The Supreme Court on Thursday agreed to hear and decide in August foreign portfolio investor Castleton Investment’s (CIL’s) appeal seeking certainity about tax consequences on foreign companies that do not have permanent establishment in India.

A bench headed by Chief Justice HL Dattu posted the matter for hearing in August after senior counsel Harish Salve, appearing for the Mauritius-based firm, sought early hearing in the matter. “It’s the matter with regard to FIIs and has global implications. FIIs are getting upset,” Salve told the court.

Attorney General Mukul Rohtagi also agreed to have early disposal of the matter which could resolve the ongoing row over the imposition of minimum alternate tax (MAT) on foreign investors.

While the apex court had issued notice to the department on October 5, 2012, it had admitted the CIL’s appeal on May 7, 2013. CIL has challenged the August 14, 2012, decision of the Authority for Advance Rulings (AAR) that held that the company would have to pay MAT on capital gains arising from sale of shares, thereby withdrawing the benefit available under the India-Mauritius double tax avoidance agreement. The AAR had ruled that the provisions of Section 115JB of the Income Tax Act, 1961, will be applicable to foreign companies who do not have permanent extablishment (PE) in India. This, according to the company, will nullify the benefits provided under the treaty.

Seeking certainity about tax consequences in India which is the primary intention of any non-resident taxpayer, the company said the impugned order of the AAR was not in line with the view taken by it in its earlier rulings, in the case of Timken and Praxiar Pacific, that have attained finality now.

According to the company, Section 115JB would have no application since the whole of gains on sale of shares would be taxable under the normal provisions of the Act and normal tax on such gains could never be less than 18.5% of the book profit were such gains credited to the profit and loss account in order for them to be brought to tax under Section 115JB. It further said that the AAR failed to appreciate that by bringing the long-term capital gains earned by the company within the ambit of section 115JB, it was subjecting the income to tax at 18.5% against the 10% under the normal provisions.

The petition further said that the authority failed to appreciate that the levy of MAT provided under section 115JB was introduced to bring within the taxing net companies who have earned substantial book profits and were paying handsome dividends to its shareholders but at the same time were not paying any tax and not companies such as CIL.

“The AAR failed to appreciate that Section 90(2) of the Act was also non-obstante in nature inasmuch as it provides that when the Centre has entered into a DTTA “the provisions of this Act shall apply to the extent they are more beneficial to that assessee”, and in case of a conflict between Section 115JB and Section 90(2), the latter would prevail in as such an interpretation would uphold the enforceability of an international agreement rather than unilaterally override it, the 2012 petition stated.

For Updates Check Economy News; follow us on Facebook and Twitter