The Central Board of Direct Taxes (CBDT) said that it would hold off from issuing fresh demands for minimum alternate tax (MAT) from foreign investors, and advised taxmen not to take coercive action on demands already made, as a government-appointed committee looks into the issue.
The government uses the minimum alternate tax to get companies, which pay less or zero tax due to the available exemptions to pay some tax. The issuance of such tax demand on foreign institutional investors has caused an outcry among them and the issue is citied as one of the reasons for the stock market fall. Recently, the government said it had issued claims totalling over Rs. 600 crore. Foreign institutional investors have been exempted from paying such taxes from April 1, 2015, but the tax demands have been made in respect of previous years. Last week, Union Finance Minister Arun Jaitley had announced a panel headed by Justice A.P. Shah to look into the issue.
He said that the panel would give a report expeditiously, without giving a timeframe.
“In the light of the Finance Minister’s announcement, officers dealing with international taxes have been advised that no coercive action be taken for recovery of demand already raised by invoking provisions of MAT in the case of foreign companies, particularly FIIs. Issue of fresh notices for reopening of cases as also completion of assessment should also be put on hold unless the case is getting barred by limitation,” CBDT said in a statement. One of the key cues being watched out on the issue is a ruling by Supreme Court in a case involving Castleton, which is set for a speedy hearing.
“There are a few blocks moving finally. The Castleton case is now set up for early hearing by the Supreme Court in August. The instruction issued basically puts on hold any fresh reassessment notices being issued and proceedings, unless they are getting time-barred and potential collection of demands - so in that sense a welcome step.
“This will give enough time until the Supreme Court case plays out, and so until the end of this fiscal, we should expect no further adverse steps,” Sameer Gupta, Tax leader for financial services, EY India, said.
