The Centre is likely to waive the controversial minimum alternate tax (MAT) on capital gains made by Foreign Institutional Investors, (FIIs) prior to April 1, 2015.
A top government official told reporters on Friday that the Centre was considering ‘favourably’ a recommendation from the A.P. Shah Committee that there is no legal basis for levying 20 per cent MAT on past capital gains.
The Committee that submitted its report to Union Finance Minister Arun Jaitley on July 24 was appointed by the government to go into the question of levy of MAT on capital gains made by FIIs.
The tax department has slapped notices on 68 FIIs demanding MAT dues of Rs.602.83 crore for previous years. The FIIs, however, moved the High Court challenging the demand. In his Budget for 2015-16, Mr. Jaitley exempted FIIs from the levy from April 1 onwards, but did not clarify on its applicability on past transactions.
FIIs have argued that MAT is applicable only to domestic companies that had their base in India. By virtue of not being established in India, they should be ‘exempted.’ They have also alleged inconsistency and called for avoiding arbitrary application.
The government’s position on the issue is expected to become known in the last week of September when the Castleton case comes up in the Supreme Court.
The A.P. Shah Committee report has not been made public by the government as this case in which the Mauritius-based Castleton Investment has sought clarity on tax consequences including the imposition of MAT on foreign companies without permanent establishment in India, is pending before the Supreme Court.
So far, FIIs have not paid the MAT, which has been levied on all companies except those in infrastructure and power sectors since the late 1980s. In 2010, Castleton approached the Authority for Advance Rulings (AAR) seeking a confirmation that it was not required to pay MAT on a transaction it was planning to execute.
The AAR in 2012 ruled that even foreign companies are subject to MAT.
