There is one question relating to MAT for assessment year 2019-20.
1. A foreign company is having branch in India and said branch earned a Net profit of Rs. 50 lacs for the year ended 31/3/2019
2. The said net Profit included Rs. 12 lacs, dividend received from Indian Companies.
What would be book profit of branch for the purpose of MAT u/s 115JB in two cases, i.e. what will be the treatment of dividend while calculating Book Profit?
a) If foreign company is treated as resident of India
b) If foreign Company is Non-resident in India
My views on section 115BBDA
1. Section 115BBDA provides special rate of taxation of dividend @ 10% (Basic rate) when specified RESIDENT recipient is in receipt of dividend in excess of Rs. 10 lacs.
2. The point for consideration is that section 115BBDA provides for special rate of taxation, whereby there is no taxation till Rs. 10 lacs. It does not imply that dividend is exempt income upto Rs. 10 lacs in terms of Section 10. Section 10(34) will not be applicable to income chargeable in accordance with section 115BBDA.
3. If an individual has other income of Rs. 43 lacs and dividend income of Rs. 9 lacs, then his total income will be Rs. 52 lacs, but tax will be calculated on Rs. 43 lacs, as there is no taxation on Rs. 9 lacs of Income, and there will be applicable surcharge as total income exceeds Rs. 50 lacs.
4. Specified recipient, among other things includes, a foreign Company. Thus if foreign company is resident, it will be subject to taxation u/s 115BBDA or if foreign company is non-resident, it is outside the purview of section 115BBDA
Book profit-If Foreign Company is Resident
a) In this case since dividend in excess of Rs. 10 lacs is taxable and hence section 10(34) will not be applicable.
b) Accordingly while calculating MAT, no treatment will be given to dividend (since it is not exempt u/s 10). Hence Book Profit will be Rs. 50 lacs equivalent to Net Profit
Note: Someone is taking view, in the instant case, that since dividend income is exempt upto Rs. 10 lacs, the same should be deducted from Net Profit to arrive at Book Profit. To me, same is not correct
Book profit-If Foreign Company is Non-Resident
a) In this case, section 115BBDA is not applicable, so foreign company income will continue to enjoy exemption u/s 10(34) i.e. dividend income will be exempt.
b) Accordingly, while calculating Book Profit, the exempt income will be reduced from Net Profit and the book Profit will be Rs. 38 lacs (50-12).
