In a big relief to Mauritius-based Castleton Investment Ltd (CIL), the government on Wednesday told the Supreme Court that minimum alternate tax (MAT) will not be applicable to it, a move that could boost confidence among foreign investors willing to put their money in Asia’s third-biggest economy.
Attorney-general Mukul Rohatgi told a bench headed by justice A K Sikri that the government stood by its circular exempting foreign investors from paying MAT if they didn’t have a permanent establishment (PE) in India. He told the bench that the government, in its circular, had clarified that MAT would not be applicable for foreign institutional investors (FIIs), foreign portfolio investors (FPIs) and companies that invest in India through the Double Taxation Avoidance Agreement. It also said that MAT will not be applicable for foreign companies who are not registered in India under the Companies Act. It is the Companies Act that mandates preparation and presentation of profit and loss account, in the absence of which it is difficult to attribute MAT liability. Book profit is the benchmark used to find whether companies use tax breaks excessively to keep taxable income way below the profits reported to shareholders.
The bench disposed of CIL’s appeal, saying the case has been laid to rest as no dispute survives in view of the government’s clarification over the issue. The judges said that CIL’s appeal could be disposed of in light of both the parties agreeing to the government’s circulars.