The Bombay High Court on Tuesday temporarliy stayed a restrospective minimum alternate tax (MAT) demand against the largest global fund management company, Aberdeen Asset Management.
The high court order could come as a huge relief for foreign institutional investors (FIIs) who have contested the claims of the tax department over payment of MAT on their past investments in stocks.
A bench headed by Chief Justice Mohit Shah has directed the tax department not to take any coercive steps against the company till the next hearing of the case on June 23. The court has also asked the tax authority to file its reply in this case by June 18.
On May 2, Aberdeen Asset Management through its fund Aberdeen Global Emerging Markets moved court against the final demand order by the income tax (I-T) department. The Luxembourg-based firm said that the tax department violated the income tax rules as it did not issue a draft assessment order to the company before the final demand order.
A draft assessment order can be challenged by an entity before the dispute resolution panel of the tax authority. Aberdeen Global is being represented by the law firm Nishith Desai Associates.
“The interim stay granted by the Bombay High Court provides a just relief to FPIs/FIIs as the draft of the statute in its current form has exposed them to huge tax demands not only for the year ended March 31, 2015, but for earlier years also. This is totally contrary to the government’s stated position of no retrospective tax. In any case clarity on the application of MAT on FPIs/FIIs is imperative to lend stability to investment and to avoid multiple litigation,”said Riaz Thingna, partner at Walker Chandiok & Co LLP.
Apart from Aberdeen Global Emerging Markets, at least five foreign portfolio investors (FPIs) have also filed a writ petition in the Bombay High Court against similar tax demands by the income tax department. The petitions filed on April 29 by these investors seek the court’s direction to “withdraw, revoke and cancel” the orders issued by the tax department regarding the payment of MAT retrospectively. The FPIs who have moved court, include Luxembourg-based BNP Paribas L1 and London-based National Westminster Bank Plc, according to information available with the court’s registry department. The court is due to hear the matter on May 6.
On April 23, the government had assured over 1,000 FIIs across the US, Hong Kong and Singapore that they could avail of treaty benefits to ward off tax demands on capital gains booked over the years till March 31. This followed the tax department sending notices to over 68 FIIs claiming tax worth Rs 602.83 crore for past capital gains. The notices mean that FPIs will have to pay 20 per cent tax on business income or book profit with retrospective effect, replacing the capital gains tax framework.