M/s Cure Ltd., an Indian company, is engaged in the manufacturing of pharmaceutical products since 2020. Net profit as per statement of Profit and…

Computation of Total Income of M/s Cure Ltd. for the Assessment Year 2024-25 under normal provisions of the Act Particulars Particulars ₹ I Profits and gains from business or profession Net profit as per statement of profit & loss 95,45,000 Add: Item debited but to be considered separately or disallowed (a) Expenditure for public issue of shares [Share issue expenses is a capital expenditure, even though it could not go in for public issue on account of non-clearance by SEBI. Such expenditure was incurred only for the purpose of expansion of the capital base of the company. Since the same has been debited to statement of profit and loss, it has to be added back] 6,00,000 (b) Payment to micro enterprise for purchases [As per section 43B(h), no deduction shall be allowed for any sum payable by an assessee to a micro or small enterprise unless such sum is actually paid, where a due date of payment is agreed upon in writing, within such due date, subject to a maximum of 45 days from the day of acceptance/ deemed acceptance. Deduction is allowed in that previous year in which such sum is actually paid. In this case the actual date of payment is 29.03.2024 i.e. before 31.03.2024. Hence, purchase of 5 lakhs shall be allowed as deduction because the payment was made before 31.03.2024] - (c) Expenses on freebies to medical practitioners [Expenses incurred for providing freebies to medical practitioners are an expense which is prohibited by the law. Any expenditure incurred for any purpose which is prohibited by law is not deemed to have been incurred for the purpose of business or profession and hence, has to be disallowed from business income] 7,25,000 (d) Depreciation on the basis of useful life of assets 12,50,000 (e) One-time license fee [Franchise is in the nature of an intangible asset eligible for depreciation @25%. Since one-time license fees of 10lakhs paid to a foreign company for obtaining franchise has been debited to statement of profit and loss, the same has to be added back] 10,00,000 35,75,000 1,31,20,000 Less: Items credited but to be considered separately/ permissible expenditures and allowances (f) Profit from setting of warehouse in rural area for storage of sugar [Since it is a specified business, its profits would be computed separately] 17,00,000 (g) Power subsidy received from the Central Government [As per ICDS VII, Government grant (subsidy) which is receivable as compensation for expenses or losses incurred in a previous financial year shall be recognized as income of the period in which it is received. It would be taxable in P.Y. 2023-24 as the subsidy is received in P.Y. 2023-24. Since such subsidy has been credited to statement of profit and loss, no further adjustment is required] - (h) Profit from sale of shares of M/s ABC Ltd. [Capital gain on sale of shares of ABC Ltd. is liable to tax under the head "Capital Gains". Since the profit on sale of shares has been credited to the statement of profit & loss, the same has to be deducted while computing business income] 4,80,000 (i) Waiver of principal on bank loan [Waiver of principal amount of loan taken for working capital requirement is a benefit in respect of a trading liability by way of remission or cessation thereof and is, hence, taxable u/s 41(I). Since the principal amount has already been credited to statement of profit and loss, no adjustment is required] - (i) Waiver of interest on bank loan [As per section 43B, since the interest is allowable only on actual payment, deduction in respect of interest due loan would not have been allowed as deduction in any previous year. Therefore, waiver of such interest cannot be brought to tax by invoking section 41(1). Since such interest has been credited to statement of profit and loss, the same has to be deducted while computing business income]. 2,00,000 A (iii) Depreciation as per Income-tax Rules, 1962 - On Franchise Fee [10lakhs x 25%] 2,50,000 - On other assets 9,20,000 11,70,000 35,50,000 Profits & Gains from manufacture of pharmaceutical products 95,70,000 Profits & gains from setting of warehouse in rural area for storage of sugar Net profit before deduction u/s 35AD 17,00,000 Less: Deduction u/s 35AD [100% deduction u/s 35AD in respect of cost of warehouse (40lakhs – 25lakhs, being cost of land, not allowable)] 15,00,000 2,00,000 97,70,000 II Income from Capital Gains Long-term capital gains on sale of shares M/s ABC Ltd. [Since shares were held for more than 12 months] Full Value of consideration (3000 shares X 260) 7,80,000 Less: Cost of acquisitions [higher of (i) and (ii)] 5,40,000 2,40,000 (i) Actual cost of acquisition (3000 X 100) ₹ 3,00,000 (ii) Being lower of fair market value as at 31.01.2018 (i.e.5,40,000 being 3000 х ₹ 180) and sale consideration (i.e.7,80,000) Gross Total Income 1,00,10,000 Less: Deduction under Chapter VI-A Under Section 80JJAA (₹ 23,000 x 9 x 50) x 30% 31,05,000 Total Income 69,05,000 Computation of tax liability for the A.Y. 2024-25 under normal provisions of the Act Particulars ₹ Tax on Long-term capital gains u/s 112A = 10% of (₹ 2,40,000 – 1,00,000) 14,000 Tax on remaining income of 66,65,000 @25% [Since turnover during F.Y. 2021-22 is less than 400crores 16,66,250 16,80,250 Add: Health & education cess @4% 67,210 17,47,460 Computation of tax liability of M/s Cure Ltd. for the A.Y. 2024-25 under section 115JB Particulars ₹ Minimum Alternate Tax @15% on book profit of 99,50,000 14,92,500 Add: Health and Education cess@4% 59,700 Tax liability under section 115JB 15,52,200 Computation of Total Income of M/s Cure Ltd. for the Assessment Year 2024-25 under section 115BAA Particulars ₹ Total Income under regular provisions of the Act 69,05,000 Add: Deduction u/s 35AD 15,00,000 84,05,000 Less: Depreciation @10% on warehouse building 1,50,000 Total Income under section 115BAA 82,55,000 Tax liability Tax on Long-term capital gains u/s 112A = 10% of (₹ 2,40,000 – 1,00,000) 14,000 Tax on remaining income of 80,15,000 @22% 17,63,300 17,77,300 Add: Surcharge @10% 1,77,730 19,55,030 Add: Health & education cess @4% 78,201 Tax liability 20,33,231 Tax liability (Rounded off) 20,33,230 Suggestion to M/s Cure Ltd. Since the tax liability under the regular provisions of the Act is 17,47,460, which is higher than MAT liability vis-à-vis tax liability of 20,33,230 computed under section 115BAA, it is not beneficial for Cure Ltd. to opt for the special provisions under section 115BAA for A.Y. 2024-25.