The Income Tax (I-T) department on Tuesday will “put on hold” all present cases pertaining to minimum alternative tax (MAT) before the Bombay High Court (HC), including that against Aberdeen Asset Management to avoid conflict as a similar matter is pending before the Supreme Court (SC).
Moreover, the decision on application of minimum alternative tax (MAT) prior to April 1, 2015 is also being reviewed and pending by the law commission, and therefore the I-T department has been asked to wait for the final decision by the government
“…owing to the case of Castleton Investments which is pending before the SC and a decision on application of MAT prior to 01/04/2015 is also pending, we are requested to await the final outcome at SC and law commission before proceeding ahead in the present cases, including Aberdeen,” according to a person with direct knowledge of the case matter.
Charanjeet Chanderpal, the counsel representing the I-T department said the decision to hold the matter does not imply the government’s proposal to withdraw tax demand.
“Only the prosecution is stayed but the department wants to be safe on the aspect that the government does not make any retrospective ruling. The department has taken a view to wait and watch and I have to follow their instructions,” Chanderpal added.
Aberdeen’s case is listed for hearing before the Bombay HC today. Last week, the counsel representing the I-T department argued that the case should not be stayed as Aberdeen has paid tax at 15% and a marginal amount is outstanding.
The HC’s two-member bench headed by Chief Justice Mohit Shah directed the counsel to file an application stating the department’s decision to simultaneously pursue the matter while the issue on MAT is being dealt at a larger level by the SC and government. The matter was adjourned to June 30, Tuesday. The adjournment implied that I-T could not recover tax liabilities from Aberdeen.
On May 6, Aberdeen received interim relief from the Bombay HC on technical grounds as the I-T department had not followed the correct procedure while issuing the notices. Aberdeen had argued that it was issued a final order without having been given a draft assessment order. A final order gives the department statutory powers to recover tax demands.
Aberdeen filed its petition against retrospective MAT demands by the I-T department on May 2. The Luxembourg-domiciled firm is being represented by law firm Nishith Desai Associates.
In addition to Aberdeen, five foreign portfolio investors (FPIs), including BNP Paribas and London-based National Westminster Bank in its own capacity as well as depository of funds of First State Investments UK, had filed their petitions against the I-T department on April 29.
At the end of March 2015, the I-T department sent notices to over 68 FPIs claiming tax worth R602.83 crore for past capital gains. The notices mean that FPIs will have to pay tax at an effective rate of 20% on business income or ‘book profit’ with retrospective effect, replacing the capital gains tax framework.
Legal experts representing the FPIs argue that under the current norms, foreign institutions are not required to pay any tax on long-term capital gains (gains from investments exceeding one year). Institutions are liable to pay short-term capital gains tax (tax on investment less than one year) at 15%.
FPIs encompass all foreign institutional investors, their sub-accounts and qualified foreign investors under a new regime that came into force on June 1, 2014. Securities and Exchange Board of India data show that there are more than 8,200 FPIs registered in the Indian capital market.