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  Business   MAT to raise dust despite government speak

MAT to raise dust despite government speak

ASHWIN J PUNNEN
Published : Nov 27, 2015, 2:22 pm IST
Updated : Nov 27, 2015, 2:22 pm IST

Interpretation of PEs for FIIs point of conflict

Representational Image.
 Representational Image.

Interpretation of PEs for FIIs point of conflict

Mumbai

: Even after the Supreme Court put to rest the MAT issue in the Castleton case, the tax department and the foreign institutional investors (FIIs) are slugging it out in the Bombay High Court.

The writ petition filed by five FIIs in the high court is yet to be settled. The FIIs continue to argue that since amendment to Income-Tax Act is yet to be made, MAT should not be levied. On the other hand, in its affidavit filed last week tax, the tax department is arguing that writ petition filed by FIIs is not maintainable and FIIs have place of business and business connection in India.

The tax department, in its draft order, had taken the stand that MAT would be applicable as they had place of business in India. Bank account and custodial relations were treated as place of business in India.

The case is expected to come up for hearing in the high court early next week. In September, the government had clarified that MAT would not be applicable to those FIIs who don’t have a permanent establishment or place of business in India.

However, the justice A P Shah committee, in its report stated that having a bank account or custodial relation does not amount to having place of business in India.

“The government policy stand is quite clear after the circular that MAT will not be applicable to FIIs. The revenue department is taking view that having a bank account and custodial service amount to place of business in India. It is a narrow interpretation of law,” says Riaz Thingna, partner at Walker, Chandiok & Co, a firm advising FIIs.

In April this year, five foreign portfolio investors (FPIs), including Luxembourg-based BNP Paribas L1 and London-based National Westminster Bank and Aberdeen Global Emerging Markets had filed a writ petition in the Bombay High Court against tax demands by the I-T department. The petitions filed on April 29, 2015, by these investors sought the court’s direction to “withdraw, revoke and cancel” the orders issued by the tax department regarding the payment of MAT retrospectively.

However, hearing in the case was held back as the government-appointed A P Shah committee was looking into matter. In the first week of September, the government accepted the justice AP Shah Committee report that said MAT cannot be levied on FPIs and the central board of direct taxes (CBDT) had, in a circular, clarified that the provisions of section 115JB of the I-T Act pertaining to MAT would not apply to foreign companies with no permanent establishment.

In the final hearing of Castleton case, attorney general Mukul Rohatgi told the Supreme Court that the tax office would abide by the MAT circular of the government on the issue. Following this, the Supreme Court dismissed the case