MAT : Findings and Recommendations of Justice A. P. Shah Committee

MAT : Findings and Recommendations of Justice A. P. Shah Committee

Question. The government of India has accepted the suggestions of the Justice A. P. Shah Committee on MAT for FIIs. What is MAT? Discuss the summary of findings and recommendations of the Justice A. P. Shah Committee as well.

About MAT

- The controversy of MAT revolves around its applicability to FIIs due to inconsistent rulings of Authority for Advance Rulings on the issue

- MAT was introduced in India through Finance Act and US was the first country to introduce such as alternative minimum tax through tax reforms in the 1960s

Summary of the Findings

- To interpret existing fiscal statutes, CBDT circulars can be used

- Section 2(17) of the IT Act specifies the term company includes foreign companies and section 2 states that this Act, unless context requires, states otherwise.

- Section 115JB is applicable to FIIs/FPIs, global accounts need to be compiled but this obligation is absent in legislative intent

- Section 115JB does not cover FII/FPI and another interpretation is not workable

- Committee has not expressed any view on whether foreign company with PE/Place of Business in India was covered under section 115JB

- FIIs/FPIs place of business has been judicially interpreted to indicate permanent and specific location in the nation from where a company carries out business

- Non applicability of charging provision in light of computational failure under section 115JB(2) of the IT Act

- There is interplay of section 115JB and Section 10(38) of the IT Act

- Section 115AD of the IT Act introduced in 1993 provides for separate scheme for taking incomes of FIIs/FPIs emerging from Indian securities at a concessional rate

- FIIs/FPIs are not governed by regulatory regime of the Companies Act

- Interpretation of Section 115JB in context of section 90 and 90(2) and the DTAAs was as considered

- FIIs are open ended investment funds permitting investors to enter and exist daily on basis of NAV of the fund

- Unanticipated tax liability pertaining to previous years have to be borne by current investors acting as a trigger for investors to exit

- Since MAT was introduced in 1996, it had never been levied on FIIs/FPIs which were governed by the beneficial tax scheme under 115AD

- None of the BRIC countries levy MAT

- Some OECD nations levy MAT but not on foreign companies till they have physical presence in such nations


The following recommendation were made by the committee

- Amendment to Section 115JB of the IT Act indicating complete inapplicability of MAT Provisions to FIIs/FPIs

Facts and Stats

- MAT was introduced in India through the Finance Act of 1987 vide section 115J of the IT Act 1961

- This tax was introduced to facilitate taxation of zero tax firms or companies which despite showing high profits in books and accounts were paying marginal or no tax through loopholes in tax concessions

- MAT involved levying a minimum tax on these companies through certain percent of their book profits under Companies Act

- MAT became defunct in 1991-1992 and was reintroduced in 1996
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