Saturday, August 14, 2010


The assessee, a foreign company, without a presence or PE in India, earned long-term capital gains which were exempt u/s 10(38). The assessee applied for a ruling on whether it was liable to pay Minimum Alternate Tax (MAT) u/s 115 JB on the said gains. HELD ruling in favour of the assessee: In P.NO.14 of 1997 (234 ITR 335) the AAR held that s. 115JA (akin to s. 115JB) applied to every "company" and as the term "company" was defined in sec 2(17) to include a "foreign company", there was no reason to presume that the legislature did not intend s. 115JA to apply to a foreign company. This ruling is not applicable because:

  • It was rendered in the case of an assessee who was doing business and had a PE in India. Its income was being assessed under the head "income from business and profession". It was required to maintain accounts under section 44AA of the IT Act and prepare accounts under sec. 591 & 594 of the Companies Act;
  • Sec 591 of the Companies Act applies only to foreign companies who have established a place of business within India and requires the preparation of a balance sheet and P&L A/c as per sec 594. The obligation in sec 115JA(2) to prepare P&L Account in accordance with Parts II and III of Schedule VI can apply only to a foreign company which has a place of business within India. As the applicant does not have a place of business in India, its preparation of P&L Account in accordance with Parts II & III of Schedule VI cannot be complied;
  • Though sec 2(17) defines a "company" to include a "foreign company", the context of the definition has to be seen. Income, which does not have a source in India, cannot be made part of the book profits. The annual accounts, including the P&L Account, cannot be prepared as per sec 115JB (2) in respect of the world income and laid before the company at its AGM in accordance with s. 210 of the Companies Act.

Accordingly, section 115JB is not designed to apply to a foreign company which has no presence or PE in India.


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