UNIT – 1 (F1-505)

Meaning and Definition of Company

Generally, a company is an association of people directed towards achieving a common goal. A company
is a voluntary association of people, having limited liability, common seal, perpetual succession and
capital divided into transferable shares.
Company is formed by its members to gain profit. A company formed under any of the previous
Companies Act is known as "existing company".
According to the Companies Act, 2013, "Company means a company incorporated under this
Act or under any previous company law".
According to Prof. Haney, "A company is an artificial person created by law, having separate
entity, with a perpetual succession and common seal".
According to Chief Justice Marshall, "A corporation is an artificial being, invisible, intangible
existing only in contemplation of the law. Being a mere creation of law, it possesses only the properties
which the charter of its creation confers upon it, either expressly or as incidental to its very existence".

Types of Companies
Various parameters or basis can be used to classify companies, which are stated below:

(A) On the Basis of Incorporation: Depending upon the manner of incorporation, joint stock
companies can be classified into following three categories:
(i) Chartered Companies: Companies which are created by kings or country's (or state's) head
under royal charter are known as 'Chartered companies'. For example, The Standard Chartered Bank, East
India Company, etc. However, these companies are not established in today's business world.
(ii) Statutory Companies: 'Statutory companies' are usually formed through special acts of the
state legislature or the parliament. The suffix "limited" may or may not be used by these companies. For
example, the Food Corporation of India, the Reserve Bank of India, the State Trading Corporation of
India, etc.
(iii) Registered Companies: The companies which are incorporated under the Companies Act,
2013 or under any previous company law, with ROC fall under this category. Such companies have to use
the suffix "limited" as they are limited by guarantee or by shares.

(B) On the Basis of Liability: Depending upon the nature of liabilities, joint stock companies can be
classified as given below:
(i) Companies Limited by Shares: These companies have capital in the form of share capital and
the liabilities of shareholders limit up to the extent of their investment (number of shares purchased by
them) in the company. A large number of business organisations belong to this category.
(ii) Companies Limited by Guarantee: Companies limited by guarantee are established by
societies for charitable purposes and their investors do not have any share in profits. In the process of
creating a charitable trust, establishing a company limited by guarantee is considered as the first stage. In
these companies, the members are liable for the amount which they have agreed upon or guaranteed to pay
in order to compensate the firm's liability during winding-up. Limited guarantee is the stipulation in the
Memorandum of Association to provide a particular sum of money (known as guarantee money) at the
time of firm's liquidation.
(iii) Unlimited Companies: Companies which have unlimited liabilities are known as 'Unlimited
companies'. The members of such companies are liable to pay the entire amount required to pay-off
creditors of the company so as to compensate its liabilities. As the liabilities of the firm members are not
limited, during the time of liquidation, the personal properties of the members can also be utilised (if
required) for repaying investors. Unlimited companies are no more established.

(C) On the Basis of Transferability of Shares: Depending upon the transferability of shares, joint
stock companies can be classified as below:
 (i) Private Limited Company: As per Section 2(68) of the Companies Act, 2013, "private
company" means a company having a minimum paid-up share capital of one lakh rupees or such higher
paid-up share capital as may be prescribed, and which by its articles,
(a) Restricts the right to transfer its shares;
(b) Except in the case of One Person Company, limits the number of its members to two hundred.
(ii) Public Limited Company: By virtue of Section 2(71), a public company means a company
which:
(a) Is not a private company;
(b) Has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as
may be prescribed.
Provided that a company which is a subsidiary of a company, not being a private company, shall
be deemed to be a public company for the purposes of this Act even where such subsidiary company
continues to be a private company in its articles.
As per section 3 (1) (a), a public company may be formed for any lawful purpose by seven or
more persons, by subscribing their names or his name to a memorandum and complying with the
requirements of this Act in respect of registration.

(D) On the Basis of Nationality: Depending upon the basis of nationality, joint stock companies can
be classified into following two categories:
(i) Indian Companies: The companies which are formed in India under the provisions of the
Indian 'Companies Act, 2013' of India are known as 'Indian companies'. Such companies have the freedom
of conducting their business activities either in India or abroad.
(ii) Foreign Companies: Section 42 of the Companies Act 2013 describes foreign companies as
any company or body corporate incorporated outside India which has a place of business in India whether
by itself or through an agent, physically or through electronic mode; and conducts any business activity in
India in any other manner.

