)
The tussle between foreign portfolio investors (FPIs) and the income tax (I-T) department is growing bigger. It had reached the high court here, with five FPIs filing a petition against the department’s earlier demand for Minimum Alternate Tax (MAT). Now, the number is said to be closer to 12.
Among the FPIs that have taken the government to court over the issue are National Westminster Bank Plc and BNP Paribas L1. National Westminster has filed three pleas as a depository of funds.
Other fund having filed include First State Asia Pacific Sustainability Fund, First State Indian Subcontinent Fund and First State Global Emerging Market Sustainability. The first five which had filed are being represented by law firm Khaitan & Co. The law firm and the funds could not be approached in time for a response.
| ON THE MAT |
|
Interestingly all funds that have filed the writ are based out of the US, UK and Luxembourg; India’s treaties with these nations do not exempt them from capital gains.
At least one of these is said to have filed a petition on Thursday, though this could not be verified. A source said seven-odd funds were likely to file separate petitions on the same matter. This is likely to take the total number of funds having filed to around 12. The person added that these might be heard together, as these deal with the same issue.
MAT was originally introduced, according to experts, to deal with domestic companies which made large profits but paid little in the way of taxes, on account of various legal exemptions. All such firms have to pay a minimum of 20 per cent tax. A recent Authority of Advance Ruling decision said MAT could also apply to FPIs. This effectively raised their tax liability from as little as zero per cent to 20 per cent.
The government subsequently clarified in the Union Budget that MAT would not apply to future years in the case of capital gains. However, it can still apply for previous years and notices have accordingly been sent out. Also, no clarification was issued with regard to interest income for debt mutual funds.
The government subsequently indicated it did not plan to press with demands from funds from nations with tax treaties, following protests from investors. A decision by the HC here is hoped to happen faster than one from the Dispute Resolution Panel.
The I-T department has so far sent 68 notices to FPIs, totalling a tax demand of Rs 602 crore. This could increase significantly as more cases are being assessed of previous years. The department can take up cases which go back up to seven financial years.
An amendment introduced in Parliament on Thursday provided for a similar exemption for interest and other income. This is expected to bring parity between debt and equity investors in MAT, say experts. The matter in the HC is to now be heard on the coming Wednesday.
