Consider the following statements regarding MAT:-
1. MAT is a way of making companies pay minimum amount of tax.
2. Shah Committee recommended that MAT can be levied on 'book profits' computed as per accounts maintained under the Companies Act.
3. Income arising from free trade zones, charitable activities, investment by venture capital companies is also included under preview of MAT.
4. AP Shah Committee has been constituted to examine MAT levied on FIIs.
Which of the following statements are correct?
Consider the following statements regarding MAT:-
1. MAT is a way of making companies pay minimum amount of tax.
2. Shah Committee recommended that MAT can be levied on 'book profits' computed as per accounts maintained under the Companies Act.
3. Income arising from free trade zones, charitable activities, investment by venture capital companies is also included under preview of MAT.
4. AP Shah Committee has been constituted to examine MAT levied on FIIs.
Which of the following statements are correct?
The correct option is B 1, 2 and 4 only
In third statement – Income arising from free trade zones, charitable activities, Investment by venture capital companies is excluded. Thus the statement is incorrect. All the remaining statements are correct.
The key observations/findings of the Committee are:
1. The legislative history of MAT provisions suggests that they only apply to companies required to comply with the Indian Companies Act - FIIs/FPIs are not required to comply with the Companies Act.
2. The term 'company' for MAT purposes has to be given a contextual and not literal interpretation - it has a narrower scope here and does not include FIIs/FPIs.
3. FIIs/FPIs ordinarily do not 'establish a place of business' in India under the Companies Act but only 'carry on a business in India'.
4. MAT can be levied on 'book profits' computed as per accounts maintained under the Companies Act - a condition which does not apply to FIIs/FPIs. Where it is impossible to compute the tax, the levy of tax must also fail.
5. FIIs/FPIs have their own self-contained code for concessional taxation under the ITA and applying MAT provisions would render this separate code redundant, which does not appear to be the ITA's intention.
6. The prospective amendment made by the Finance Act, 2015 was only clarificatory in nature, and the tax authorities' interpretation of this amendment to mean that MAT applied to FIIs/FPIs prior to 1 April 2015, was incorrect.
7. Regardless of the interpretation of the applicability of MAT provisions to FIIs/FPIs, MAT will not apply where a beneficial tax treaty is available to such FIIs/FPIs. The interpretation of the Authority for Advance Rulings (AAR) to the contrary in case of Castleton was incorrect.
8. None of the BRICS countries (other than India) levy MAT. Furthermore, other countries that do levy MAT, levy the same on foreign companies/persons only if they have a presence in those countries.
1, 2 and 4 only
In third statement – Income arising from free trade zones, charitable activities, Investment by venture capital companies is excluded. Thus the statement is incorrect. All the remaining statements are correct.
The key observations/findings of the Committee are:
1. The legislative history of MAT provisions suggests that they only apply to companies required to comply with the Indian Companies Act - FIIs/FPIs are not required to comply with the Companies Act.
2. The term 'company' for MAT purposes has to be given a contextual and not literal interpretation - it has a narrower scope here and does not include FIIs/FPIs.
3. FIIs/FPIs ordinarily do not 'establish a place of business' in India under the Companies Act but only 'carry on a business in India'.
4. MAT can be levied on 'book profits' computed as per accounts maintained under the Companies Act - a condition which does not apply to FIIs/FPIs. Where it is impossible to compute the tax, the levy of tax must also fail.
5. FIIs/FPIs have their own self-contained code for concessional taxation under the ITA and applying MAT provisions would render this separate code redundant, which does not appear to be the ITA's intention.
6. The prospective amendment made by the Finance Act, 2015 was only clarificatory in nature, and the tax authorities' interpretation of this amendment to mean that MAT applied to FIIs/FPIs prior to 1 April 2015, was incorrect.
7. Regardless of the interpretation of the applicability of MAT provisions to FIIs/FPIs, MAT will not apply where a beneficial tax treaty is available to such FIIs/FPIs. The interpretation of the Authority for Advance Rulings (AAR) to the contrary in case of Castleton was incorrect.
8. None of the BRICS countries (other than India) levy MAT. Furthermore, other countries that do levy MAT, levy the same on foreign companies/persons only if they have a presence in those countries.
