The Finance Act, 2015 (FA 2015) inserted a new clause to the Minimum Alternate Tax (MAT) provision, w.e.f. 1 April 2015, to exclude certain income of foreign companies from the MAT regime. These provisions are effective from tax year 2015-16 and are prospective in nature. However, there was uncertainty on applicability of MAT to Foreign Institutional Investors (FIIs)/Foreign Portfolio Investors (FPIs) in relation to the period prior to 1 April 2015. To address the concerns and apprehensions of the stakeholders, in May 2015, a three-member committee (Committee) headed by Justice (Retd.) A.P. Shah was formed by the Ministry of Finance (MoF) to give recommendations on the subject of levy of MAT on FIIs for the period prior to 1 April 2015, in light of related legal provisions, judicial/quasi-judicial pronouncements and such other relevant aspects as the Committee may consider appropriate.
The Committee, after extensive deliberations, and after considering an in-depth analysis of the applicable provisions, the legislative history under the Indian Tax laws (ITL), judicial precedents etc., has come out with a detailed report (Report) on 25 August 2015. The long-awaited Report recommends that the provisions of MAT may not be made applicable to FIIs/FPIs for the period prior to 1 April 2015. The Government of India (GOI) has accepted the recommendations and has decided that an appropriate amendment will be carried out in the ITL.
The issue about applicability of MAT to FIIs was a subject matter of various rulings of the Authority for Advance Rulings (AAR). However, particularly, in 2012, the AAR, in the case of Castleton Investment Ltd. (Castleton), held that the MAT provisions are applicable to foreign companies. At present, appeal against this matter is pending before the Supreme Court.
One may note that the current Report is restricted to the applicability of MAT on FIIs/FPIs which have no permanent establishment (PE) or place of business in India.
This Tax Alert summarizes the recommendations and key findings of the Committee.
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