Tax act), and also 115JB (2) says every assessee, being a company, shall, for the purpose of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II and III of Schedule VI to the companies Act, 1956, so as per income tax act insurance company has to prepare their accounts as per said schedule VI and has to pay MAT. Now come to the case of Krung Thai Bank, it’s a stand taken by ITAT in a case which is not binding on anyone except to that case. Now on the face it looks that MAT will be applicable but its need more analysis and discussion to come on the conclusion so further discussion is invited on this issue |
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| Posted By : |
01-Nov-2011, 05:15:05 |
| Dear Ashish, I have a different view on this, it is rightly said that Parts II and III of Schedule VI is not applicable on Insurance company as per first proviso of Section 211 (1) and 211 (2) of the Companies Act,1956, but that is for the companies act not for the income tax act, now as Section 115JB(1) of the Income tax act clearly says that notwithstanding anything contained in any other provision of the Income tax act (So overriding everything in the Income Tax act), and also 115JB (2) says every assessee, being a company, shall, for the purpose of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II and III of Schedule VI to the companies Act, 1956, so as per income tax act insurance company has to prepare their accounts as per said schedule VI and has to pay MAT. Now come to the case of Krung Thai Bank, it’s a stand taken by ITAT in a case which is not binding on anyone except to that case. Now on the face it looks that MAT will be applicable but its need more analysis and discussion to come on the conclusion so further discussion is invited on this issue |
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| Posted By : Ashish Karundia |
31-Oct-2011, 10:42:03 |
| Dear Readers,
Please read the words 'banking companies' as 'insurance companies' in 3rd line of the reply given by me. |
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| Posted By : CA VIPIN GARG |
27-Oct-2011, 09:21:28 |
| Dear Naveen Ji, first of all very Good Morning, regarding your query, i am 500% sure that MAT WILL NOT APPLICABLE ON INSURANCE COMPANIES.
Hope you got your answer, have a nice day |
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