The Finance Bill, 2011 (the Bill) seeks to add another abbreviation—AMT (Alternate Minimum Tax) — to the turgid tax lexicon which unfortunately refuses to lend itself to use as an acronym though it is certainly an anagrammatic expression of its forebear—MAT (Minimum Alternate Tax). The Finance Act, 1983 introduced section 80VVA into the Income-tax Act, 1961 (the IT Act) which restricted the deduction under sections starting with prefix 80 under Chapter VI-A to 70 per cent of the Gross Total Income (GTI) thus obliging companies to pay tax at least on 30 per cent of their GTI before it was junked by the Finance Act, 1987. Successive governments however were clearly aggrieved by the phenomenon of zero-tax companies which while thumbing their noses at the exchequer blithely rewarded their shareholders with handsome dividends.In 1996, the government not only brought in book-profit tax, MAT, if 30 per cent of the book profits were found to be greater than the total income declared in Income-Tax returns, but also concomitantly imposed dividend distribution tax (DDT).

Inequitous

Imputation is the right way forward to eschew double taxation of dividend but it has not found favour with the Indian authorities on the facile ground that it would complicate matters. The truth, however, is complication is any day preferable to inequity. The extant regime exacerbates inequity against companies by not only taxing them twice, but also by turning off at a tangent to zero in on book-profits and also against citizens by letting off tycoons and industrialists with a slap on the wrist which is what a vicarious, relatively small impost, DDT, amounts to. The imputation system taxes the actual beneficiaries of dividend income at the marginal rate of tax applicable to them.

New impost

The Finance Bill now has introduced a new impost called AMT, ironically with reference to Limited Liability Partnerships (LLPs). One could have appreciated had AMT been brought back in the context of companies replacing MAT because AMT is nothing but the former Section 80VVA that was junked in 1987. It is any day a lesser evil vis-a-vis MAT because unlike the latter, it does not go off at a tangent to target book profits, but stays within the confines of the tax-profit computations. That the AMT would be a pincer to pummel the fledgling LLPs with is a matter of concern because their strength is hardly 3,500 at the last count. If carving out of a sumptuous exemption of Rs 5 lakh to very senior citizens has invited derision because there are hardly 15,000 of them borne on the tax registers, use of AMT against LLPs is like using a sledgehammer to swat a fly is yet to take wings.

(The author is a Delhi-based chartered accountant.)

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