CHAPTER XII-B — SPECIAL PROVISIONS RELATING TO CERTAIN COMPANIES
CHAPTER XII-B — SPECIAL PROVISIONS RELATING TO CERTAIN COMPANIES
SECTION 115J — SPECIAL PROVISIONS RELATING TO CERTAIN COMPANIES
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · Historic / Spent Provision — the original Minimum Alternate Tax
Status: HISTORIC / SPENT. Section 115J was inserted by the Finance Act, 1987, with effect from 1 April 1988, and by its own terms operated only for the assessment years 1988-89, 1989-90 and 1990-91 (“the relevant previous year… commencing on or after the 1st day of April, 1988 but before the 1st day of April, 1991”). It has not been formally omitted from the statute book and continues to appear in the bare Act, but it is spent: it applies to no live assessment year. It is the lineal ancestor of sections 115JA and 115JB.
Life of the provision: Operative for assessment years 1988-89 to 1990-91. Replaced (after a gap of six years during which no MAT operated) by section 115JA for assessment years 1997-98 to 2000-01, and thereafter by section 115JB from assessment year 2001-02 onwards.
Object: To bring within the tax net the so-called ‘zero-tax’ or ‘prosperous’ companies which, by availing themselves of various incentives, deductions and accelerated depreciation, declared substantial book profits and paid handsome dividends to shareholders yet paid little or no income-tax. Section 115J deemed the total income of such a company to be at least 30 per cent of its book profit.
Finance Act, 2026 impact: None. The Finance Act, 2026 makes no change to section 115J. The 2026 amendment to this Chapter touches only section 115JB (extension of the MAT carve-out to certain non-residents opting for presumptive taxation). Section 115J remains a spent provision.
A. SECTION COMMENTARY
A.1 Where the section sat in the scheme of the Act
Section 115J was the first Minimum Alternate Tax in Indian income-tax law and the founding provision of Chapter XII-B. It opened with a non obstante clause (‘Notwithstanding anything contained in any other provision of this Act’) and applied to an assessee being a company (other than a company engaged in the generation or distribution of electricity). Where the total income of such a company, as computed under the normal provisions of the Act, was less than 30 per cent of its ‘book profit’, the section deemed the total income chargeable to tax to be an amount equal to 30 per cent of the book profit. The charge was therefore not an independent tax but a deeming of the total income, to which the ordinary rates of company taxation were then applied.
The mischief addressed was specific and widely debated in the late 1980s: companies showing healthy profits in their published accounts, distributing dividends, but reducing their assessable income to nil or near-nil through depreciation, investment allowance, export incentives and similar deductions. Parliament responded by importing the company’s own audited book profit as a floor for taxable income.
A.2 How the section worked — the operative scheme (editorial summary)
The following is an editorial summary of the operative scheme, given to make the case law intelligible; it is NOT a verbatim reproduction of the section. Sub-section (1) created the 30-per-cent-of-book-profit floor. Sub-section (1A) required every company to prepare its profit and loss account for the relevant previous year in accordance with Parts II and III of Schedule VI to the Companies Act, 1956. The Explanation defined ‘book profit’ as the net profit shown in that profit and loss account, as increased by certain specified add-backs (income-tax provision, amounts carried to reserves, provisions for unascertained liabilities, dividends paid or proposed, etc.) and as reduced by certain specified deductions — most importantly, clause (iv), the amount of loss or the amount of depreciation which would be required to be set off against the profit under clause (b) of the first proviso to section 205(1) of the Companies Act, 1956 (i.e. the lower of brought-forward loss or unabsorbed depreciation as per books).
Sub-section (2) was a vital saving: nothing in sub-section (1) was to affect the determination of the amounts to be carried forward to subsequent years under the normal provisions (unabsorbed depreciation under section 32(2), investment allowance under section 32A(3), business loss under section 72, speculation loss under section 73, capital loss under section 74, loss from owning and maintaining race horses under section 74A(3), and the section 80J relief). In other words, the company was taxed on the deemed book-profit income for the MAT year, but its real losses and allowances were still carried forward in full — a structural feature that distinguishes section 115J from a simple disallowance.
