Foreign investors not liable to pay MAT, says AP Shah panel
The recommendations of Justice AP Shah-led three-member committee on minimum alternative tax (MAT) has come in for big relief to foreign investors. The 64-page report, exclusively accessed by dna, says a foreign investor is not liable to pay MAT prior to April 1, 2015.
The report, however, is silent on role of foreign companies because the terms of references as framed by the finance ministry did not mandate the committee to review issue of foreign companies’ MAT. A majority of the MAT dispute cases are related to foreign companies, not Foreign Institutional Investor (FII) or Foreign Portfolio Investor (FPI).
The ministry sources say the revenue department did a faux pas by excluding foreign companies while preparing terms of references for the Shah committee.
The ministry had plans to produce the committee’s report in the Supreme Court hearing of Castleton Investment Ltd case on MAT issue on Tuesday. But the ministry rather sought more time, till September 29, to reply in this case, as the ministry is in dilemma over Shah committee’s report, which is limited to FPI/FII only. Mauritius-based Castleton Investment Ltd had filed special leave petition (SLP) against advance authority of ruling (AAR) in the Supreme Court about two years ago.
The Shah committee report, submitted on July 24 this year, has yet not been made public. The report accessed by dna took cognizance that the terms of reference has not mandated the committee to look into MAT issue of foreign companies. Thus the committee gave final recommendations that let income-tax department issue a circular to give relief over the MAT issue. Or the ministry may opt for the amendment route to give MAT relief with retrospective effect.
Ministry sources said CBDT is not agreeing to a circular and is insisting that the ministry seek an amendment to give MAT relief with retrospective effect.
The income tax department is seeking MAT at 18.5% on capital gains which arise from share transfers by foreign investors. Foreign investors argue they are not liable to pay this MAT due to special treatment under double taxation avoidance agreement in case of Mauritius.
Though the Budget 2015 has exempted them to pay MAT on capital gain from April 1, 2015, foreign investors want this exemption from retrospective date.
FPI dominant sensitive Indian stock markets are already under pressure. Government became defensive on the edge of ‘make in India’ campaign and constituted the committee to review the matter as early as possible.
Castleton Investment had become the test case for the Indian tax system. Castleton Investment, incorporated in 1993 and owned by UK-based Welcome Ltd, has shares in GSK India. The Indian unit of Glaxo is listed on both BSE and NSE. Castleton had acquired 60,000 shares of GSK India in 1993 and 16,80,170 shares of Burrogh Welcome India in 1996. Later, Burrogh Welcome India merged with GSK and Castleton Investment’s shareholding swelled to 3,192,238.
Castleton Investment, which was owner of 3.77% of GSK India, has transferred these shares to Singapore GSK Pte, which is also part of GSK group but incorporated in Singapore.
These share transfers have become a test case for Indian tax system. According to the tax authorities, institutions like Castleton Investment have to pay at least MAT. The department and Castleton Investment locked horns and approached the AAR, which said that Castleton is exempted from capital gains under article 13 (4) of India-Mauritius tax treaty but has to pay MAT on these transfer gains. On the basis of AAR ruling, the tax department has sent out tax notices to FPIs like Castleton Investment.
