Parliament clears Bill to end retrospective tax

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August 10, 2021 12:30 AM

On Friday, speaking in the Lok Sabha, the minister had said the 2012 legislation, which is virtually being invalidated with the clarificatory amendment, was both ‘bad in law’ and ‘bad for the investor’ sentiments.

Of course, the amounts collected under retrospective tax claims — about `8,100 crore — will now be refunded sans interest.Of course, the amounts collected under retrospective tax claims — about `8,100 crore — will now be refunded sans interest.

The Rajya Sabha on Monday approved the Taxation Laws (Amendment) Bill, 2021, which seeks to amend the Income Tax Act to effectively withdraw tax demands made by India on 17 companies, including Vodafone and Cairn Energy, on the capital gains from deals prior to May 28, 2012. These demands were made on the premise that the deal values were impacted by substantial underlying Indian assets.

Last Friday, the Lok Sabha had given its nod to the Bill.

Replying to the debate in the Upper House, Finance Minister Nirmala Sitharaman said, “[The Bill] is putting an end to this ghost which we have been carrying all these while from 2012 … I seek support of the House to make India look very clear, transparent and fair taxation land. Therefore, this whole thing about retrospective amendment Bill, which was brought in, since then we were bearing the negativity of this all over the world.”

On Friday, speaking in the Lok Sabha, the minister had said the 2012 legislation, which is virtually being invalidated with the clarificatory amendment, was both ‘bad in law’ and ‘bad for the investor’ sentiments.

While the move has been hailed by taxpayers and tax experts as bold and pragmatic, the fact remains that the NDA government has hitherto been seen pursuing these tax cases aggressively. It even raised `7,900 crore from Cairn by seizing and selling the UK-based energy company’s stake in its erstwhile India unit, confiscating dividends and withholding refunds. This apparently reflected an ambivalence if not a reversal of the policy articulated by the government. Of course, the amounts collected under retrospective tax claims — about `8,100 crore — will now be refunded sans interest.

Both Vodafone and Cairn secured arbitration orders in their favour in September and December 2020, respectively. Sitharaman said once the two lawsuits were settled, the government had started consultations with various stakeholders, including the law ministry.

Finance secretary TV Somanathan said on Thursday, “We are consistent with earlier position — we have the sovereign right to tax and we preserve that right. Still we don’t accept that the sovereign right of Parliament is being arbitrated in foreign courts. But we won’t enforce tax demands based on retrospective change and amount collected would be refunded without interest.”

In the case of Cairn Energy, the Permanent Court of Justice at The Hague had asked the Indian government to return the value of the shares it had seized and sold, tax refund withheld and dividend confiscated to enforce the retrospective tax demand.

With the government refusing to honour the award, the company moved court in the US to seize assets of Air India. It also got an order from a French court to freeze 20 Indian properties in Paris to recover $1.2 billion-plus interest and penalties.

According to the Bill passed by both Houses, the retrospective provisions aren’t to be technically withdrawn, but their application would be curtailed subject to riders like withdrawal of the litigation, including those under arbitration and bilateral investment treaties by the taxpayers concerned. Also, it is being legislatively sanctioned that no tax demand will be raised in future on the basis of the 2012 retrospective amendment for any indirect transfer of Indian assets. Of course, the capital gains tax on indirect transfer will continue to apply for all transactions post the 2012 amendment.

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