New Delhi: With the Justice A P Shah panel recommending non-applicability of Minimum Alternate Tax (MAT) on FIIs, the revenue department is likely to soon issue instructions to field officer not to pursue pending cases against foreign institutional investors.
The Finance Ministry, according to sources, is also likely to come out with requisite amendments to the Income Tax Act in the next Budget in February to clarify that MAT will not apply to FIIs for periods prior to April 1, 2015.
The Central Board of Direct Taxes (CBDT), sources said, "will soon issue instructions to assessing officers on how to deal with cases relating to applicability of MAT for periods prior to April 1, 2015...It would mean that the assessing officers will not pursue the tax notices already sent."
The instructions would go out from the CBDT once the new Revenue Secretary Hashmukh Adhia goes through the files, they said, adding "the legislative changes will happen in Finance Act next year."
The A P Shah Committee, which was appointed by the government to go into the question of levy of MAT on capital gains made by foreign institutional investors (FIIs), submitted its report to the Finance Minister Arun Jaitley on July 24.
The panel, according to sources, had opined against levying of MAT on capital gains made by FIIs prior to April 1, 2015.
The controversy arose after the tax department, following an order by the Authority of Advance Ruling, sent notices to 68 FIIs demanding Rs 602.83 crore as MAT dues.
As regards to the applicability of MAT after April 1, 2015, Jaitley, in his Budget speech earlier in the year, had clarified that it would not apply on capital gains made by FIIs.
However, he remained silent on the applicability of MAT for periods prior to April 1, 2015. This prompted the tax authorities to issue notices to recover tax dues.
In the backdrop of the controversy, Finance Ministry appointed Shah panel to look into the whole gamut of issues and suggest steps to deal with the problem.
According to sources, the panel had recommended that there was no basis for levying of MAT on FIIs.
The government, they added, was "favourably" considering the panel's recommendations.
Foreign investors have invested about USD 20 billion in Indian stocks in the past year and USD 28 billion in bonds.
The 66-page report of the Shah Committee, sources said, was also likely to be made public soon.
Historically, foreign investors have not paid this tax as it was believed that only Indian companies were subject to the levy.
In 2010, a tax tribunal ruled that MAT was not applicable to companies that do not have permanent establishment in the country.