A.3 Core doctrinal themes
Theme (1) — The sanctity of audited accounts: the profit and loss account prepared in accordance with the Companies Act and certified by the company’s auditors and adopted in general meeting is the foundation; the Assessing Officer cannot go behind it except to the limited extent of the add-backs and deductions enumerated in the Explanation (Apollo Tyres Ltd. v. CIT).
Theme (2) — ‘Book profit’ is a self-contained, mechanically-computed figure: it starts from the net profit as per the published accounts and is adjusted only by the items the Explanation specifies; the ordinary computational provisions of the Act (Chapter IV, set-off and carry-forward) do not govern its determination.
Theme (3) — ‘Loss’ includes depreciation: in clause (iv) of the Explanation, the word ‘loss’ is understood in its commercial/accounting sense and includes depreciation; the deduction is the lower of the brought-forward loss or the unabsorbed depreciation as appearing in the books (Surana Steels (P) Ltd. v. DCIT).
Theme (4) — Capital gains enter book profit: a capital surplus that, under Schedule VI, ought to be carried through the profit and loss account forms part of book profit and cannot be excluded merely because it is a capital receipt (CIT v. Veekaylal Investment Co. (P) Ltd.).
Theme (5) — No advance-tax interest under section 115J: because the book-profit liability could be ascertained only after the close of the year when the accounts were finalised and audited, the Supreme Court held that interest under sections 234B and 234C was not exigible on a section 115J assessment (CIT v. Kwality Biscuits Ltd.). This is the point on which section 115J differs sharply from its successors 115JA and 115JB.
A.4 Legislative evolution and the lineage of MAT
Section 115J operated for three assessment years only. After its lapse there was no minimum-tax for assessment years 1991-92 to 1996-97. Parliament revived the concept through section 115JA (assessment years 1997-98 to 2000-01), which improved the machinery by providing for tax credit through section 115JAA, and then replaced it with the present section 115JB from assessment year 2001-02. The drafting of ‘book profit’ in section 115J — net profit per Schedule VI as adjusted by enumerated items — is the direct template for the corresponding Explanations in sections 115JA and 115JB, with the result that the section 115J jurisprudence (especially Apollo Tyres and Surana Steels) continues to govern the construction of the later sections.
A.5 Why a spent provision still matters to the practitioner
Three reasons keep section 115J alive in practice. First, its leading authorities — Apollo Tyres (sanctity of accounts; limited power of the Assessing Officer) and Surana Steels (‘loss’ includes depreciation) — are routinely applied to sections 115JA and 115JB, the words of the operative provisions being in pari materia. Second, old assessments, reassessments and appeals for assessment years 1988-89 to 1990-91 still surface in recovery, rectification and refund contexts, and in penalty and interest disputes. Third, the contrast between Kwality Biscuits (no 234B/234C interest under 115J) and Rolta India (interest leviable under 115JA/115JB) is itself a teaching point on why the later sections were drafted as self-contained codes.
B. STATUTORY POSITION (verbatim heading; operative scheme summarised editorially)
Reproduced verbatim from the Income-tax Act, 1961 (Bare Act, as amended by the Finance Act, 2025):
CHAPTER XII-B
SPECIAL PROVISIONS RELATING TO CERTAIN COMPANIES
Special provisions relating to certain companies.
115J. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity), the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 but before the 1st day of April, 1991 (hereafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit. [Sub-sections (1A), (2) and the Explanation follow in the bare Act; their detailed text is summarised in Part A above and is not reproduced verbatim here.]
C. CASE LAW — CLUSTERED BY ISSUE
Cluster C-1 : Sanctity of audited accounts — the limited power of the Assessing Officer
Apollo Tyres Ltd. v. Commissioner of Income-tax (2002) 255 ITR 273 (SC).
