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Castleton Case Pullout Ends Row Over MAT

ENDGAME SC dismisses petition by company after govt says it won't impose MAT on foreign firms that don't have permanent presence here

The Supreme Court dismissed a special leave petition filed by Mauritius-based Castleton Investment Ltd after the government said it won't impose minimum alternate tax (MAT) on foreign companies that don't have a permanent presence in India. For the government, this marks the end of an unwelcome controversy that had rattled overseas investors.

The government will abide by the September 3 circular of the Central Board of Direct Taxes (CBDT) exclud ing such compa nies from the levy, Attorney General Mukul Rohtagi told the court. This prompted the bench to dispose of the petition. Castleton was also agreeable to the move.

The CBDT decision followed the finance ministry's acceptance of the recommendations made by the AP Shah panel. Finance Minister Arun Jaitley set up the committee when the issue threatened to get out of hand and defeat the government's bid to drum up overseas investment. Jaitley has repeatedly said that he wanted to end unnecessarily aggressive tax demands that were scaring away investors.

“Thankfully, the MAT controversy has been put to rest for good by the Supreme Court,“ said Rajesh H Gandhi, partner, Deloitte Haskins & Sells LLP. “Against the general perception that the case could be adjourned till an amendment in the tax law, the Supreme Court dismissed the case as the government has accepted the position that MAT is not ap plicable to foreign companies (that) do not have a permanent establishment or place of business in India.“

The income tax law needs to be changed as soon as possible, he said.

“We hope that the government amends the tax law in the upcoming winter session as the tax officers are waiting for (this) to close the MAT cases initiated against FPIs (foreign portfolio investors) for prior periods,“ he said.

The government needs to amend the Income Tax Act, 1961, retrospectively from April 1, 2001, to give effect to the MAT exemption for foreign companies that don't have a permanent presence and ensure that past cases are not reopened.The CBDT has told its field officials to dispose of pending cases and not pursue fresh tax demands.

Ketan Dalal, senior tax partner at PwC India, welcomed decision and said it was “a manifestation of the government's intent to bring a logical close to this unfortunate controversy“.

The Castleton case stemmed from a 2012 ruling by the Authority of Advance Ruling that the income tax Act did not make a distinction between Indian and foreign companies and that MAT applied to them as well. Consequently , tax authorities raised demands on foreign investors including FPIs. This led to strong protests as the levy hadn't been imposed on foreign companies before. MAT, which amounts to about 20%, is levied on companies where the income tax assessment is below 18.5%. In the February budget, Jaitley exempted capital gains of FPIs from MAT starting FY16 without retrospective effect. This rattled foreign investors who felt they would be forced to cough up taxes for previous years. That led to the appointment of the Shah panel.

The Economic Times, New Delhi, 1st Oct. 2015