(E) On the Basis of Ownership: Depending upon the nature of ownership, joint stock companies can
be classified into following four categories:
(i) Government Companies: Section 2(45) defines a "Government Company" as any company in which
not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any
State Government or Governments, or partly by the Central Government and partly by one or more State
Governments, and includes a company which is a subsidiary company of such a Government company.
(ii) Private Sector Companies: When private sector organisations or individual shareholders manage and
control a company, it is called 'Private sector company'. They can be further divided into following
classes:
(a) Holding Companies: Under Section 2(46) of the Companies Act, 2013, a company is known
as the holding company of another company if it has administrative control over another company. Such
control may be regarding the affairs of the company.
(b) Subsidiary Companies: Under Section 2(87) of the Companies Act, 2013, a company is
known as a subsidiary company of another company when control is exercised by the other company over
the subsidiary company. A company is deemed to be a subsidiary company of another if the other
company; Exercises or controls more than 50% of the total voting power i.e. where the holders of
preference shares have the same voting rights as the equity shares holder, or, 50% in nominal value of its
equity share capital held, or, Possesses power regarding the composition of the Board of directors. If it is a
subsidiary of a company which is a subsidiary of the controlling company.
(iii) Joint Sector Undertakings: Joint sector undertakings are formed by the partnership of private sector
companies (or private individuals) with public sector companies (or government organisations). The
management of joint sector undertakings lies with the private sector companies and monitoring is done by
government companies as members of Board of Directors. The upper limit of private sector investments in
these companies is 25 per cent. However, the Central Government is authorised to allow the investment of
private sector organisations above the specified limits for private sector companies.
(iv) One Man Company: Under Section 2(62) of the Companies Act, a company in which one person is
the whole and sole owner of the share capital of the company is known as a One Man Company. In order
to meet the statutory requirement of a minimum number of members, some namesake company
shareholders hold one or two shares each. The namesake shareholder members are usually nominated by
the principal shareholder. The principal shareholder enjoys all the profits of the business with the
protective shield of limited liability. Such companies have been given legal sanctity.

Meaning of Corporate Tax

Corporate taxes are annual taxes payable on the income of a body corporate operating in India.
The provisions relating to corporate income tax are contained in the Income Tax Act, 1961. There are
specific statutes for other taxes levied on companies. It should be noted that a new draft Direct Tax Code
to simplify and rationalize the direct tax system of India is currently being reviewed by the government. If
passed it will mark a paradigm shift in the tax regime of India, by moderating, consolidating, and
simplifying the direct tax provisions and enhance compliance levels.
Initiatives in Corporate Tax to Increase the Source of Government
The government has various initiatives in corporate tax to increase the source of government by raising the
Minimum Alternative Tax (MAT), Fringe Benefit Tax (FBT), Dividend Distribution Tax (DDT) and
Securities Transaction Tax (STT). Also, the government can increase its revenue by following ways:
(1) Government can apply special provisions to venture funds and venture capital companies.
(2) Government can raise the rate of interest on the business loan taken by corporate sector.
(3) Includes the high tax on export of goods and services by corporates. 4) Corporate should give tax if it
is establishing new unit or plant in any rural or urban areas.

Features of Corporate Tax

The features of corporate tax are as follows:
(1) A corporate tax is placed on the taxable profits of a company or organisation. Taxable profits include
profits from taxable income (such as trading or investment profits) and capital gains (also known as
chargeable gains).
(2) Corporate tax is a tax placed on the taxable profits of limited companies and other organisations such
as clubs, societies, associations, and unincorporated entities.
(3) Corporation tax is paid on all profits earned by the business. This includes trading profits the income
from everyday business practices of sales, investments, and money made from selling assets (chargeable
gains).
(4) Corporate tax must be paid by a particular deadline.
(5) Corporate tax in India is levied on both domestic as well as foreign companies.
(6) It is generally levied on the revenues of a company after deductions such as depreciation, COGS (Cost
of goods sold) and SG&A (Selling general and administrative expenses) have been taken into account.
Types of Income in a Company
The types of income which a company earns is:
(1) Profits earned from the business
(2) Capital Gains
(3) Income from renting property
(4) Income from other sources like dividend, interest etc.

