Ending speculations over its legal stance on levying minimum alternate tax (MAT), the government on Wednesday undertook before the Supreme Court that it would exempt foreign investors from paying MAT if they do not have a permanent place of business in India.
Attorney General Mukul Rohatgi told a bench led by Justice A K Sikri that the government would abide by its September 2 circular, which had accepted recommendations of the AP Shah-led committee on MAT. The circular had stated that MAT provisions would not apply to foreign institutional investors (FIIs) not having a permanent establishment in India. Another press release on September 24 followed it, which also applied to foreign companies.
Clarifying its stand during a proceeding initiated by Castleton Investment Ltd, a Mauritius-based foreign company, Rohatgi said that the matter can be laid to rest in view of the government’s undertaking.
Castleton Investment was contesting a case against the income tax department over MAT levy. The Attorney General assured the bench that the tax office would abide by the circular of the government on the said subject and hence there remained nothing contentious about the issue.
The bench said the appeal sought by Castleton could be disposed of in light of both the parties agreeing to the government’s circulars.
Castleton had moved the top court against a August 14, 2012 verdict of the Authority of Advance Rulings, which required it to pay MAT in India for transfer of shares from an entity in Mauritius to another in Singapore.
The government recently said that it would amend section 115JB of the I-T Act to ensure that MAT provisions are not applied on foreign companies that don’t have a permanent establishment in the country and are residents of a country having a double taxation avoidance agreement (DTAA) with India. This was in addition to its earlier announcement of exempting FPIs.
Amid concerns over outflow of money, the government had formed a panel headed by retired Justice AP Shah to look into the Mat issue. Shah opined that FPIs and FIIs could not be taxed on retrospective basis, or on transactions held before April 1, 2015. The government then announced accepting Justice Shah’s view and asked tax officials not to issue new notices.