Bombay HC stays MAT order on Aberdeen Global

After having stayed the final order, the court may now direct the tax office to issue a draft order to the asset manager and allow it remedies that are provided for in the case of issuance of draft orders, Bobby Parikh of BMR Advisors said.

"But I am not sure if this judgment represents the court's preliminary line of thought on the principle issue of whether MAT should be issued on FPIs," Parikh said.

The issue of MAT, in which the tax department may issue demands reportedly worth Rs 40,000 crore on FPIs, has led to unease for foreign investors.

While Finance Minister Arun Jaitley has prospectively removed MAT on FPIs prospectively (during the Union Budget), he has made clear the government will not intervene in past cases where the matter has landed in courts.

While the FM did say that investors originating from countries with which India has signed the double taxation avoidance agreement (DTAA), such as Singapore and Mauritius, can claim relief from the tax demand, it is not clear what percentage of FPIs are from these countries.

While Aberdeen, which has invested about USD 10 billion in India, has been faced with a relatively-small USD 50,000 (Rs 32 lakh) tax demand, its Asia chief Hugh Young has gone on record saying the asset manager will oppose the case on the basis of principle.

Going forward, courts will decide whether MAT provisions will apply for foreign companies who have a place of business in India, Parikh said.

To read the interview of the Aberdeen counsel, Porus Kaka, go to next page.

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Below is the transcript of the interview on CNBC-TV18.

Q: Perhaps it would be a bit of an overstatement to suggest that this is a setback for the government at this point in time. What was your prayer in court today and where do we go from here?

A: Not really specifically but yes certainly the prayer was ultimately against the MAT levy but the relief that ultimately that the court was more persuaded with was the fact that even the procedure for implementing the levy has not been followed. The wider grounds are still there, the petition is there but currently the relief was granted on the issue that the procedure itself which allows us to challenge was not followed.

Ashmit: Just to look at the broader issue as far as the MAT levy is concerned, we just in fact played out the reactions coming in from the Finance Minister himself, a very clear message being sent out that the MAT exemption will be prospective from this point on, that the MAT dues have to be paid, that India is not a tax haven, that application of law cuts both ways so again some very stern comments coming in from north block. If we can have your thoughts on what it means as far as FPI participation and the tax dues that they are potentially looking at?

A: Well to be fair for what comments I heard from the Finance Minister I don’t believe-he was very clear that it was his view that currently the provisions ought not to apply and he has legislated upon that. As far as the past, all he has said is that he has left it to the courts. Now if the view is that it ought not to apply, certainly that aspect itself could be useful. So I don’t believe that it is a certainty that it is his view that for the past you have to pay the tax and for the future you do not have to pay the tax. The difference in the nuances, the past you have to settle it through the court, for the future we have taken care of it in the legislation itself.

Ashmit: On the question of of course this MAT levy we have seen the government also looking to fire fight, looking to of course douse the fire that has been again raised with respect to tax terrorism, that is the term being used but the government has sought to clarify that as far as money flowing in through Double Taxation Avoidance Agreement (DTAA)routes are concerned, those are areas where the treaty benefits will prevail. How are you looking at it, are you drawing any confidence as far as this MAT levy is concerned from this clarification coming from the government?

A: Well certainly all those who come through treaty countries - you must remember that that was only a clarification given on a call, I have yet to see an official circular on this -- but as a matter of law that is the correct view that once you come through a treaty country, certainly the provisions would override anything in the Income Tax Act to the contrary. And that would include the MAT levy.

So to that extent there is a great relief but that still leaves a basket outside and a basket outside in the past which will now have to go through the courts to settle this issue.