Budget 2016: Given that Prime Minister Narendra Modi had said that the retrospective tax was a matter of the past while addressing a delegation of businessmen led by French President Francois Hollande last month, it was expected that the government will find a way to resolve the legacy tax cases of UK-based Vodafone and Cairn. But finance minister Arun Jaitley just announced a scheme that could be taken as a partial relief. This might fall short of resolving these cases. But the positive development is that now these companies have a statutory window to resolve these cases.
Jaitley said: “I would like to reiterate that we are committed to provide a stable and predictable taxation regime. We will not resort to such (retrospective) amendments in future.” While he announced that the high-level committee, “which would oversee any fresh case where the assessing officer proposes to assess or reassess the income in respect of indirect transfers by applying the retrospective amendment”, will now be headed by the revenue secretary; for past cases like Vodafone and Cairn, he proposed a one-time scheme of dispute resolution.
The problem here is even this will be subject to “their agreeing to withdraw any pending case lying in any court or tribunal or any proceeding for arbitration, mediation etc. under BIP”’ and they will have to settle the case by paying the tax arrears, though their interest and penalty liability will be waived.
While Vodafone is facing an initial tax demand of about Rs 8,000 crore for its $11 billion acquisition of Hutchison Whampoa’s India telecom business in 2007, the Cairn case pertains to a Rs 10,247-crore tax demand related to the internal reorganisation of Cairn Energy done in October 2006.
The Budget also proposed, “A taxpayer who has an appeal pending as of today before the commissioner (appeals) can settle his case by paying the disputed tax and interest up to the date of assessment. No penalty in respect of income-tax cases with disputed tax up to R10 lakh will be levied.”