Bombay high court to hear writ plea on MAT issue on 6 May

Mumbai: The Bombay high court will hear a writ petition filed by five foreign portfolio investors (FPIs) against the income tax department on 6 May. The petition, filed on Wednesday, has challenged the notices issued by the tax department to FPIs regarding the payment of minimum alternate tax (MAT).

On Monday, The Economic Times had reported that five FPIs have teamed up to challenge these tax demands.

The five entities that have filed the writ petition are National Westminster Bank Plc, First State Asia Pacific Sustainability Fund, First State Indian Subcontinent Fund, First State Global Emerging Market Sustainability and BNP Paribas L1, according to the information available with the court’s registry department.

FPIs have been battling the income tax department over levy of MAT on capital gains made by them from share transactions. While the tax department has issued demands to 68 foreign institutional investors (FIIs) for payment of dues totalling ₹ 608.83 crore, the total amount is expected to cross ₹ 40,000 crore, Mint reported on 27 April.

The government has tried to reach out to investors to address some of their concerns over the tax demands. In an editorial in The Financial Times, finance minister Arun Jaitley suggested the formation of a committee to look at legacy issues.

“Even though it is only the legacy issues that haunt us, we recognize that we must put a quick end to them. I am considering a high-level committee to explore what can be done to resolve the past, and move beyond it in a way that would provide real predictability and certainty to investors. This committee will be instructed to report back expeditiously so that early action can be taken,” Jaitley wrote in the column.

The Central Board of Direct Taxes (CBDT) will settle all MAT matters of FIIs, under the ambit of double taxation avoidance agreements, within a month of filing of claims, PTI reported on 27 April.

“MAT cannot be applied to foreign companies. Section 115JB of the Income Tax that governs MAT has clearly laid down the criteria, which includes having a place of business in India. In my view, FPIs have a strong case and the courts will ultimately decide on the matter as the government is also keen on a resolution,” said Suresh Swamy, partner, PwC India.

Jaitley, while moving the official amendments to the Finance Bill, 2015, in Lok Sabha on Thursday, said capital gains from sale of securities, royalty and fees for technical services will be exempted from the MAT ambit in cases where the tax rate is below 18%. He did not specifically say that FPIs claiming treaty benefits will be exempt from MAT.

“The matter is likely to be decided by the Supreme Court since the entity getting an adverse ruling in the Bombay high court could appeal in the apex court. Foreign investors would be closely watching this as the government’s recent clarification only says that tax authorities will decide on entities coming from treaty countries within a month’s time from filing the case. It nowhere says that MAT will not be applicable,” said Manoj Purohit, partner, Walker Chandiok & Co. Llp.

In his budget speech, Jaitley had clarified that FPIs will not be subject to MAT from 1 April.

“For the past cases, however, the government appears to have retained its earlier position that the matter is sub-judice and it would look upon courts to give its final verdict,” said PwC’s Swamy.