Amendments are made at various stages. If this amendment?to amend the Income-Tax Act to retrospectively tax all overseas transactions involving domestic assets, essentially to tax Vodafone-type deals?had been made the first time when such a transaction had come to the notice of the government, which was possibly more than a decade ago, it could have been considered to be a clarificatory amendment. However, whether or not an amendment is clarificatory is a matter of interpretation?the mere label given by Parliament is not final. On a plain reading of the amended provision, it becomes clear that it widens the net of tax and it does so for the first time.
However, the question of clarifying the law, after the Supreme Court has categorically come to the conclusion that the law as it stood did not tax such transactions, shows scant respect for the judgment of the court. Parliament can certainly amend the law, and can also make retrospective amendments. Even assuming such an amendment is valid constitutionally, I wish the minister had boldly stated that he did not accept the result that followed from the judgment of the court, and was retrospectively changing the law rather than giving up the claim to revenue raised by the income tax department.
It is unfortunate that the government has chosen to pass this off as a clarificatory amendment?suggesting that the Supreme Court in a detailed, lucid and learned judgment failed to understand the plain meaning of simple English. The judgment ends by pointing out that if such provisions?commonly known as look-through provisions?are desired, they have to be by amendment of the law. This would imply an amendment with respect to future transactions. To call this amendment as clarificatory is less than fair to the Supreme Court.
It is clear that the government does not believe itself that the amendment is merely clarificatory. It is for this reason that it has made it expressly retrospective (that is, with effect from 01.04.62) instead of leaving it for the court to finally decide whether the change is clarificatory or a substantive change in the law.
Secondly, a provision is proposed (section 113), which validates the demand of tax and the notices issued by the revenue. On account of this, even the review petition has become irrelevant because notwithstanding the judgment of the Supreme Court, the government possibly would now assert the right to collect the tax demanded from Vodafone.
I have no doubt in my mind that no foreign investor would now have any faith in any of the institutional safeguards. The advance ruling authority, created to impart certainty by ruling in advance has also been reduced to a farce?if a final ruling of the Supreme Court can be so summary trashed by the government, what hope of finality can be attributed to the ruling of the advance ruling authority by a person or institution who is expected to invest on the basis of such decision.
It is unfortunate but true that democracies often result in people paying the price for the arrogance and obstinacy of a government. It is very clear that the income tax department somehow took its defeat in the Supreme Court as a personal insult and has persuaded the government to propose this retrograde amendment. The message also is: If you have a problem with the tax department, don?t bother going to courts, resolve it the Indian way!
The author is a former Solicitor General of India and counsel for Vodafone