According to the recent verdict of Authority for Advance Ruling Minimum alternate Tax (MAT) is not payable by foreign Companies not having a permanent establishment in India.
Minimum alternate Tax (MAT) is a levy typically aimed at collecting tax from Companies enjoying exemptions. Minimum alternate Tax under 115JB of the Income Tax Act was incorporated with the specific purpose of bringing under the tax net companies that avoid paying tax by taking advantage of the various incentives offered by the Government.
The AAR’s verdict, dated July 23, 2010, was on an application filed by Mauritius-based Praxair Pacific. The foreign company asked AAR to clarify whether it is liable to pay MAT under Section 115 JB of the Income-Tax Act, on account of the transfer of shares to its Indian subsidiaries. The Mauritius company was proposing to transfer 74% of its shareholding in Indian subsidiary Jindal Praxair to its wholly-owned Indian subsidiary Praxair India.
The AAR clarified that Praxair Pacific is not liable to pay MAT in India. AAR contention is based on Section 115 JB of Income-Tax Act which is not applicable to foreign companies. The AAR pointed out that amendments in Section 115 JB brought in by the 2002 Finance Bill had clarified that MAT is applicable only to domestic companies. The AAR further said that Section 115 JB of Income-Tax Act is not designed to be applicable to a foreign company who has no presence or permanent establishment in India.
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