Module II:
Corporate Taxation:
Corporation tax is a tax imposed on the net income of the company. Companies, both private
and public which are registered in India under the Companies Act 1956, are liable to
pay corporate tax.
Classification
Company: As per section 2(17), Company means:
any Indian company, or anybody corporate incorporated by or under the laws of a country
outside India, or any institution, association or body which was assessed as a company for any
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 Any institution, association or
body, whether incorporated or not and whether Indian or Non-Indian, which is declared by a
general or special order of CBDT to be a company.
Types of Companies under Income Tax Act.
1. A Company in which the Public are substantially interested
Section 2(18) of the Income-tax Act, has defined "a company in which the public are
substantially interested".
• A company owned by Government or Reserve Bank of India.
• A company having Govt. participation i.e. A company in which not less than 40% of the
shares are held by Government or the RBI or a corporation owned by the RBI.
• Companies registered under section 25 of the Indian Companies Act, 1956
• A company declared by the CBDT
• Mutual benefit finance company, where principal business of the company is
acceptance of deposits from its members and which has been declared by the Central
Government to be a Nidhi or a Mutual Benefit Society.
• A company having co-operative society participation
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1.A public limited company
Its equity shares carrying at least 50% of the voting power (in the case of an industrial company
the limit is 40%) were beneficially held throughout the relevant previous year by Government, a
statutory corporation, a company in which the public is substantially interested or a wholly
owned subsidiary of such a company.
2. Widely held company: It is a company in which the public are substantially interested.
3, Closely held company: It is a company in which the public are not substantially interested.
4 Indian company 'Indian Company' means a company formed and registered under the
Companies Act, 1956 and includes—
• 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;
• a corporation established by or under a Central, State or Provincial Act;
• any institution, association or body which is declared by the Board to be a company;
a)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; b) in the case of any of the
Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry, a
company formed and registered under any law for the time being in force in that Union
Territory
5 Domestic company A domestic company means an Indian company or any other company
which in respect of its income, liable to tax under the Income-tax Act, has made the prescribed
arrangements for the declaration and payment within India, of the dividends (including
dividends on preference shares) payable out of such income.
6. Foreign company Foreign company means a company which is not a domestic company, i.e.
a company registered outside India in any other foreign country.
7. Investment Company: Investment company means a company whose gross total income
consists mainly of income which is chargeable under the heads Income from house property,
Capital gains and Income from other sources.
Residence of a Company
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A company is said to be Resident in India in any previous year, if—
i. it is an Indian company; or
ii. its place of effective management, in that year, is in India.
Company definition: an association of persons formed for the purpose of some business or
undertaking, which has a legal personality separate from that of its members.
Book profit: Book profits refer to the profit earned by the business entity from its operations
and activities and is calculated by deducting all the business expenses incurred within a financial
year from all the sales revenue and other income generated from the selling of goods & services
within that same financial year.
Unabsorbed depreciation/Unabsorbed business loss:
Unabsorbed depreciation/loss is the excess amount of unaccounted depreciation/loss that
cannot be adjusted in the current year due to lack of profits in the profit and loss account. This
unabsorbed amount can be set-off against other heads of income and is carried forward for
adjustments in the forthcoming years
MAT: MAT stands for Minimum Alternate Tax and AMT stands for Alternate Minimum
Tax.
MAT or Minimum Alternate Tax is a provision in Direct tax laws to limit tax exemptions
availed by companies, so that they mandatorily pay a minimum amount of tax to the
government. As per Section 115JB, all companies are required to pay corporate tax at least
equal to the higher of the following:
a. Normal Tax Liability
b. MAT
NOTE: Least of the following is deducted from net profit while calculating book profit
a. B/F loss as per books of account
b. B/F depreciation as per books of account
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