No retrospective MAT on FIIs, Govt. accepts Shah panel report and has decided to make appropriate Amendment to the IT Act [Read the Full Report]

Justice A.P. Shah Committee’s recommendation to clarify the Inapplicability of MAT to FIIs/FPIs has been accepted by the government.  It has also been decided that the Income-Tax Act will be appropriately amended.

 The   final report on applicability of MAT on FIIs/FPIs for the period prior to 01.04.2015 has been submitted by the Committee to the Government on 25.08.2015.

To clarify the inapplicability of MAT provisions to FIIs/FPIs, the Committee has recommended that section 115JB of the Income-tax Act may be amended to make it more transparent and move amendments in this regard in the winter session of Parliament, Finance Minister Arun Jaitley said. “I have accepted the A P Shah panel report submitted on Aug 25, 2015 … It said MAT would not be leviable on FIIs … a necessary amendment in provisions in section 115 JB of the I-T Act would be required and hopefully, we will bring that out in the winter session, or whenever the next Parliament session is held,” he said.

It has also been suggested by the Committee that a Circular may be issued regarding the same. The Government through the amendment proposes to clarify that the period prior to 01.04.2015; MAT provisions will not be applicable to FIIs/FPIs not having a place of business/ permanent establishment in India. Pending such amendment, CBDT will convey to the field formations the decision of the Government to accept the recommendation.

A report by the Shah panel had suggested the government move towards certainty and predictability in the tax regime. “FIIs are mostly open-ended investment funds, which permit their investors to enter and exit daily, based on the NAV (net asset value) of the fund, unanticipated tax liability (or the fear thereof) relating to previous years, which would have to be borne by the current investors, maybe a sufficient trigger for the investors to exit,” it said.

An earlier the Advance Authority Ruling (AAR), Delhi ruling had said there was no case for MAT on FIIs. Justice Shah said, “Inconsistent rulings by AAR created a controversy about levying MAT on FIIs. When giving rulings, an AAR has to be more consistent and considerate.”