Bombay HC stays MAT order on Aberdeen Global
In what may come as a relief to foreign portfolio investors (FPIs), the Bombay High Court has issued a stay on the tax department’s order seeking minimum alternate tax (MAT) from Aberdeen Global Emerging Markets.
In what may come as a relief to foreign portfolio investors (FPIs), the Bombay High Court has issued a stay on the tax department’s order seeking minimum alternate tax (MAT) from Aberdeen Global Emerging Markets.
However, the court reportedly issued a stay on a technical ground: that the government had directly issued a final order with respect to its MAT demand, instead of issuing a draft order first.
“In case of a foreign company or in cases where there is a transfer pricing adjustment, the law mandates that the tax officer will have to pass a draft order, and a 30-day objection period is provided,” tax lawyer Dinesh Kanabar of Dhruva Advisors told CNBC-TV18.
He added that while he had not seen the order, “I was given to understand this was not followed [in the Aberdeen issue] and the court granted a stay because of this technical issue.”
After having stayed the final order, the court may now direct the tax office to issue a draft order to the asset manager and allow it remedies that are provided for in the case of issuance of draft orders, Bobby Parikh of BMR Advisors said.
“But I am not sure if this judgment represents the court’s preliminary line of thought on the principle issue of whether MAT should be issued on FPIs,” Parikh said.
The issue of MAT, in which the tax department may issue demands reportedly worth Rs 40,000 crore on FPIs, has led to unease for foreign investors.
While Finance Minister Arun Jaitley has prospectively removed MAT on FPIs prospectively (during the Union Budget), he has made clear the government will not intervene in past cases where the matter has landed in courts.
While the FM did say that investors originating from countries with which India has signed the double taxation avoidance agreement (DTAA), such as Singapore and Mauritius, can claim relief from the tax demand, it is not clear what percentage of FPIs are from these countries.
While Aberdeen, which has invested about USD 10 billion in India, has been faced with a relatively-small USD 50,000 (Rs 32 lakh) tax demand, its Asia chief Hugh Young has gone on record saying the asset manager will oppose the case on the basis of principle.
Going forward, courts will decide whether MAT provisions will apply for foreign companies who have a place of business in India, Parikh said.
