Aberdeen moves Bombay HC on retrospective tax demand

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Published: May 5, 2015 12:12:15 AM

Aberdeen Asset Management through its fund Global Emerging Markets has moved the Bombay High Court.

International investment group and largest fund management company, Aberdeen Asset Management through its fund Global Emerging Markets has moved the Bombay High Court against retrospective minimum alternate tax (MAT) demands by the Indian Income Tax (IT) department.

Aberdeen filed its petition on May 2, 2015 (Saturday), according to the information available with the court’s registry department. The Scotland-based firm, with assets under management (AUM) worth GBP350 billion as on December 2014, is being represented by law-firm Nishith Desai Associates. The court will hear the matter on June 8, 2015.

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Aberdeen joins Luxembourg-based BNP Paribas and London-based National Westminster Bank PLC among five-10 other firms that are fighting against the government’s retrospective tax demands on capital gains earned in Indian securities market.

Both, BNP Paribas and National Westminster in its own capacity as well as depository of funds of First State Investments UK, filed their petitions against the IT department on April 29. Their hearing will begin on May 6, showed information in the court registry.

The Financial Express (FE) on Thursday had learnt from highly-placed sources that Aberdeen was in advanced stages to file with the Bombay HC but the information could not be independently verified.

FE had also learnt that about a dozen-two dozen funds were expected to file their petitions in the near future challenging the jurisdiction of the tax authorities to levy MAT.

Harish Salve, one of India’s leading lawyers in the areas of constitutional, commercial and taxation laws is representing the foreign portfolio investors (FPIs), as widely reported by various media reports.

On Thursday, FE had a chance to review National Westminster’s plea which asked the court to “withdraw, revoke and cancel” the orders issued by the tax department regarding the payment of MAT retrospectively. These funds argue that they have no place of business or permanent establishment (PE) in India, and are neither required to maintain books of account nor liable to pay any tax on their capital gains earned from the Indian securities markets.

The IT 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.

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%.

On April 23, the government had assured over 1,000 foreign institutions across the United States, Hong Kong and Singapore were allowed to avail of treaty benefits to ward off tax demands on capital gains booked over the years till March 31. About 41% of investment into the Indian capital market happens through these countries, official data shows.

While FPIs based in Singapore and Mauritius can avail of full treaty benefits to ward off tax demands, treaties with UK and Luxembourg do not completely exempt them from capital gains.

The Central Board of Direct Taxes (CBDT) then said it will settle all MAT-related matters of FIIs (foreign institutional investors) coming under the ambit of Double Taxation Avoidance Agreements within a month of filing of claims. The move is aimed at quickly resolving the controversial tax issue facing FPIs.

The retro-tax issue escalated in the last fortnight with FPIs collectively pulling-out $1.8 billion in the cash segment since April 15.

FPIs encompass all FIIs, their sub-accounts and Qualified Foreign Investors (QFI) under a new regime that came into force on June 1, 2014. Sebi data shows, there are more than 8,200 FPIs registered in Indian capital markets.

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