Understanding Dormant Companies

• A dormant company is one that has no significant financial transactions during a financial year.
  
• It may be registered but not engaged in any business activity or income generation.
  
• The Companies Act allows voluntary dormant status for companies with minimal operations.
  
• Such companies often maintain their legal status for future business purposes.
  
• Dormancy status does not automatically exempt them from tax laws.
  

MAT and Zero Book Profit

• MAT is levied only when there is positive book profit in the financial statements.
  
• If a dormant company shows no income or reports book loss, MAT does not apply.
  
• The absence of profit in the Profit and Loss Account means MAT liability is zero.
  
• Companies with no operational revenue or gains are generally outside MAT scope for that year.
  
• MAT is evaluated annually, so future reactivation may trigger applicability.
  

Conditions Leading to MAT Liability

• If a dormant company earns incidental income like interest or capital gains, MAT may apply.
  
• Even minor book profits from investments or write-backs can activate MAT provisions.
  
• Companies with write-backs of provisions or reversal of liabilities must check MAT liability.
  
• Income routed through the Profit and Loss Account becomes part of MAT base.
  
• Proper evaluation of all financial transactions is essential each year.
  

Exemptions and Practical Considerations

• No general exemption from MAT exists solely for being dormant.
  
• Companies must ensure accurate preparation of financials to reflect their dormancy.
  
• Filing of ITR with nil income and nil book profit helps support MAT non-applicability.
  
• If classified as inactive under the Companies Act, disclosures should align in tax returns.
  
• Auditors must certify that there is no MAT liability based on book results.
  

Compliance and Documentation

• Even dormant companies must file income tax returns if legally required.
  
• MAT computation and certification in Form 29B may be needed if any income is reported.
  
• Dormancy declaration under the Companies Act must be maintained with ROC filings.
  
• Companies must preserve accounting records showing absence of business activity.
  

Correct documentation supports non-applicability of MAT and prevents disputes.