Murugan is an individual age 48 years set up a unit in SEZ during the financial year 2017-18 for production of washing machines. The unit fulfills all the conditions of section 10AA of the Income-Tax Act, 1961. During th

(i) Computation of Total Income and tax liability of Murugan for the Assessment Year 2021-22 (under the regular provisions of the Income Tax Act, 1961) Particulars Amount (₹) Amount (₹) Profits and Gains of Business or Profession Profit from unit in SEZ 40,00,000 Less: Deduction u/s 10AA [Working Note 1] (32,00,000) Business Income of SEZ unit chargeable to tax 8,00,000 Profit from operation of Warehousing facility 1,05,00,000 Less: Deduction u/s 35 AD [Working Note 2] (65,00,000) Business Income of Warehousing facility chargeable to tax 40,00,000 Total Income 48,00,000 Computation of tax liability (under the normal/regular provisions): Tax on ₹ 48,00,000 12,52,500 Add: Health and Education Cess @ 4% 50,100 Total Tax Liability 13,02,600 (ii) Computation of Adjusted Total Income of Murugan for levy of Alternate Minimum Tax Particulars Amount (₹) Amount (₹) Total Income (computed above as per regular provisions of Income tax) 48,00,000 Add: Deduction u/s 10AA 32,00,000 80,00,000 Add: Deduction u/s 35 AD 65,00,000 Less: Depreciation u/s 32 on Building @ 10% of ₹ 65 Lakh (6,50,000) 58,50,000 Total Income 1,38,50,000 Alternate Minimum Tax @ 18.5% 25,62,250 Add: Surcharge @ 15% (since adjusted total income is more than ₹ 1 crore) 3,84,338 29,46,588 Add: Health and Education Cess @ 4% 1,17,863 30,64,451 Tax liability u/s 115JC (rounded off) 30,64,450 Since the regular income tax payable is less than the alternate minimum tax payable, the adjusted total income shall be deemed to be the total income and tax is leviable @ 18.50% thereof plus surcharge @ 15% and cess @ 4%. Therefore, tax liability as per section 115JC is ₹ 30,64,450. (iii) Computation of Total Income and tax liability of Murugan For the Assessment Year 2021-22 (under the provisions of section 115BAC of the Income Tax Act, 1961) Particulars Amount (₹) Amount (₹) Total Income (computed above as per regular provisions of Income tax) 48,00,000 Add: Deduction u/s 10AA (Not allowed) 32,00,000 80,00,000 Add: Deduction u/s 35AD 65,00,000 Less: Depreciation u/s 32 on Building @ 10% of ₹ 65 Lakh (6,50,000) 58,50,000 Total Income 1,38,50,000 Computation of tax liability as per section 115BAC: Tax on ₹ 1,38,50,000 38,92,500 Add: Surcharge @ 15% 5,83,875 44,76,375 Add: Health and Education Cess @ 4% 1,79,055 Total 46,55,430 Tax liability u/s 115BAC (rounded off) 46,55,430 Notes: Deductions u/s 10AA and 35AD are not allowable as per section 115BAC(2). However, normal depreciation u/s 32 is allowable. Individuals or HUFs exercising option u/s 115BAC are not liable to alternate minimum tax u/s 115JC. Since the tax liability of Murugan u/s 115JC is lower than the tax liability as computed u/s 115BAC, it would be beneficial for him not to opt for section 115BAC for A.Y. 2021-22. Moreover, benefit of alternate minimum tax credit is also available to the extent of tax paid in excess over regular tax. AMT Credit to be carried forward under section 115JEE Particulars Amount (₹) Tax liability under section 115JC 30,64,450 Less: Tax liability under the regular provisions of the Income Tax Act, 1961 13,02,600 AMT Credit 17,61,850 Working Notes Deduction under section 10AA in respect of Unit in SEZ = Profit of the Unit in SEZ x Export turnover of the Unit in SEZ / Total turnover of the Unit in SEZ = ₹ 40,00,000 x (₹ 80,00,000 / ₹ 1,00,00,000) = ₹ 32,00,000 Deduction @ 100% of the capital expenditure is available u/s 35AD for AY 2021-22 in respect of specified business of setting up and operating a warehousing facility for storage of agricultural produce which commences operation on or after 1st April, 2009. Further, the expenditure incurred, wholly and exclusively, for the purposes of such specified business, shall be allowed as deduction during the previous year in which he commences operations of his specified business is the expenditure is incurred prior to the commencement of its operations and the amount is capitalized in the books of account of the assessee on the date of commencement of its operations. Deduction u/s 35AD would, however, not be available on expenditure incurred on acquisition of land. In this case, since the capital expenditure of ₹ 65 lakh (i.e. ₹ 75 Lakh - ₹ 10 Lakh, being expenditure on acquisition of land) has been incurred in the FY 2020-21 as capitalized in the books of account on 1st April, 2021, being the date when the warehouse became operational, ₹ 65,00,000, being 100% of ₹ 65 lakh would not qualify for deduction u/s 35AD for the Assessment year 2021-22. [Note: The date of warehouse became operational mentioned as 1st April, 2021. In this case, since the capital expenditure of ₹ 65 lakh (i.e. ₹ 75 Lakh - ₹ 10 Lakh, being expenditure on acquisition of land) has not been incurred in the FY 2020-21 as capitalized in the books of account on 1st April, 2021, being the date when the warehouse became operational, ₹ 65,00,000, being 100% of ₹ 65 lakh would not qualify for deduction u/s 35AD for the Assessment year 2021-22.]