Relief for Castleton; SC says MAT not applicable on co

The Castleton case has been laid to rest with the government agreeing to abide by the MAT circular, a Supreme Court order said. The MAT circular is applicable on FIIs and foreign companies with no permanent establishment in India. According to the circular, MAT will not be applicable on companies investing through the Double Tax Avoidance Agreement (DTAA) route, and companies that are not required to be registered under the Companies Act.

Post this, no dispute remains in the Castleton case, the apex court said.The Castleton case was the pivotal case in this entire issue of foreign portfolio investment (FPI) and minimum alternate tax (MAT), essentially because Castleton was the foreign company in the case of which the Advanced Ruling Authority had suggested that MAT would apply. It was entirely the discretion of the judge, who is a former retired Supreme Court Judge, heading the Authority for Advance Rulings (AAR) at that time. He insisted that MAT ought to apply even though the government had not made that plea. And anyway, since Castleton came through the Mauritius route, it would have been able to avail of treaty benefits. That is a position that the government did not argue against at the AAR and that is the position that the AAR had also sort of accepted.

In the first week of September, the government accepted the Justice AP Shah Committee report that said MAT cannot be levied on FPIs and had recommended to the government:

(i) To bring an amendment to Section 115JB of the Income Tax Act, 1961 clarifying the complete inapplicability of the MAT provisions to FIIs/FPIs; or