Residential Status of a Company [Section 6(3)]

The residential status of companies can be determined on the basis of following grounds:
(1) Resident and Ordinarily Resident in India: A company is said to be a resident in India in any
previous year if:
(i) It is an Indian company, or
(ii) Its place of effective management, at any time in that year, is in India.
Amendment in AY 2017-18
As per the amendment of the Finance Act, for the assessment year 2017 and 2018, the company
can be refer as resident in India in any previous year, if it is an Indian Company or its Place of Effective
Management (POEM) in the relevant year is in India. The POEM refers to a place, where the prime
management and commercial decisions (that are important to run the business of a company as a whole)
are important.
(2) Non-Resident in India: A company will be a non-resident in any previous year if:
(i) It is not an Indian company, and
(ii) Its Place of Effective Management (POEM), at any time in that year, is not in India.

Incidence of Tax for Companies

An individual's residential status, the place and time of accrual or receipt of income are the
important factors to determine the tax liability, extent of total income or incidence of tax on a taxpayer as
per Section 5 of Income Tax Act. For example, when income is accrued to an individual who is residing
outside India then income is
subjected to be taxable in India on the basis of the residential status of an individual. Likewise, when an
individual is earning income from a foreign company located in India (or outside India) then income is
taxable in India on the basis of residential status of the individual, instead of an individual citizenship.
Hence, the residential status of an individual is an important factor to determine his tax liability.

Indian and Foreign Income

An Individual gets to know about the relation between the residential status and tax liability only when he
is capable enough to distinguish the meaning of "Indian income" and "Foreign income".
Indian Income: From the following Incomes, each income is considered as an Indian income:
(1) When during the previous year, an individual is receiving his Income or deemed to received his income
in India and simultaneously his income is accrues (or arises or is deemed to accrue or arise) in India
during the previous year.
(2) When during the previous year, an individual is receiving his Income or deemed to receive his income
in India but his income is accrues (or arises) outside India during the previous year.
(3) When during the previous year, an individual is receiving his Income or deemed to received his income
outside India but his income is accrues (or arises or is deemed to accrue or arise) in India during the
previous year.
Foreign Income: The income is considered as the foreign income only when both the conditions
mentioned below are satisfied:
(1) When an individual is not receiving his income (or not deemed to be received) in India, and
(2) Simultaneously, his income is not accrue or arise (or does not deemed to accrue or arise) in India.

Depreciation (Section 32)

The value of capital asset is subject to decrease due to regular usage or due to obsolescence, such decrease
in value is term as depreciation as per the financial accounting. But, the system of asserting the
depreciation in income tax is completely different.
General Principles regarding Depreciation under Income Tax Act:
(1) Assets Eligible for Depreciation: The depreciation is approved for the following capital assets:
(i) The tangible assets like buildings, machinery, plant & furniture, and
(ii) The intangible assets like knowledge, patents, copyrights, trademarks, licenses, franchises or any
other business or commercial rights of similar type purchased on or after 1st April, 1998.
(a) For the purpose of depreciation, the term 'building' is not refers to a land as the value of land is
not subject to decrease.
(b) For the purpose of depreciation, the partition in building and false ceiling in respect of work
are considered in furniture and fittings rather other than the building.
(c) For the purpose of depreciation, the ships, vehicles, books, scientific apparatus and surgical
equipments are considered in plant but it exclude the tea bushes, livestock, buildings of
furniture and fittings.
(2) Conditions for Allowance of Depreciation: In order to approve deduction for the charged
depreciation, the following conditions must be satisfied:
(i) An assessee must be an owner of the capital asset, who can exercise the rights of the owner not
on behalf of the owner but in his own right. It must be certain that he hasn't purchase such asset on lease
because the ownership right is not transfer to the purchaser thus, he cannot charge depreciation on such
asset.
(ii) The deduction is approved, if an assessee owns the assets either completely or partially.
(iii) Deduction is approved only for those assets that are primarily used for business or profession.
(3) Methods of Depreciation: The written down value method is used for depreciating the different
capital assets charged at end of the previous year. Nevertheless, if the business is involved in generation or
distribution of electricity then the straight line method must be used for depreciating the capital asset
through a definite percentage of actual cost.
(4) Assets Purchased and Employed during the Previous Year: When purchased assets are
employed in the business or profession in the previous year then such asset are approved for deduction to
the extent of 50% of normal depreciation, provided that the assets are employed for less than 180 days in
that year. For the purpose of this provision any method can be used whether it is Straight Line or W.D.V.
Method.
(5) Additional Depreciation [Section 32(1)]: The manufacturing or production business of article or
thing, and the power generating or transmitting business are allowed to claim deduction for additional
depreciation as 20% of actual cost for an eligible new machinery or plant. But, it must be certain that the
plant does not comprise the ships and aircrafts which were purchased and installed during the previous
year. On the other hand, the proportion of additional depreciation will increase to 35% of the actual cost, if
an assessee is making investment in new machinery or a plant placed in specified backward areas of
Andhra Pradesh or Telangana on or after 1" April 2015.

