Dipesh Murarka

Dipesh MurarkaForeign investors will be exempted from paying minimum alternate Tax (MAT) prior to April 2015 following acceptance of AP Shah Committee’s recommendation by the government. The AP Shah Committee report has suggested that there is no legal basis to impose MAT on FIIs and hence suggested waiving of MAT. The Central Board of Direct Taxes will soon issue a circular that will instruct taxmen not to pursue MAT cases against FIIs. CBDT may let earlier MAT notices to lapse.

Finance ministry officials earlier said pending MAT cases at Courts will be disposed off after the CBDT circular comes. The government will notify courts changes in the tax policy and won’t pursue MAT cases on FIIs at Courts further. The AP Shah panel submitted its report to the finance ministry in July but the report has not yet been made public. The 64-page report of Shah panel has tried to clear the haze on the applicability of MAT on foreign institutional investors after deliberating on various court cases and global practices. Since March, FIIs were anxiously waiting for clarity on the issue. In May, the government set up the 3-member AP Shah committee to examine the matter relating to levy of MAT on FIIs prior to April 2015. The committee looked into all related legal provisions, judicial, quasi-judicial pronouncements and other relevant aspects

 The difficulties experienced by FIIs in this regard were brought to the notice of the government when preparing the Budget for 2015-16. Considering their difficulty, the Finance Bill 2015-16 has provided exemption from MAT to the FIIs. Naturally, when an exemption is given, it takes prospective effect. Following a ruling given by the Authority for Advance Rulings in 2012; it was not possible to provide retrospective exemption for the prior period. The affected party had subsequently gone to the Supreme Court and the matter is pending in the apex court. While foreign investors claim that MAT should not be applicable at all, the government earlier maintained that the FIIs ought to pay the tax dues for past years.

Earlier, the income tax department had sent notices to 68 FIIs, demanding Rs 602 crore as MAT dues for earlier years. To resolve the issue, the government had formed a panel headed by Law Commission Chairman A P Shah. The panel also had former chief economic advisor Ashok Lahiri and chartered accountant Girish Ahuja. The crux of the issue was whether the government would waive MAT prior to April. From the current financial year, MAT is anyway not applicable to foreign portfolio investors. Industry has argued the provisions of MAT under the income tax Act are aimed at taxing companies that are required to prepare their profit-and-loss accounts according to the Companies Act. Additionally, foreign investors do not have a fixed place of business in India and, therefore, don’t have to maintain books of account according to the Companies Act. About 95 per cent of FIIs who had received MAT notices from the income tax department had approached the dispute resolution panel (DRP) for relief without prejudice towards their high court applications; 10 FIIs had approached the Bombay High Court, challenging the income tax department’s stand on MAT demand.

Finally, the government has accepted AP Shah panel suggestion that MAT should not be applicable on foreign investors before April’2015.

(Compiled from Various Media Reports)

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