Facts: The assessee, a company assessed under section 115J, had its profit and loss account prepared in accordance with Parts II and III of Schedule VI to the Companies Act, audited and adopted in general meeting. The Assessing Officer sought, in computing book profit, to recompute the net profit shown in those accounts on the footing that the company had adopted a particular treatment that, in his view, distorted the book figure.
Issue: Whether the Assessing Officer, while computing ‘book profit’ under section 115J, has jurisdiction to go behind the net profit shown in the profit and loss account prepared and certified in accordance with the Companies Act, or whether his power is confined to the adjustments enumerated in the Explanation.
Held: The Supreme Court held that the Assessing Officer, while computing income under section 115J, has only the power to examine whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with that Act. Thereafter, he has the limited power of making the increases and reductions provided for in the Explanation. He does not have the jurisdiction to go behind the net profit shown in the profit and loss account, except to the extent provided in the Explanation.
Ratio / why it matters: The audited, adopted profit and loss account is conclusive as to the starting figure of book profit; the MAT computation is a mechanical exercise of applying only the statutory add-backs and deductions. This is the single most important authority on MAT and governs sections 115JA and 115JB equally, the operative language being in pari materia.
Relevance to this section: The leading decision on section 115J; foundational to the construction of ‘book profit’ throughout Chapter XII-B.
Source: Supreme Court of India · (2002) 255 ITR 273 / 122 Taxman 562 / 174 CTR 521 · verified via Indian Kanoon / itatonline.
Cluster C-2 : Computation of book profit — clause (iv): ‘loss’ includes depreciation
Surana Steels (P) Ltd. v. Deputy Commissioner of Income-tax (1999) 237 ITR 777 (SC).
Facts: In computing book profit under section 115J, the dispute concerned the deduction available under clause (iv) of the Explanation — the amount of loss or depreciation required to be set off under clause (b) of the first proviso to section 205(1) of the Companies Act, 1956. The question was whether ‘loss’ in that clause is the loss before or after providing for depreciation.
Issue: What is the meaning of ‘loss’ in clause (iv) of the Explanation to section 115J (read with section 205(1)(b) of the Companies Act) — does it include depreciation?
Held: The Supreme Court held that in commercial and accounting parlance ‘loss’ is taken as including depreciation; had the legislature intended to exclude depreciation it would have used the expression ‘cash loss’. The word ‘loss’ in section 205(1)(b), as imported into section 115J, signifies the amount arrived at after taking depreciation into account. The Court disapproved the contrary view and approved the reasoning that unabsorbed depreciation forms part of the ‘loss’.
Ratio / why it matters: For the clause-(iv) reduction the figure to be deducted is the lower of the brought-forward loss or the unabsorbed depreciation as per the books, ‘loss’ being understood inclusive of depreciation. The principle carries over verbatim to the corresponding clauses of sections 115JA and 115JB.
Relevance to this section: Directly construes clause (iv) of the Explanation to section 115J; the governing authority on the depreciation/loss set-off in MAT book-profit computation.
Source: Supreme Court of India · (1999) 237 ITR 777 · verified via Indian Kanoon / CaseMine.
Garden Silk Weaving Factory v. Commissioner of Income-tax (1991) 189 ITR 512 (SC).
Facts / Issue: Whether, for the purposes connected with set-off, unabsorbed depreciation is part of ‘loss’.
Held / Ratio: The Supreme Court held that unabsorbed depreciation is part of the loss — a proposition expressly relied upon in Surana Steels in construing clause (iv) of the Explanation to section 115J. The case is therefore a supporting authority on the ‘loss includes depreciation’ theme.
Relevance to this section: Cited and applied in Surana Steels; underpins the clause-(iv) construction.
Source: Supreme Court of India · (1991) 189 ITR 512 · relied upon in Surana Steels (existence and ratio confirmed; practitioner to read full text for the precise context).
Cluster C-3 : What enters book profit — capital gains
Commissioner of Income-tax v. Veekaylal Investment Co. (P) Ltd. (2001) 249 ITR 597 (Bombay).