Computation of Taxable Income and Tax Liability of Companies

A company is assessed in its own name, i.e., a company pays tax on its income as a distinct unit. The tax
paid by a company is not deemed to have been paid on behalf of its shareholders. The total income of a
company is also computed in the similar manner in which income of Individual is computed. The first and
the foremost step in this direction are to ascertain gross total income. Income computed under four heads
(salary head is not applicable), is aggregated. While aggregating the income, Section 60 and 61 shall be
applicable. Further, effect to set-off of losses and adjustment for brought forward losses will also be done.
Features of Company Assessment
The features of company assessment are as follows:
(1) The total income of a company is also computed in the similar manner in which income of Individual
is computed.
(2) Income computed under four heads (salary head is not applicable), is aggregated.
(3) In computing taxable total income, Gross Total Income should be adjusted for allowable deductions to
arrive at the net income, several deductions are allowed which include capital allowances, depreciation,
stock/inventory, interest and losses.
(4) The corporate tax rate in India is at par with the tax rates of the other nations worldwide. If the
company is domicile to India, the tax rate is flat at 30%. But for a foreign company, the tax rate depends
on a number of factors and considerations.
(5) Health and Education Cess is 4% of income-tax and surcharge.
(6) The Book Profit of the company is computed @ 15%.
Allowable Deductions
In computing taxable total income, Gross Total Income should be adjusted for allowable deductions to
arrive at the net income, several deductions are allowed which include the following:
(1) Capital Allowances: These expenses on R&D, mergers, and acquisitions qualify for deduction.
(2) Depreciation: It is available at specific percentage depending on the nature of the asset and
depreciation not set-off against current year's income can be carried forward for set-off against any
 future income for an unlimited period.
(3) Stock/Inventory: Valuation at market value or cost whichever is lower.
(4) Interest: It is paid on the borrowings.
(5) Losses: It can be set-off against any other income in the same assessment year and against business
profits in subsequent assessment years subject to certain conditions!
Corporate Tax Rate
The following rates are applicable to the domestic companies from AY 2024-25 based on their turnover:
Sections Tax Rate
Where its total turnover or gross receipt during the previous 25%
year does not exceed Rs. 400 crore. (Sec. 115 BA)
Where it opted for Section 115BAA 22%
Where it opted for Section 115BAB 15%

The following rates are applicable to foreign companies from AY 2024-25 :

Nature of Income Tax Rate

Royalty received or fees for technical services from
government or any indian concern under an agreement made 50%
before April 1, 1976 and approved by central government.
On long-term capital gains coming from transfer of a long 20%
term capital asset.
Other Income 40%
Surcharge is applicable at the rates given below :

Types of Company If Net Income does not If Net Income is in the If Net Income
Exceed Rs. 1 Crore Range of Rs. 1 Crore Exceeds Rs. 10 Crore
to Rs. 10 Crore
Domestic Company Nil 7% 12%
Foreign Company Nil 2% 5%
Surcharge is applicable at the rates 10% - If Company opting for taxability u/s 115BAA or Section
115BAB.
Health and Education Cess
'Secondary and Higher Education Cess' was discontinued and 'Health and Education Cess' at 4% shall also
be paid on the amount of income tax plus surcharge (if any).
Relief to Newly Set-up Domestic Companies Engaged in Manufacturing (Section 115BA)
In order to provide relief to newly set-up domestic companies engaged solely in the business of
manufacture or production of article or thing, a new Section 115BA inserted to provide that the income-tax
payable in respect of the total income of a domestic company for any previous year relevant to the
assessment year beginning on or after the 1st day of April, 2017 shall be computed @ 25% at the option of
the company, if:
(1) The company has been set-up and registered on or after 1st day of March, 2016 and is engaged in the
business of manufacture or production of any article or thing and is not engaged in any other business;
(2) The company while computing its total income has not claimed benefit of accelerated depreciation,
benefit of additional depreciation, investment allowance, expenditure on scientific research and any
deduction in respect of certain income.
(3) The option is furnished in the prescribed manner before the due date of furnishing of income.
(4) Total income of the company is calculated after claiming depreciation (rate of depreciation shall not
exceed 40%) and without adjusting brought forward loss from any earlier year (if deduction pertains to the
above mentioned sections) and such losses shall not be carried forward to future years.
(5) This option shall be exercised on or before the due date of furnishing the returns of income, which the
company is required to furnish under the Act. Once company has exercised the option for any previous
year it cannot be subsequently withdrawn for same or any other previous year.
Tax on Income of Certain Domestic Companies (Section 115BAA)
A domestic company may pay tax @ 22% + Surcharge @ 10% + Health and Education Cess @ 4% at its
option if it fulfils the prescribed conditions.
Conditions:
(1) The company has not claimed deductions from its income under the following sections:

