In a move to attract foreign firms to invest more in the country, the Government on Thursday said the Income-Tax (I-T) Act would be amended with retrospective effect to exempt overseas companies which do not have a permanent establishment in India from paying MAT. The Government has also said that with effect from April 1, 2001, MAT under the 115JB section will not be applicable to any foreign company.
“Foreign companies, irrespective of whether they belong to a country with which India has a Double Taxation Avoidance Agreement (DTAA), has been exempted from minimum alternate tax (MAT) on profits from April 2001 if they do not have a place of business in India,” a Finance Ministry statement said on Thursday, adding that an appropriate amendment to the I-T Act in this regard will be carried out.
“The provisions of Section 115JB of Income Tax will not apply to foreign companies with effect from April 1, 2001, if they are resident of a country with which India has the DTAA and they do not have a permanent establishment in India,” it added.
In case the companies belong to countries with which India does not have a DTAA, the MAT exemption will apply if they are exempted from registration under Section 592 of the Companies Act 1956, or Section 380 of the Companies Act 2013.
Under these sections, firms are exempted from registration if they do not have a place of business in India. Earlier this month, the Government had exempted foreign institutional and portfolio investors from payment of MAT on the capital gains made by them before April 1, 2015.
The Budget 2015-16 had already exempted foreign institutional investors or foreign portfolio investors (FIIs/FPIs) from paying the levy on gains made after April 1. The tax department had earlier this year issued about 200 MAT notices to foreign institutional investors (FIIs) and foreign companies. “Majority of notices were issued to FIIs. These notices were based on a 2012 decision by Authority for Advance Ruling (AAR), which directed Castleton to pay MAT in India on their book profits,” according to an official.
Mauritius-based foreign company Castleton had then approached the Supreme Court against the AAR ruling. The case would come up for hearing on September 29.
KPMG (India) Tax Partner Vikas Vasal said this will further help in building confidence of the foreign investors for doing business in India. “This is a welcome development and would provide clarity to foreign companies on an otherwise vexed issue, quite prone to litigation,” Vasal added.
The tax department official further said that the statement issued on Thursday is also an offshoot of the observations made by the Justice AP Shah Committee in its report on applicability of MAT on FIIs.
EY India (leader) Sameer Gupta said the statement addresses issues of ‘complete set of investors, for instance investments under FDI route, FVCI route etc.”
The Government this month accepted the recommendations of the Justice Shah panel that there was no basis for levy of such MAT on capital gains made by FIIs and foreign portfolio investors for the prior period as well.
The Government had decided to amend the I-T Act to clarify the issue with regard to levy of MAT on FIIs and in the meantime CBDT field officers were asked not to pursue cases against FIIs.
Through the amendment, the Government will clarify that MAT provisions will not be applicable to FIIs/FPIs not having a place of business/permanent establishment in India, for the period prior to April 1, 2015.