In yet another relief for the Foreign Institutional Investors (FIIs), the tax authorities have put on hold issuance of new notices as well as action on already issued notices.
“In the light of Finance Minister’s announcement (made in Rajya Sabha on May 7), no coercive action be taken for recovery of demand already raised by invoking provisions of MAT (Minimum Alternate Tax) in the cases for foreign companies. Issue of fresh notices for re-opening of cases as also completion of assessment should also be put on hold unless the case is getting barred by limitation,” a Central Board of Direct Taxes said.
A directive issued to Principal Chief Commissioners and Chief Commissioners (International Taxation) in Delhi, Mumbai, and Bengaluru was sent on Monday. This was in response to the Finance Minister’s announcement about constituting a Committee headed by Justice AP Shah to look into the issue of MAT on FIIs. The Committee is expected to give its report on this issue expeditiously.
The Finance Bill had proposed exempting MAT on FII or FPI (Foreign Portfolio Investors) from April 1, 2015. However, the controversy began when tax authorities issued ₹602.83 crore demand notices in 68 cases of overseas funds to pay MAT for ‘untaxed gains’ made by them in the Indian markets over the past years. This shocked the market which witnessed sharp withdrawal of funds by FIIs.
The Income-Tax Department has imposed 20 per cent MAT on capital gains made by FPIs. All these along with weak global signals shook the market and it is estimated that overseas investors pulled out nearly ₹10,000 crore from the Indian capital markets last week.
Commenting on the latest move, Rajesh H Gandhi, Partner, Deloitte Haskins, said “FIIs should therefore be relieved to know that no further notices will be issued till the committee issued its report,” he said.
Echoing similar sentiment, Sameer Gupta, Tax leader for financial services, EY India said that there are a few blocks moving finally. The Castleton case is now set for early hearing by the Supreme Court in August.
Shah panel may look at ‘Vodafone type’ tax disputes
The Finance Ministry is likely to consider including Vodafone type of disputes in Terms of Reference (TOR) for the Justice A P Shah Panel. TOR is expected to be announced soon. Inclusion of Vodafone kind of cases is because of legacy which is making things difficult for the Government in providing relief to foreign companies.