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Shah Panel Report on MAT
Aug 28, 2015

A.P. Shah Committee on Minimum Alternate Tax (MAT) has recommended to the Finance Ministry that the levy shouldn't be imposed for the period preceding April 1, 2015. If this view is accepted, it would mean a significant relief for foreign investors facing several years of levies on capital gains made by them and the resolution of a knotty problem for the government.

  • In 2012, the Advance Authority Ruling (AAR), Delhi, directed Castleton to pay MAT in India on its book profits, when the company transferred shares from a Mauritius entity to one in Singapore.
  • The income tax department had sent notices to 68 FIIs, demanding Rs 602 crore as MAT dues for earlier years.

To resolve the issue, the government formed a panel headed by Law Commission Chairman A.P. Shah. The panel also had former chief economic advisor Ashok Lahiri and chartered accountant Girish Ahuja.The crux of the issue was whether the government would waive MAT prior to April. From the current financial year, MAT is anyway not applicable to foreign portfolio investors.Industry has argued the provisions of MAT under the income tax Act are aimed at taxing companies that are required to prepare their profit-and-loss accounts according to the Companies Act. Additionally, foreign investors do not have a fixed place of business in India and, therefore, don’t have to maintain books of account according to the Companies Act.

  • It is expected the government will accept the committee’s suggestions and stop demanding MAT from FPIs for the period before April 1 2015.
  • It is also expected when the Castleton case comes up for hearing before the Supreme Court, the government’s position will be MAT shouldn’t be liable on FPIs.

About 95 per cent of FIIs who had received MAT notices from the income tax department had approached the dispute resolution panel (DRP) for relief without prejudice towards their high court applications; 10 FIIs had approached the Bombay High Court, challenging the income tax department’s stand on MAT demand.

If the government accepts the views of the Shah panel, the DRPs would hear the cases and either dispose of or suggest to the assessing officer to do away with the additional demand.

If the recommendation of the A.P. Shah panel is accepted, it would lead to an amendment in the income tax law and that would be another step for the government to show it means business and is willing to quickly bring in certainty on critical issues.

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