The government may have shown alacrity in accepting the recommendations of the AP Shah panel report on applicability of Minimum Alternate Tax (MAT) on Foreign Institutional Investors (FIIs) for the period prior to April 1, 2015. But it has left the door wide open on the stance it will take before the Supreme Court on applicability of MAT on non-FII/FPI foreign companies.
All eyes are now on the September 29 apex court hearing in the Castleton Investment case (which is not an FII). This case relates to the question of applicability of MAT on foreign companies.
Mauritius-based Castleton had approached the Supreme Court against a 2012 ruling by the Authority for Advance Rulings (AAR), which had said the company would have to pay MAT on capital gains arising from sale of shares.
Interestingly, the AP Shah panel — although its mandate was to only look at applicability of MAT on FIIs/FPIs — has said the AAR’s ruling in the Castleton issue was “completely wrong”.
The Shah panel said that even after the 2012 ruling in Castleton Investment, the Registrar of Companies, under the Companies Act, did not ask FIIs/FPIs to file their global accounts, as these investors were never intended to be taxed under the MAT provision.
But, in another part of the report, the Shah panel has said that the committee is not expressing any view on whether a foreign company having a permanent establishment/place of business in India is covered under the MAT provision (Section 115JB of the income tax law).
The issue is squarely covered by AAR’s decision in The Timken Company and Praxair Pacific Ltd, the panel report said.
In 2012, in the Castleton case, the AAR departed from its ruling in the Timken Company case and ruled that MAT is applicable to foreign companies, even if they have no permanent establishment or place of business in India.
The effect of this ruling was that MAT could be applicable even on FIIs and this started the government’s efforts to correct the situation for FIIs.
The moot question now is whether the government, having accepted the AP Shah committee report, concurs with the view of the committee that the Castleton ruling was “completely wrong”!
The government had in early August sought postponement of the apex court hearing in the Castleton case. It had sought more time from the Supreme Court to firm up its stance after analysing the findings of the Shah panel report.
The Shah panel had submitted its initial 66-page report (on levy on MAT on FIIs) to the government on July 24. This draft report was not made public. The final report was submitted to the government on August 25, after reportedly allaying some of the concerns and doubts expressed by the Central Board of Direct Taxes (CBDT).
There is little information on whether there was any change in the Shah panel’s recommendations in that one month. Only Finance Minister Arun Jaitley and top brass of the Revenue Department know the real story.