Facts: A company earned a capital surplus (capital gains) during the relevant previous year. The question was whether that surplus had to be brought into the profit and loss account, and hence into book profit, for the purpose of section 115J.
Issue: Whether capital gains form part of ‘book profit’ under section 115J, given that the profit and loss account is to be prepared in accordance with Parts II and III of Schedule VI to the Companies Act.
Held: The Bombay High Court held that in preparing the profit and loss account under Parts II and III of Schedule VI a company is bound to disclose the capital gains; such gains form part of the book profit for section 115J and cannot be excluded on the ground that they are capital receipts. A company cannot, by not routing the surplus through the profit and loss account, take it outside book profit.
Ratio / why it matters: Items that Schedule VI requires to be carried through the profit and loss account form part of book profit; the character of a receipt as ‘capital’ does not exclude it from MAT once it figures (or ought to figure) in the published accounts.
Relevance to this section: A leading High Court authority on the inclusion of capital gains in section 115J book profit; frequently applied to sections 115JA and 115JB.
Source: High Court of Bombay · (2001) 249 ITR 597 · verified via reported digests (existence and ratio confirmed).
Cluster C-4 : Advance tax and interest — sections 234B / 234C not exigible under section 115J
Commissioner of Income-tax v. Kwality Biscuits Ltd. (2006) 284 ITR 434 (SC), affirming Kwality Biscuits Ltd. v. CIT (2000) 243 ITR 519 (Karnataka).
Facts: The company was assessed on its book profit under section 115J. The Revenue sought to charge interest under sections 234B and 234C for default in / shortfall of advance tax computed with reference to the section 115J liability.
Issue: Whether interest under sections 234B and 234C is leviable where the income is computed under section 115J.
Held: The Karnataka High Court held — and the Supreme Court affirmed by dismissing the Revenue’s appeal — that the entire exercise of computing income/book profit under section 115J can be carried out only at the end of the financial year, after the accounts are audited and the balance sheet is finalised; until then the company itself may not know that section 115J will apply. Accordingly the advance-tax machinery (sections 207 to 210) could not sensibly operate, and interest under sections 234B and 234C was not leviable on a section 115J assessment.
Ratio / why it matters: Under section 115J there is no liability to advance-tax interest, because the MAT liability crystallises only post-audit. This holding is confined to section 115J: for sections 115JA and 115JB the Supreme Court took the opposite view in Rolta India (see the 115JA / 115JB files), the later sections being self-contained codes that expressly attract the advance-tax regime.
Relevance to this section: The definitive authority that section 115J does not attract sections 234B / 234C; and the case that marks the line between section 115J and its successors.
Source: Supreme Court of India · (2006) 284 ITR 434 (affirming (2000) 243 ITR 519 (Kar)) · verified via reported digests.
Cluster C-5 : The carry-forward saving — sub-section (2)
Sub-section (2) of section 115J preserves, untouched, the determination of the amounts to be carried forward (unabsorbed depreciation, investment allowance, business and other losses, section 80J relief). The courts have read this as a deliberate structural feature: section 115J taxes the deemed book-profit income for the MAT year but does not consume the company’s real losses and allowances, which remain available for set-off in later non-MAT years. The same protective architecture was carried into section 115JA(4) and, in substance, informs the MAT-credit mechanism of section 115JAA which replaced the simple carry-forward protection from assessment year 1997-98 onwards. (No separate Supreme Court authority is digested here; the proposition follows from the plain words of sub-section (2) and is noted for completeness and candour.)
D. PRACTITIONER NOTES
(1) Section 115J is spent but its leading authorities (Apollo Tyres; Surana Steels) are the bedrock of MAT construction and must be cited when arguing book-profit issues under sections 115JA and 115JB. (2) The Kwality Biscuits / Rolta India contrast is the key to advance-tax interest: no 234B/234C under 115J, but yes under 115JA/115JB. (3) Capital gains that Schedule VI requires to be routed through the profit and loss account enter book profit (Veekaylal). (4) Where a citation in this file is marked as ‘existence and ratio confirmed’ rather than verified line-by-line, counsel should read the full report before relying on it in a pleading.