(i) 10AA: Unit in Special Economic Zone; or

(ii) 32(1) (iia): Additional depreciation on plant or machinery; or
(iii) 33AB: Deposit in Tea Development Account, etc.; or
(iv) 33ABA: Production of petroleum or natural gas in India; or
(v) 35: Payment to outsiders for research or expenditure on in house research [Section 35(1) (ii) (iia) (iii)
(2AA)(2AB)]; or
(vi) 35AD: Capital expenditure on specified business; or
(vii) 35CCC: Expenditure on agricultural extension project; or
(viii) 35CCD: Expenditure on any skill development project; or
(ix) Deduction under any provision of chapter VI-A, no deduction under chapter VI-A except deduction
u/s 80JJAA or 80M will be allowed.
2) Brought forward loss if such loss is attributable to any aforesaid deduction or unabsorbed addition
depreciation. Further, such loss or unabsorbed depreciation cannot be carried forward and set-off in any
subsequent year.
Minimum Alternative Tax (MAT) (Section 115JB)
MAT as the name implies is the minimum alternative tax/minimum amount of tax which a company has to
pay, even if it is not liable to pay any tax on its normal computation. Assessee have to calculate their taxes
as per the regular method as well as according to the procedure laid down for MAT computation and pay
the tax which is higher of the two. Under the regular computation, the person is entitled to all the
deductions, exemptions and incentives available under the provisions of the tax code such as accelerated
depreciation investment allowance rebate for setting up industries in a backward area, etc.
All the companies (including foreign companies) are required to pay minimum alternate tax at the
rate of 15% (plus surcharge and cess as applicable) on book profits if the tax calculated as per above rates
are less than 15% of book profits. This will be applicable if the company does not opt for Section 115BAA
or Section 115BAB.

Book Profit
"Book Profit" means the net profit, as shown in the profit and loss account and make the additions and
deductions as per section 28 to 44DB explained under the head income from Business and Profession
increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if
such amount has been deducted while computing the net profit. Interest paid/payable to partners in excess
of 12% shall also be disallowed as per section 40(b).
Computation of Book Profit U/s 115JB Particulars
Particulars Rs.
Net Profit as per Profit and Loss Account xxx
Add: Items if debited to P&L A/c (as mentioned below) xxx
Less: Items if credited to P&L A/c (as mentioned below) xxx
Book Profit
Remuneration Criteria
Limit on the amount of remuneration payable to partners is specified in section 40(b) of Income Tax Act.
Remuneration is not allowed as deduction if total amount does not exceed following limits.
 Particulars Salary/Allowed
(1) On the first 3,00,000 of the profits on 1,50,000 or at the rate 90% of the book
in case of a loss profit (Whichever is higher)
(2) On the balance of book profits At the rate of 60%

Items Adjusted in P&L A/c

Book profit means the net profit as shown in P&L A/c prepared as aforesaid and adjusted as specified
below:
(1) Add the following if debited to the P&L A/c:
(i) The amount of income tax paid or payable and the provision therefore;
(ii) The amounts carried to any reserve by whatever name called;
(iii) The amounts set aside to provisions made for meeting liabilities other than ascertained liabilities;
(iv) The amount by way of provisions for losses of subsidiary companies;
(v) The amount of dividends paid or proposed;
(vi) The amount of depreciation;
(vii) The amount of deferred tax and the provision therefore;
(ix) The amount or amounts set aside as provision for diminution in the value of any asset;
(x) The amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of
such asset.
(2) Less by the following if credited to the P&L A/c:
(i) The amount withdrawn from any reserve or provision and credited to P&L A/c.
(ii) Exempted incomes (under Sections 10, 11, or 12) if credited to P&L A/c.
(iii) The brought forward loss or unabsorbed depreciation, whichever is less as per books of account.
(iv) The profits of sick industrial company for the assessment year commencing from the assessment year
relevant to previous year in which the company has become sick and ending with the assessment year
during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.
(v) The amount of deferred tax, if such amount is credited to the profit and loss account.

