Slapped with Rs 40,000 crore tax demand, foreign portfolio investors today knocked on the doors of the Finance Ministry, but were told to approach courts for any relief even as the government assured them that such demands would not apply to the entities from DTAA countries.
In case of the investors from jurisdictions having Double Taxation Avoidance Agreements (DTAAs) with India, the treaty benefits would over-ride the tax demands, top finance ministry officials told the FIIs in a series of meetings today.
For all other foreign investors, the only remedy left was to challenge the levy of 20 per cent Minimum Alternate Tax (MAT) on capital gains they made in past three years.
While Minister of State for Finance Jayant Sinha met a select group of foreign investors this morning, it was followed by a tele-conference where Revenue Secretary Shaktikanta Das sought to address their concerns.
The meetings came after several representations made by the FIIs against tax demand notices slapped on them.
Goldman Sachs, Morgan Stanley, Deutsche Bank, Standard Chartered, Citi, RBS and J P Morgan were among the foreign investors present in the meetings.
According to sources, Das told the investors that MAT will not be applicable to investors hailing from jurisdictions with which India has signed DTAAs on the premise that they would have already paid tax in their own countries.
FIIs can avail of treaty benefits, Das said.
After the morning meeting, Sinha said government cannot intervene after judicial body, Authority for Advance Rulings (AAR) order that MAT was payable on capital gains earned by FIIs.
"The problem arose because AAR ruled that MAT is to be applicable. This no longer is a policy issue, but it now is a judicial issue, which has gone to court. So the solution to the past cases of 2-3-4 years... Whether tax is applicable or not, is now a judicial proceeding.
"If you want relief, the remedy lies in appeal. There cannot be any policy action. You will have to appeal in the Supreme Court and when Supreme Court ruling comes, it will be clear," he said.
Sources said foreign investors were told tax notices for MAT were issued to all investors, whether coming from DTAA nations or otherwise. DTAA country investors need to file their replies claiming benefits under the applicable treaty, which will be examined and decided by the assessing officers.
Government made it clear that MAT will not be applicable on capital gains made by FIIs from the current fiscal. A provision to this effect has been included in Finance Bill and once it is approved by the Parliament, the tax will not be applicable from April 2015.
