Delhi HC Clarifies Inclusion of LTCG in Book Profits Under Section 115JB

Last Updated on December 29, 2024 by Athi Venkatesh

The Delhi High Court ruled that long-term capital gains (LTCG) exempt under Section 10(38) must be included in book profits for calculating Minimum Alternate Tax (MAT) under Section 115JB of the Income Tax Act. The Division Bench of Acting Chief Justice Vibhu Bakhru and Justice Swarana Kanta Sharma delivered the judgment in Principal CIT vs. M/s Hespera Realty Pvt Ltd.

The Revenue challenged the Income Tax Appellate Tribunal (ITAT) order, which upheld the assessee’s exemption claim of ₹2,47,52,73,951 under Section 10(38). The Revenue argued that the gains, excluded from the profit and loss account, should not be exempt under Section 115JB.

The Court noted that Section 10(38) excludes LTCG on equity shares and related instruments from total income. However, the Finance Act, 2006, introduced a proviso requiring such exempt income to be included in book profits for MAT calculation under Section 115JB.

The Bench emphasized that the expenditure linked to earning exempt income must also be included in computing book profits. It clarified that the purpose of Section 115JB is to ensure companies pay a minimum tax even if they claim income exclusions under other provisions.

The Court rejected the Revenue’s appeal. It affirmed that LTCG exempt under Section 10(38) is included in book profits for MAT calculations, aligning with the law’s intent. This judgment reinforces the principle that MAT provisions take precedence for book profit computation, ensuring tax compliance while considering statutory exemptions. Counsel for the Revenue included Advocates Shlok Chandra and team, while the assessee was represented by Senior Advocate Abhishek Singhvi and others.

Principal CIT vs. M/s Hespera Realty Pvt Ltd [2024 LiveLaw (Del) 1393].