The Bombay High Court on Tuesday adjourned Aberdeen Asset Management’s tax case to next week after the counsel representing the I-T department agreed to continue with the proceedings. The HC will hear the matter on June 30 and, until then, the I-T department cannot recover tax liabilities from Aberdeen.
A two-member bench, headed by Chief Justice Mohit Shah, directed the I-T department counsel to file an application before the HC in the case, as the matter is being dealt at a larger level by the government. The application is in addition to the affidavit filed by the IT-department on June 10.
“I have received the instructions from the tax department to continue with the penal proceedings,” I-T department’s counsel Charanjeet Chanderpal said, arguing that case should not be stayed as Aberdeen has paid tax at 15% and a marginal amount is outstanding.
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.