CHAPTER XII-B — SPECIAL PROVISIONS RELATING TO CERTAIN COMPANIES
SECTION 115J — SPECIAL PROVISIONS RELATING TO CERTAIN COMPANIES
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · Historic / Spent Provision — the original Minimum Alternate Tax
Status: HISTORIC / SPENT. Section 115J was inserted by the Finance Act, 1987, with effect from 1 April 1988, and by its own terms operated only for the assessment years 1988-89, 1989-90 and 1990-91 (“the relevant previous year… commencing on or after the 1st day of April, 1988 but before the 1st day of April, 1991”). It has not been formally omitted from the statute book and continues to appear in the bare Act, but it is spent: it applies to no live assessment year. It is the lineal ancestor of sections 115JA and 115JB.
Life of the provision: Operative for assessment years 1988-89 to 1990-91. Replaced (after a gap of six years during which no MAT operated) by section 115JA for assessment years 1997-98 to 2000-01, and thereafter by section 115JB from assessment year 2001-02 onwards.
Object: To bring within the tax net the so-called ‘zero-tax’ or ‘prosperous’ companies which, by availing themselves of various incentives, deductions and accelerated depreciation, declared substantial book profits and paid handsome dividends to shareholders yet paid little or no income-tax. Section 115J deemed the total income of such a company to be at least 30 per cent of its book profit.
Finance Act, 2026 impact: None. The Finance Act, 2026 makes no change to section 115J. The 2026 amendment to this Chapter touches only section 115JB (extension of the MAT carve-out to certain non-residents opting for presumptive taxation). Section 115J remains a spent provision.
A. SECTION COMMENTARY
A.1 Where the section sat in the scheme of the Act
Section 115J was the first Minimum Alternate Tax in Indian income-tax law and the founding provision of Chapter XII-B. It opened with a non obstante clause (‘Notwithstanding anything contained in any other provision of this Act’) and applied to an assessee being a company (other than a company engaged in the generation or distribution of electricity). Where the total income of such a company, as computed under the normal provisions of the Act, was less than 30 per cent of its ‘book profit’, the section deemed the total income chargeable to tax to be an amount equal to 30 per cent of the book profit. The charge was therefore not an independent tax but a deeming of the total income, to which the ordinary rates of company taxation were then applied.
The mischief addressed was specific and widely debated in the late 1980s: companies showing healthy profits in their published accounts, distributing dividends, but reducing their assessable income to nil or near-nil through depreciation, investment allowance, export incentives and similar deductions. Parliament responded by importing the company’s own audited book profit as a floor for taxable income.
A.2 How the section worked — the operative scheme (editorial summary)
The following is an editorial summary of the operative scheme, given to make the case law intelligible; it is NOT a verbatim reproduction of the section. Sub-section (1) created the 30-per-cent-of-book-profit floor. Sub-section (1A) required every company to prepare its profit and loss account for the relevant previous year in accordance with Parts II and III of Schedule VI to the Companies Act, 1956. The Explanation defined ‘book profit’ as the net profit shown in that profit and loss account, as increased by certain specified add-backs (income-tax provision, amounts carried to reserves, provisions for unascertained liabilities, dividends paid or proposed, etc.) and as reduced by certain specified deductions — most importantly, clause (iv), the amount of loss or the amount of depreciation which would be required to be set off against the profit under clause (b) of the first proviso to section 205(1) of the Companies Act, 1956 (i.e. the lower of brought-forward loss or unabsorbed depreciation as per books).
Sub-section (2) was a vital saving: nothing in sub-section (1) was to affect the determination of the amounts to be carried forward to subsequent years under the normal provisions (unabsorbed depreciation under section 32(2), investment allowance under section 32A(3), business loss under section 72, speculation loss under section 73, capital loss under section 74, loss from owning and maintaining race horses under section 74A(3), and the section 80J relief). In other words, the company was taxed on the deemed book-profit income for the MAT year, but its real losses and allowances were still carried forward in full — a structural feature that distinguishes section 115J from a simple disallowance.
