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Journalism of Courage
At least five foreign portfolio investors (FPIs) have filed a writ petition in the Bombay High Court against the demand by the income tax department to pay minimum alternate tax or MAT on their past investments in stocks. 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.
Apart from them, National Westminster Bank Plc has also filed three separate writ petitions as depository of funds including First State Asia Pacific Sustainability Fund, First State Indian Subcontinent Fund, and First State Global Emerging Market Sustainability.
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According to sources, the combined tax demand of these FPIs is about Rs 50 crore. The court will hear the matter on May 6. Interestingly, India’s tax treaties with UK and Luxembourg do not exempt them from capital gains. The FPIs are being represented by law firm, Khaitan & Co. One of the petitions filed by National Westminster Bank , which has been reviewed by The Indian Express, said that MAT provisions do not apply to foreign institutional investors (FIIs).
“..Provision of Section 115 JB (MAT) are on their plain language applicable only to domestic companies and given the fact that the petitioner in a foreign company which has no place of business in India, the imposition of MAT on the petitioner is an illegal extension of a law meant to apply to domestic assesses to book profits that are in financial statements outside India — thereby imparting extra territorial application to domestic tax law…,” said the writ petition.
On April 23, the government had assured over 1,000 FIIs across the US, Hong Kong and Singapore they could avail of treaty benefits to ward off tax demands on capital gains booked over the years till March 31. About 41 per cent of investment into the Indian capital market is routed through these countries.
This, after the tax department sent 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.
Under the current norms, foreign funds are not required to pay any tax on long-term capital gains (gains from investments exceeding one year).
