Finance Ministry notifies separate rules for Vodafone to settle retrospective tax dispute
This was necessary as the telecom major faced validation of tax demand under Section 119 introduced in the Finance Act 2012
The Finance Ministry will now be able to settle the taxation dispute with Vodafone as it has notified new Relaxation of Validation Rules.
The Vodafone case under retrospective taxation is different from that of Cairn and other cases. While the telecom major had faced validation of tax demand under Section 119 introduced in the Finance Act 2012, in the case of Cairn and others, the tax demands were issued after the 2012 amendment under Section 9 relating to indirect transfer of Indian assets. Keeping this in mind, separate rules were required for Vodafone.
Meanwhile, there is no change in the basic structure of rules notified now and the set of rules notified on October 1 under the new law burying retrospective taxation. There will be conditions prescribing the companies concerned to irrevocably withdraw, discontinue and not pursue any law suits, arbitration, conciliation or mediation, either in India or abroad. They will have to withdraw proceedings to enforce or pursue attachment in respect of any award against the Republic and/ or all Indian affiliates. While two conditions are related with a structure for dealing with possible litigations in future, the final condition is about public declaration.
The concerned company will also have to issue a public notice or a press release to inform that any claims no longer subsist and indemnity against any claims made.
For the entire mechanism, a new sub part, ‘J’ and rules ‘11UE & 11UF’ have been inserted in the Income Tax Rules 1962. The title of the sub part is ‘Indirect transfer prior to 28th May, 2012 of assets situate in India’. There are four forms and an appendix to give effect to the amendment made by the 2021 Finance Act.
The interested company will have to submit the undertaking in form 1 within 45 days from the date of commencement of the rules, which is October 1. Post that, the tax authority will have 15 days to pass an order and issue a certificate in Form 2. From the date of receipt of this form, the entity concerned will have two months to withdraw the litigation(s) and inform the Department via Form 3. Based on that, the jurisdictional Principal Commissioner or Commissioner will issue directions in form 4, stating that the tax demand orders shall be deemed to have never been passed. This order will be binding on the Assessing Officer (AO), who will revoke the attachment (if any) and issue a refund within 15 days.
The new Finance Act amended the Income-Tax Act, 1961 and the Finance Act, 2012 to ensure that any demand raised for offshore indirect transfer of Indian assets made before May 28, 2012 will be nullified subject to some conditions like withdrawal of litigations. Once these conditions are fulfilled, the government will refund the tax amount paid by the companies.