Under which section 'Minimum Alternative Tax (MAT)' was introduced by Finance Act, 1987?

Question

Accepted Answer

The correct option is 1:
The core reason Option 1 is correct lies in the historical implementation of the Minimum Alternative Tax (MAT) in India. The Finance Act, 1987, introduced the MAT provisions into the Income-tax Act, 1961, specifically by inserting **Section 115J**. This new section became effective from the Assessment Year 1988-89. The primary objective of this introduction was to ensure that "zero tax companies," which were financially profitable and distributing dividends but managed to avoid paying income tax due to various statutory exemptions and deductions, would still contribute a minimum level of tax to the government's revenue. Although Section 115J was later withdrawn and re-introduced through other sections like 115JA and the currently operative 115JB, Section 115J is the definitive legislative origin of MAT as introduced by the Finance Act of 1987.

The incorrect option is 2:
Option 2, Section 125 (J) of Income tax Act 1961, is factually incorrect because there is no such section pertaining to Minimum Alternative Tax. In the Income-tax Act, 1961, the special provisions for certain companies, including MAT, are consistently codified under the Section 115 series, such as 115J, 115JA, and 115JB. Section 125 is outside this block of corporate tax provisions. The combination of the correct sub-clause letter 'J' with the incorrect main section number '125' makes this choice wrong.

The incorrect option is 3:
Option 3, Section 115 (V) of Income tax Act 1961, is incorrect because Section 115V does not cover the MAT provisions. While Section 115 is correct in principle, the suffix '(V)' and its subsequent provisions (115VA to 115VL) specifically deal with the **Tonnage Tax Scheme** for shipping companies. This scheme is a separate special tax regime for a specific industry and is distinct from the general MAT provisions. The section that introduced the general MAT in 1987 was Section 115J.

The incorrect option is 4:
Option 4, Section 125 (V) of Income tax Act 1961, is incorrect for multiple reasons. Firstly, as discussed, the Minimum Alternative Tax provisions are not located in the Section 125 series, but in the Section 115 series of the Income-tax Act. Secondly, similar to Option 3, the suffix '(V)' points to the Tonnage Tax Scheme, which is not the section that introduced MAT. Therefore, the combination of the wrong section number and the non-relevant sub-provision makes this option wholly inaccurate.