In a big relief to foreign companies, Government of India has decided to bring a bill into the Parliament to amend the Income-Tax Act 1961 w.e.f. 1 April 2001 to the effect that the provisions of Section 115JB of the Act shall not be applicable to a foreign company if the foreign company is a resident of a country having DTAA with India and if such foreign company does not have a permanent establishment within the definition of the term in the relevant DTAA.

The Government of India had been considering the issues relating to taxation of foreign companies, having no permanent establishment in India. In this regard, the Government has already clarified the inapplicability of MAT provisions to FIIs/FPIs.

The proposed amendment shall come as a relief to foreign companies having no place of business/permanent establishment in India.

The amended section may provide that the provisions of Section 115JB shall not be applicable to a foreign company if:

• the foreign company is a resident of a country having DTAA with India and such foreign company does not have a permanent establishment within the definition of the term in the relevant DTAA, or
• the foreign company is a resident of a country which does not have a DTAA with India and such foreign company is not required to seek registration under Section 592 of the Companies Act 1956 or Section 380 of the Companies Act 2013.

The Finance Act, 2000, inserted section 115JB into the Income-tax Act, 1961, with effect from April 1, 2011 applicable from the assessment year 2001-02 provides for levy of Minimum Alternate Tax on companies. Section 115JB differs from erstwhile section 115JA, which provided for MAT on companies, so far as they did not deem any part or the whole of book profit as total income. However after the amendment, section 115JB provided that if tax payable on total income is less than 7.5% of book profit, the tax payable under this provision shall be 7.5% of book profit.

Mohit Singh

Mohit Singh is an advocate at the Supreme Court of India.

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