New Delhi: The A.P. Shah committee, looking into the applicability of minimum alternate tax (MAT) on foreign portfolio investors, submitted its report to the government on Friday even as the government is finalizing its stance before the Supreme Court where it is contesting a case brought by foreign investors on the issue.

The government will consider the panel’s recommendations before finalizing its stance in the Castleton Investment Ltd case hearing in the Supreme Court scheduled for 4 August, said revenue secretary Shaktikanta Das at a press conference after the submission of the report.

Both Das and Shah refused to divulge the contents of the report, though the former said the government will soon take a decision on it.

The Supreme Court will hear an appeal by foreign investors on whether MAT can be levied on them after both the government and investors agreed to fast track the case to bring some certainty to investors for the period before April 2015.

The 66-page report was unanimous, Justice Shah said, adding that the panel sought the views of various industry bodies, consulting firms and the Central Board of Direct Taxes.

“We have examined the issues. There was some inconsistent judgement of AAR (Authority for Advance Ruling) and ITAT (Income Tax Appellate Tribunal). We have examined the legal issues, the working of FIIs (foreign institutional investors) and the report takes a holistic view on the matter," Shah said.

Ashok Lahiri, former chief economic advisor to the finance ministry, and Girish Ahuja, former associate professor of commerce at Shri Ram College of Commerce, University of Delhi, are the other members on the panel.

MAT is a tax levied on profit-making entities that don’t pay corporate income tax because of exemptions and incentives. The levy of MAT on FIIs had threatened India’s image as an attractive investment destination, forcing the government to appoint the Shah panel.

The tax row had started after the income tax department started issuing notices to foreign investors for levy of MAT on capital gains accruing to them from sale of shares, citing an August 2012 order by the Authority for Advance Rulings in the case of Castleton Investment Ltd that MAT is applicable on both domestic and foreign companies.

Foreign investors opposed these notices, arguing that MAT can only be levied on book profits of companies, which they do not maintain in India.

Looking to end the dispute, finance minister Arun Jaitley said in his budget speech that MAT will not be applicable on capital gains accruing to foreign portfolio investors from sale of shares, starting 2015-16. He, however, did not provide a retrospective exemption.

“It is expected that the government will rely on the committee’s report when the Supreme Court hears the Castleton case early next month. If the report is favourable to foreign portfolio investors, the government might probably not press for levy of MAT before the Supreme Court," said Rajesh H. Gandhi, partner, Deloitte Haskins & Sells Llp.

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