In the Vodafone judgement which said the relevant transaction being a genuine FDI deal between two non-residents are not taxable in India, the Supreme Court had also highlighted the need for legislation on general anti-avoidance rule (GAAR).
Anti-avoidance provisions are useful in the context of transactions whose real nature is suspect, by enabling the tax authorities to go behind the veil and re-define the transaction.
According to top sources in the committee, which met on February 24 for over two hours, the members were all on one page when it came to taxing the corporates on such transactions and sales. The current system is not strong and transparent enough to deal with such cases, they felt.
Before the Citigroup stake sale, the regional parties and Left parties on the panel were to submit a dissent note on certain clauses of the DTC. After the Vodafone Essar tax judgement, and the Citigroup stake sale, members felt that the state of affairs in government systems of calculating taxes could not be allowed to continue, said a member of the panel.
The entire meeting on was on the Citigroup stake sale. The tax liability of that sale lies in the United States, while it represents a flight of capital from India, said a member. Members also felt that you cannot blame the Supreme Court for the Vodafone judgement, just the non transparent government system, added the member.
The Citi bank group sold all of its 9.85% stake in HDFC bank last week for a pre tax gain of $1.1 billion and a post tax (US tax liability ) gain of $ 722 million.
Out of the 212 clauses of the Bill, only 50 have been gone into so far. But the report will be finalised soon, the draft was discussed on 24th, he said.
Sources add that the mood was for a transparent, clearer system of taxation especially in the climate now where growth rates were slowing and Foreign Direct Investment inflows were
The DTC and the GST were mired in political intractability, but these two judgements have eased the way for the government, said a source. Committee chairman Yashwant Sinha, who had had a running battle with the government on several issues has also decided to finalise the report quickly, as early as the Budget session said a source.