Non-applicability of MAT in respect of certain foreign companies [Section 115JB]

Effective retrospectively from: A.Y.2001-02

(i) Section 115JB(1) provides for levy of minimum alternate tax (MAT) in case of a company, if the tax payable on the total income as computed under the Income-tax Act, 1961, is less than 18.5% of its book profit. In such a case, the book profit shall be deemed to be the total income of the assessee-company and the tax payable by the assessee-company for the relevant previous year shall be 18.5% of its book profit.

(ii) In order to address the issue relating to the applicability of section 115JB(1) to Foreign Institutional Investors (FIIs) who do not have a permanent establishment (PE) in India, the Finance Act, 2015 amended this section to provide that in case of a foreign company, any income by way of capital gains on transactions in securities or interest, royalty or fees for technical services chargeable to tax at the rates specified in Chapter XII, is credited to profit and loss account and income-tax payable thereon is at a rate lower than the rate specified in section 115JB, the same shall be reduced from the book profits; and the corresponding expenditure will be added back, if the same is debited to profit and loss account.

(iii) However, this amendment was prospective w.e.f. A.Y.2016-17. Therefore, the issue related to applicability for assessment year prior to A.Y.2016-17 remained to be addressed.

(iv) A Committee on Direct Tax matters headed by Justice A.P. Shah, set up by the Government to look into the matter, suggested that section 115JB be amended to clarify the applicability of Minimum Alternate Tax (MAT) provisions to Foreign Institutional Investors/ Foreign Portfolio Investors (FIIs/FPIs) in view of the fact that FIIs and FPIs normally do not have a place of business in India.

(v) Keeping in mind the suggestions of the Committee and in order to ensure certainty in taxation of foreign companies, Explanation 4 has been inserted in section 115JB with retrospective effect from 01.04.2001 to provide for non-applicability of levy of MAT under section 115JB in the following cases:

	Existence of DTAA with the country of residence of the foreign company	Additional condition to be satisfied for non-applicability of MAT
(i)	The foreign company is a resident of a country or a specified territory with which India has a DTAA under section 90(1) or the Central Government has adopted any agreement between specified associations for double taxation relief under section 90A(1)	It should not have a permanent establishment in India in accordance with the provisions of such Agreement
(ii)	The foreign company is a resident of a country with which India does not have an agreement of the nature referred to in clause (i) above	It is not required to seek registration under any law for the time being in force relating to companies.