Government, Castleton Investments agree to expedite Supreme Court hearings on tax row

NEW DELHI: The government and foreign portfolio investor Castleton Investments Limited have agreed to expeditious hearings in the Supreme Court on their tax dispute, a development which could resolve the raging row over the imposition of minimum alternate tax (MAT) on such investors.

Attorney-General Mukul Rohatgi has agreed to a plea from senior lawyer Harish Salve, representing Castelton, that the apex court should hear the case as soon as possible.

Rohatgi said the government was also keen on a quick resolution of the case, which has been pending since 2013 and which can settle the MAT issue one way or the other.

Mauritius-based Castleton had approached the Supreme Court against a 2012 ruling by the Authority for Advance Rulings (AAR), which had said the company would have to pay MAT on capital gains arising from sale of shares.

“We are also keen on an expeditious resolution of the case,” another senior government official told ET.

In its ruling, AAR had said that the income tax law does not make a distinction between Indian and foreign companies, and therefore MAT is applicable to them. However, the ruling went unnoticed till earlier this year when the tax authorities started demanding back taxes.

This created consternation as India’s tax laws allow the I-T department to reopen tax assessments going back six years. The government has subsequently clarified that MAT will not apply to investors coming through countries with which India has a tax treaty, but is hopeful that the Supreme Court’s verdict will settle the entire issue of applicability of MAT on capital gains made by foreign portfolio investors (FPIs).

In the 2015 Budget, Finance Minister Arun Jaitley has clarified that MAT would not be levied on capital gains made by FPIs but this relief is available prospectively from the current fiscal, 2015-16.

The assessing officers have issued demands in respect of previous years, reviving the charge of ‘tax terrorism’ by the Indian government.

Earlier this week the government informed Parliament that 68 notices involving Rs 602 crore of tax demand have been issued, but the amount could rise as assessing officers can open cases relating to past six years.

The government is not keen on providing relief retrospectively and has been suggesting that investors can seek relief from courts.

“We have had little choice but to respect these decisions. The rule of law cuts both ways. We cannot say it is undermined when we take retroactive actions, and at the same time seek to override, retroactively, the decisions of our institutions,” Finance Minister Arun Jaitley wrote in the Financial Times of London earlier this week.