Deductions u/s 80 for Companies

80GGA Donation for scientific research or rural All Assessee 100%
development.
80GGB Contribution to political party Indian company 100%
80GGC Contribution to political party Any person 100%
80JJA Business of collecting bio degradable waste. All assesse 100% of profit for 5 years
80JJAA Employment of new workmen. Indian company 30% of wages
80LA Income of off-shore banking units. 100% for 5 years and 50% for next 5
years
801A Profit from new infrastructure undertaking Deduction 100% of profit for 10
like power, roads, etc. consecutive years.
80-IAB Profit from enterprise engaged in Deduction 100% of profit for 10
development of SEZ. consecutive years.
80-IB Profit from new undertaking like housing, Deduction 100% of profit for 1st 5
hospital, minerals, oil and natural gas, food years and 30% profit for next 5 years
processing.
80-1C Deduction for setting up undertaking in 100% deduction is for the first 10
special states. years. In case Himachal Pradesh or
Uttaranchal 100% for the first 5 years
and 30% for the next 5 years.
 Carry Forward and Set-Off of Losses for Companies
The sections applicable for carry forward and set-off of losses for companies are:
(1) Loss of Non-Speculation Business or Profession (Business Losses) [Section 72]
(2) Loss of Speculation Business [Section 73]
(3) Carry Forward and Set-off of Losses in Case of Certain Companies [Section 79]
Loss of Non-Speculation Business or Profession (Business Losses) [Section 72]
An assessee incurring losses under the heading 'Income from Profits and Gains of Business or Profession'
may not be able to set-off the entire or partial amount of losses against the profits or incomes under the
other heading of incomes, during the same assessment year when such losses has been occurred. In such
situation, assessee is approved to carry forward such losses to the upcoming assessment years in order to
set-off them against the profit or income under the heading 'income from profit and gain of business or
profession'. But, the following conditions must be satisfied:
(1) Business Losses can be Adjusted Only Against Business Income: Any business loss is carry forward
to the next assessment year and it is written-off exclusively from the income or profit under the heading
'income from profit and gains of business'. The earlier section of income tax has depicted that the business
loss can be set-off against the profit or income of any other heading of income during the same assessment
year.
(2) Business in Respect of Which a Loss is Incurred May or May Not be Continued: Any carry
forward and adjustment of loss is approved in the next assessment year or years although the business in
which the loss has been occurred may or may not carry forward by an assessee during the previous year in
which such loss was sought to be carried forward and set-off.
(3) Losses can be Set-off Only by the Assessee Who has Incurred Loss [Section 78(2)]: The carry
forward business loss is exclusively set-off by the same assessee who had actually incurred it. The
assessee, who has incurred the loss and in whose hands the loss has been assessed, is the only person who
can carry forward and set-off the loss against his business income of the next year. The exceptions to this
provision are as follows:
(i)Inheritance: A person may acquire the business through inheritance on the death of an assessee who
had incurred loss in that business. Such business loss is carry forward or set-off by the person who
acquires the business.
(ii) Amalgamation: There may be a case where the business may get amalgamated to another business of
similar type due to any motive. Then, the business loss together with the unabsorbed depreciation of an
amalgamating company can be carry forward or set-off against the profit or income of amalgamated
company in the next upcoming year or years.
(iii) Succession of Proprietary Concern or a Firm by a Company: There may be a case where the
business or a new firm may get restructure to a company as per the conditions specified in Section 47(xiii)
or (xiv). In this case the aggregate business loss or unabsorbed depreciation amount shall be considered as
the loss or depreciation of the successor company for the previous year during which the business
reorganization took place. The business loss or unabsorbed depreciation is allowed to carry forward and
set-off against the profit or income of the succeeding company in the upcoming assessment year.
(iv) Demerger: There may be a case where the company demerges due to any motive. The business loss
of demerged company is eligible to carry forward and set-off by the resulting company but this is only
possible when the particular conditions are satisfied laid down by the central government in order to
confirm the genuine reason of demerging the company.
(4) Period of Carry Forward: Any business loss can only carry forward or set-off against the income or
profit of eight upcoming years and no loss can be carry forward for more than these years immediately
succeeding to the assessment year for which the loss has been calculated first. For example, let assume Mr.
A is incurring loss in the previous year 2009-10, for the assessment year 2010-11, then the business loss is
carry forward to the upcoming years till the assessment year 2018-19.
Loss of Speculation Business [Section 73]
An assessee may incur loss due to any speculative transaction. Such loss is set-off exclusively against the
profit and gain of other speculation business during the same assessment year when it has been actually
incurred. Since, if such loss cannot be set-off during the same year then it is finally carry forward to next
year as this loss cannot be set-of against the income or profit under any other heading of income during
the same assessment year. The carry forward loss is only approved to set-off against the income or profit
of any speculation business.
 The loss in respect of speculation business are approved to carry forward only for 4 assessment
years immediately succeeding to the assessment year for which the loss has been calculated first.

