According to the source, the A.P. Shah Committee, appointed by the government to go into the question of levy of MAT on capital gains, which submitted its report to Finance Minister Arun Jaitley late in July, has suggested against levying of MAT on capital gains prior to April 1, 2015.
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Through the amendment, the government proposes to clarify that MAT provisions will not be applicable to FIIs/FPIs not having a place of business/ permanent establishment in India, for the period prior to 01.04.2015, said a release issued later.
The Central Board of Direct Taxes (CBDT) is likely to soon issue instructions to field officers not to pursue pending cases of the controversial minimum alternate tax (MAT) against foreign institutional investors (FIIs), said informed sources on Tuesday. In the Union Budget 2015-16, Jaitley had already clarified that FIIs will be exempt from the MAT levy from April 1, 2015. In April, Jaitley overstated the amount of tax demands on foreign funds to make a point about helping the poor. However the department had cited the Castleton case for sending the notices. “The fine print will be needed to see whether foreign companies which are not FIIs could also be left out from the scope of MAT”. It is understood that clarity has been given on the basis of the AP Shah panel’s recommendation and suitable amendment will be made to the Income Tax Act. It only shows that the government is concerned about the issue of inconsistency and uncertainty in taxation.
Originally, MAT was introduced to curb “zero tax” companies, who despite showing profits in the balance sheet computed under the Companies Act, avoid taxes citing incentives and deductions. The panel said: “If Section 115JB is held applicable to FIIs/FPIs, they would be required to compile their global accounts in accordance with the Companies Act”. For now, tax inspectors will be sent a directive outlining this position before the law is amended by parliament, he said.
Rajesh Gandhi, Partner, Deloitte, described the government’s decision as an unprecedented move to give relief to tax payers considering the amount of potential tax demands which were being estimated. “We had hoped that the courts will resolve pre-April 2015 issue… but that proved time consuming”, said Jaitley, explaining why the Shah panel was set up. The government has accepted the recommendation of the Committee and we will bring the amendment in the statute in the winter session or whenever Parliament convenes next.
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Traditionally, foreign investors were not subject to MAT on capital gains, an argument that was made by FIIs following the tax notices which were sent to the FIIs demanding tax worth over Rs 602 crore.