A.3 Core doctrinal themes
Theme (1) — The sanctity of audited accounts: the profit and loss account prepared in accordance with the Companies Act and certified by the company’s auditors and adopted in general meeting is the foundation; the Assessing Officer cannot go behind it except to the limited extent of the add-backs and deductions enumerated in the Explanation (Apollo Tyres Ltd. v. CIT).
Theme (2) — ‘Book profit’ is a self-contained, mechanically-computed figure: it starts from the net profit as per the published accounts and is adjusted only by the items the Explanation specifies; the ordinary computational provisions of the Act (Chapter IV, set-off and carry-forward) do not govern its determination.
Theme (3) — ‘Loss’ includes depreciation: in clause (iv) of the Explanation, the word ‘loss’ is understood in its commercial/accounting sense and includes depreciation; the deduction is the lower of the brought-forward loss or the unabsorbed depreciation as appearing in the books (Surana Steels (P) Ltd. v. DCIT).
Theme (4) — Capital gains enter book profit: a capital surplus that, under Schedule VI, ought to be carried through the profit and loss account forms part of book profit and cannot be excluded merely because it is a capital receipt (CIT v. Veekaylal Investment Co. (P) Ltd.).
Theme (5) — No advance-tax interest under section 115J: because the book-profit liability could be ascertained only after the close of the year when the accounts were finalised and audited, the Supreme Court held that interest under sections 234B and 234C was not exigible on a section 115J assessment (CIT v. Kwality Biscuits Ltd.). This is the point on which section 115J differs sharply from its successors 115JA and 115JB.
A.4 Legislative evolution and the lineage of MAT
Section 115J operated for three assessment years only. After its lapse there was no minimum-tax for assessment years 1991-92 to 1996-97. Parliament revived the concept through section 115JA (assessment years 1997-98 to 2000-01), which improved the machinery by providing for tax credit through section 115JAA, and then replaced it with the present section 115JB from assessment year 2001-02. The drafting of ‘book profit’ in section 115J — net profit per Schedule VI as adjusted by enumerated items — is the direct template for the corresponding Explanations in sections 115JA and 115JB, with the result that the section 115J jurisprudence (especially Apollo Tyres and Surana Steels) continues to govern the construction of the later sections.
A.5 Why a spent provision still matters to the practitioner
Three reasons keep section 115J alive in practice. First, its leading authorities — Apollo Tyres (sanctity of accounts; limited power of the Assessing Officer) and Surana Steels (‘loss’ includes depreciation) — are routinely applied to sections 115JA and 115JB, the words of the operative provisions being in pari materia. Second, old assessments, reassessments and appeals for assessment years 1988-89 to 1990-91 still surface in recovery, rectification and refund contexts, and in penalty and interest disputes. Third, the contrast between Kwality Biscuits (no 234B/234C interest under 115J) and Rolta India (interest leviable under 115JA/115JB) is itself a teaching point on why the later sections were drafted as self-contained codes.
B. STATUTORY POSITION (verbatim heading; operative scheme summarised editorially)
Reproduced verbatim from the Income-tax Act, 1961 (Bare Act, as amended by the Finance Act, 2025):
CHAPTER XII-B
SPECIAL PROVISIONS RELATING TO CERTAIN COMPANIES
Special provisions relating to certain companies.
115J. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity), the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 but before the 1st day of April, 1991 (hereafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit. [Sub-sections (1A), (2) and the Explanation follow in the bare Act; their detailed text is summarised in Part A above and is not reproduced verbatim here.]
C. CASE LAW — CLUSTERED BY ISSUE
Cluster C-1 : Sanctity of audited accounts — the limited power of the Assessing Officer
Apollo Tyres Ltd. v. Commissioner of Income-tax (2002) 255 ITR 273 (SC).
