Clearing Castleton PDF Print E-mail
Thursday, 06 August 2015 01:08
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Santosh's edit

There are several other cases which need resolution

All those looking for a quick resolution to the imposition of MAT on FPIs, more so since the AP Shah committee submitted its report on this a fortnight ago, have reason to be disappointed. The government, wisely, did not make the report public immediately and sought time to study it. But few expected the kind of delay that is being envisaged now. Since there was a parallel Supreme Court hearing in the Castleton case—on whether FPIs that don’t have a permanent establishment in India can be taxed—it was expected the government would quickly firm up its view on the Shah report and inform the SC of its decision, so that the court could make a ruling. Attorney General Mukul Rohatgi, however, seems to have asked for a long time to study the report since the case is now to be heard next only on September 29. While it is not clear whether the Shah panel has said FPIs without a permanent establishment can be taxed—while the Castleton case went against the FPIs, there are several other rulings of the Authority on Advance Rulings that have gone in their favour—what is not clear why the government is delaying matters so much. Whatever the Shah panel’s view, and whatever the government’s view on this, should have been communicated to the court early.


While the taxman has sent MAT notices for just R602 crore on FPIs, the Castleton case—or the AP Shah recommendations—has larger ramifications. Around R40,000 crore of MAT notices can theoretically be sent based on a pro-taxman ruling. It is not just this case in which the government is delaying matters, the progress on the arbitrations around the 2012 retrospective tax amendment has also been painfully slow. While the government was quick to decide not to appeal the Bombay High Court’s ruling in the Vodafone and Shell transfer pricing cases, the main Vodafone and Cairn arbitration cases have not yet got off the ground. Given the large number of pending tax cases—the Shah panel was supposed to look at several of them also after the MAT case—such delays only hurt the country’s image as a safe investment destination.


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