Companies Carrying on Speculation Business [Explanation to Section 73]

In accordance to the Section 73, the expression speculation business refers to entire or any portion of a
business or a company, which is involve in the speculative transactions comprising of purchase and sale of
shares of the other companies. Such companies are believed to carry out the business of speculation upto
the limit of shares acquired or sale by the company. The above description of speculation business is not
applicable to the following companies:
(1) Any investment company, as the gross total income of such companies This primarily liable to tax
under the heading Income from House Property', 'Capital Gains" and 'Income from Other Sources'.
(2) Any company primarily involve in rendering the banking services or providing loans or advances.
Steps Involved in Computation of Tax Liability of a Company
Following are the steps included in computation of tax liability of a company:
Step 1: Compute Net profit as per Profit and Loss A/c prepared in accordance with Schedule VI to the
Companies Act [now Schedule III to the Companies Act, 2013].
Step 2: Additions to the Net Profit (If Debited to the Profit and Loss Account) Section 115JB:
(i) Income Tax paid or payable if any calculated as per normal provisions of income tax act.
(ii) Transfer made to any reserve.
(iii) Dividend proposed or paid.
(iv) Provision for loss of subsidiary companies.
(v) Depreciation including depreciation on account of revaluation of assets. vi) Amount/provision of
deferred tax.
(vii) Provision for unascertained liabilities, e.g., provision for bad debts.
(viii) Amount of expense relating to exempt income.
Step 3: Deletions to the Net Profit (If credited to the Profit and Loss Account) Section 115JB:
(i) Amount withdrawn from any reserves or provisions.
(ii) The amount of income to which any of the provisions of section 10, 11 and 12 except 10AA and
10(38) applies.
(iii) Amount withdrawn from revaluation reserve and credited to profit and loss account to the extent of
depreciation on account of revaluation of asset.
(iv) Amount of loss brought forward or unabsorbed depreciation, whichever is less as per the books of
account. However, the loss shall not include the depreciation. (If loss brought forward or unabsorbed
depreciation is nil then nothing shall be deducted.)
(v) Amount of Deferred Tax, is any such amount is credited in the profit and loss account.
(vi) Amount of depreciation debited to the Profit and Loss Account (excluding the depreciation on
revaluation of Assets).
Step 4: Find out book profits.
Step 5: Find out 15 per cent of book profit.
Step 6: Find out income-tax at the rate of 30% per cent (in case of domestic company) of income
computed under (1). There is no exemption limit.
Step 7: Higher of A or B shall be Tax Payable u/s 115JB.
Step 8: Add surcharge.
Step 9: Find out (8) + (9).
Step 10: Add health and education cess @ 4% (11).
Step 11: Find out Total Tax Payable (10) + (11).
Format of Computation of Tax u/s 115JB
The following table explain the provisions of computation of book profit and the tax u/s 115JB.
Particulars Rs.
Step I Net Profit as per Companies Act
Add: Additions as per Section 115JB
Less: Deductions as per Section 115JB
Book Profit
(A) Compute Tax @ 15% of Book Profit
Step II Total Income as per Income Tax Provisions
(B) Compute tax on Total Income @ 30% in the Case of
Domestic Company or @ 40% in Case of Foreign
Company
(C) Higher of A or B shall be Tax Payable u/s 115JB
Add : Surcharge (If Total income Exceeds Rs. 1 crore)
Total Tax Payable