Facts: The assessee, a company assessed under section 115J, had its profit and loss account prepared in accordance with Parts II and III of Schedule VI to the Companies Act, audited and adopted in general meeting. The Assessing Officer sought, in computing book profit, to recompute the net profit shown in those accounts on the footing that the company had adopted a particular treatment that, in his view, distorted the book figure.
Issue: Whether the Assessing Officer, while computing ‘book profit’ under section 115J, has jurisdiction to go behind the net profit shown in the profit and loss account prepared and certified in accordance with the Companies Act, or whether his power is confined to the adjustments enumerated in the Explanation.
Held: The Supreme Court held that the Assessing Officer, while computing income under section 115J, has only the power to examine whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with that Act. Thereafter, he has the limited power of making the increases and reductions provided for in the Explanation. He does not have the jurisdiction to go behind the net profit shown in the profit and loss account, except to the extent provided in the Explanation.
Ratio / why it matters: The audited, adopted profit and loss account is conclusive as to the starting figure of book profit; the MAT computation is a mechanical exercise of applying only the statutory add-backs and deductions. This is the single most important authority on MAT and governs sections 115JA and 115JB equally, the operative language being in pari materia.
Relevance to this section: The leading decision on section 115J; foundational to the construction of ‘book profit’ throughout Chapter XII-B.
Source: Supreme Court of India · (2002) 255 ITR 273 / 122 Taxman 562 / 174 CTR 521 · verified via Indian Kanoon / itatonline.
Cluster C-2 : Computation of book profit — clause (iv): ‘loss’ includes depreciation
Surana Steels (P) Ltd. v. Deputy Commissioner of Income-tax (1999) 237 ITR 777 (SC).
Facts: In computing book profit under section 115J, the dispute concerned the deduction available under clause (iv) of the Explanation — the amount of loss or depreciation required to be set off under clause (b) of the first proviso to section 205(1) of the Companies Act, 1956. The question was whether ‘loss’ in that clause is the loss before or after providing for depreciation.
Issue: What is the meaning of ‘loss’ in clause (iv) of the Explanation to section 115J (read with section 205(1)(b) of the Companies Act) — does it include depreciation?
Held: The Supreme Court held that in commercial and accounting parlance ‘loss’ is taken as including depreciation; had the legislature intended to exclude depreciation it would have used the expression ‘cash loss’. The word ‘loss’ in section 205(1)(b), as imported into section 115J, signifies the amount arrived at after taking depreciation into account. The Court disapproved the contrary view and approved the reasoning that unabsorbed depreciation forms part of the ‘loss’.
Ratio / why it matters: For the clause-(iv) reduction the figure to be deducted is the lower of the brought-forward loss or the unabsorbed depreciation as per the books, ‘loss’ being understood inclusive of depreciation. The principle carries over verbatim to the corresponding clauses of sections 115JA and 115JB.
Relevance to this section: Directly construes clause (iv) of the Explanation to section 115J; the governing authority on the depreciation/loss set-off in MAT book-profit computation.
Source: Supreme Court of India · (1999) 237 ITR 777 · verified via Indian Kanoon / CaseMine.
Garden Silk Weaving Factory v. Commissioner of Income-tax (1991) 189 ITR 512 (SC).
Facts / Issue: Whether, for the purposes connected with set-off, unabsorbed depreciation is part of ‘loss’.
Held / Ratio: The Supreme Court held that unabsorbed depreciation is part of the loss — a proposition expressly relied upon in Surana Steels in construing clause (iv) of the Explanation to section 115J. The case is therefore a supporting authority on the ‘loss includes depreciation’ theme.
Relevance to this section: Cited and applied in Surana Steels; underpins the clause-(iv) construction.
Source: Supreme Court of India · (1991) 189 ITR 512 · relied upon in Surana Steels (existence and ratio confirmed; practitioner to read full text for the precise context).
Cluster C-3 : What enters book profit — capital gains
Commissioner of Income-tax v. Veekaylal Investment Co. (P) Ltd. (2001) 249 ITR 597 (Bombay).
Facts: A company earned a capital surplus (capital gains) during the relevant previous year. The question was whether that surplus had to be brought into the profit and loss account, and hence into book profit, for the purpose of section 115J.
