In a breather to foreign portfolio investors (FPIs) who have been dogged by retrospective demands on the minimum alternate tax (MAT) from 2008, the Bombay High Court on Tuesday stayed tax notice issued to Scottish portfolio investor Aberdeen. The interim stay comes a day ahead of the High Court taking up the writ petition filed by five FPIs last week against MAT notices issued by tax authorities.
The Income Iax department has sent tax notices demanding MAT on the profit they earned from trading in stocks and bonds to 68 FPIs, seeking a cumulative Rs603 crore in dues beginning from assessment year 2008. A division bench, headed by Chief Justice Mohit Shah, was hearing a petition filed by Scotland-based Aberdeen Global Emerging Markets challenging the I-T notice and assessment orders.
Similar petitions had been filed by National Westminster Bank Plc, First State Asia Pacific Sustainability Fund, First State Indian Subcontinent Fund, First State Global Emerging Market Sustainability and BNP Paribas l1. They will come up for hearing on Wednesday. The counsel, appearing for Aberdeen, on Tuesday argued that there was no effective alternate remedy available to them and hence they approached the High Court for relief.
The Income Tax Department lawyers opposed this argument, submitting that the companies can file an appeal before the I-T Tribunal. The High Court, while posting the Aberdeen petition for hearing on June 22, granted interim relief to the company by staying the I-T notice and orders. These investors, who are not covered under the double taxation avoidance agreements (DTAAs), received notices from the I-T Department in early April asking them to pay MAT.
So far, the Department has sent demand notices to 68 non-DTAA FPIs, seeking altogether Rs602.83 crore. As there are close to 3,000 FPIs, most of them not covered by DTAAs, the I-T department is expecting to collect around Rs40,000 crore. Around 40 per cent of the FPIs in the country come through Singapore and Mauritius with which India has DTAAs.
These are, therefore, not liable to pay MAT on the capital gains but their holding in the domestic stock market is only around 30 per cent of the total Rs 22 trillion. MAT was originally meant to be charged only on manufacturing sector and not on companies active in financial or other services sector.