Government accepts Shah panel report on MAT inapplicability

The government on Tuesday accepted the recommendations of the Justice A.P.Shah committee on the applicability of the vexed minimum alternate tax (MAT) on foreign instituitional investors (FIIs), and said it has decided to effect an appropriate amendment to the Income Tax Act.

"Through the amendment the government proposes to clarify that MAT provisions will not be applicable to FIIs/FPIs (foreign portfolio investors) not having a place of business/ permanent establishment in India, for the period prior to April 1, 2015," the finance ministry said in a statement here.

"The committee has recommended that section 115JB of the Income Tax Act may be amended to clarify the inapplicability of MAT provisions to FIIs/FPIs," it added.

"This will send a positive signal to the investors abroad. It only shows that the government is concerned about the issue of inconsistency and uncertainty in taxation," committee chairman Shah told reporters here.

Addressing a press conference earlier, Finance Minister Arun Jaitley said: "Today (Tuesday) I have accepted on the recommendation of CBDT and department of revenue, the report of Justice A.P. Shah dated August 25."

A senior official here told IANS that "the income tax department will soon issue instructions to assessing officers on how to deal with cases relating to applicability of MAT for periods prior to April 1, 2015, to the effect that they will not pursue the tax notices already sent".

"The legislative changes will happen in Finance Act next year," he said.

The Income Tax department had sent notices to 68 FIIs demanding Rs.602.83 crore as MAT dues of previous years, and these FIIs, in turn, moved court challenging the demand.

The CBDT had earlier said it will not raise any new demands for payments, and will take no coercive action to pursue claims that have already been filed under MAT.

"If order (on levying of MAT on FIIs) is in appeal, then we can certainly tell our assessing officer (that) please don't take it further; don't agitate it further and this is exactly what we did in Shell and Vodafone tax cases," CBDT chairperson Anita Kapur told reporters here.

"Shell and Vodafone cases went against us and once we accepted that judgment, we told our officers, please don't do future assessments and please don't further agitate these in appeals," she said.

In the 2015-16 Budget, Jaitley had exempted FIIs from paying MAT with effect from April.

Even after Jaitley's announcement, the Income Tax department sent notice to at least 90 foreign portfolio investors.

With the uncertainty created by MAT, foreign investors sold Indian shares and bonds of around $630 million on May 6, marking the biggest single-day sale since January 2014.