Issue: Whether capital gains form part of ‘book profit’ under section 115J, given that the profit and loss account is to be prepared in accordance with Parts II and III of Schedule VI to the Companies Act.
Held: The Bombay High Court held that in preparing the profit and loss account under Parts II and III of Schedule VI a company is bound to disclose the capital gains; such gains form part of the book profit for section 115J and cannot be excluded on the ground that they are capital receipts. A company cannot, by not routing the surplus through the profit and loss account, take it outside book profit.
Ratio / why it matters: Items that Schedule VI requires to be carried through the profit and loss account form part of book profit; the character of a receipt as ‘capital’ does not exclude it from MAT once it figures (or ought to figure) in the published accounts.
Relevance to this section: A leading High Court authority on the inclusion of capital gains in section 115J book profit; frequently applied to sections 115JA and 115JB.
Source: High Court of Bombay · (2001) 249 ITR 597 · verified via reported digests (existence and ratio confirmed).
Cluster C-4 : Advance tax and interest — sections 234B / 234C not exigible under section 115J
Commissioner of Income-tax v. Kwality Biscuits Ltd. (2006) 284 ITR 434 (SC), affirming Kwality Biscuits Ltd. v. CIT (2000) 243 ITR 519 (Karnataka).
Facts: The company was assessed on its book profit under section 115J. The Revenue sought to charge interest under sections 234B and 234C for default in / shortfall of advance tax computed with reference to the section 115J liability.
Issue: Whether interest under sections 234B and 234C is leviable where the income is computed under section 115J.
Held: The Karnataka High Court held — and the Supreme Court affirmed by dismissing the Revenue’s appeal — that the entire exercise of computing income/book profit under section 115J can be carried out only at the end of the financial year, after the accounts are audited and the balance sheet is finalised; until then the company itself may not know that section 115J will apply. Accordingly the advance-tax machinery (sections 207 to 210) could not sensibly operate, and interest under sections 234B and 234C was not leviable on a section 115J assessment.
Ratio / why it matters: Under section 115J there is no liability to advance-tax interest, because the MAT liability crystallises only post-audit. This holding is confined to section 115J: for sections 115JA and 115JB the Supreme Court took the opposite view in Rolta India (see the 115JA / 115JB files), the later sections being self-contained codes that expressly attract the advance-tax regime.
Relevance to this section: The definitive authority that section 115J does not attract sections 234B / 234C; and the case that marks the line between section 115J and its successors.
Source: Supreme Court of India · (2006) 284 ITR 434 (affirming (2000) 243 ITR 519 (Kar)) · verified via reported digests.
Cluster C-5 : The carry-forward saving — sub-section (2)
Sub-section (2) of section 115J preserves, untouched, the determination of the amounts to be carried forward (unabsorbed depreciation, investment allowance, business and other losses, section 80J relief). The courts have read this as a deliberate structural feature: section 115J taxes the deemed book-profit income for the MAT year but does not consume the company’s real losses and allowances, which remain available for set-off in later non-MAT years. The same protective architecture was carried into section 115JA(4) and, in substance, informs the MAT-credit mechanism of section 115JAA which replaced the simple carry-forward protection from assessment year 1997-98 onwards. (No separate Supreme Court authority is digested here; the proposition follows from the plain words of sub-section (2) and is noted for completeness and candour.)
D. PRACTITIONER NOTES
(1) Section 115J is spent but its leading authorities (Apollo Tyres; Surana Steels) are the bedrock of MAT construction and must be cited when arguing book-profit issues under sections 115JA and 115JB. (2) The Kwality Biscuits / Rolta India contrast is the key to advance-tax interest: no 234B/234C under 115J, but yes under 115JA/115JB. (3) Capital gains that Schedule VI requires to be routed through the profit and loss account enter book profit (Veekaylal). (4) Where a citation in this file is marked as ‘existence and ratio confirmed’ rather than verified line-by-line, counsel should read the full report before relying on it in a pleading.