The Finance Ministry has notified rules to implement the new law burying retrospective taxation. These propose a framework to end past litigations and a mechanism to indemnify from any possible future litigations.

The rules have nine specified conditions as explanation for the law. Six of these conditions prescribe that companies concerned will 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 on public declaration.

“The declarant and all the interested parties shall indemnify, defend and hold harmless the Republic of India and Indian affiliates from and against any and all costs, expenses (including attorneys’ fees and court’s fees), interest, damages, and liabilities of any nature arising out of or in any way relating to the assertion or, bringing, filing or maintaining of any claim, at any time after the date of furnishing the undertaking,” one of the conditions said.

Another condition said, “The declarant and all the interested parties shall refrain from facilitating, procuring, encouraging or otherwise assisting any person (including but not limited to any related party or interested party) from bringing any proceeding or claims of any kind related to any relevant order or orders, or in relation to any award, order, judgment, or any other relief against the Republic of India or Indian affiliates in connection with any relevant order or orders.”

Public notice

The concerned company will also have to issue a public notice or a press release to inform that any claims not longer subsist and indemnity against any claims made.

The rules define Indian affiliate as any department, agency, instrumentality, public sector company or any other entity of the Republic of India owned directly or indirectly in India or any other country or territory outside.

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For the entire mechanism a new sub part, ‘J’ and rules ‘11UE & 11UF’ have been inserted in the Income Tax Rules 1962. 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 also to give effect to the amendment made by the 2021 Finance Act.

Timeline

Interested company will have 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 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 refund within 15 days.

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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. Seventeen tax demands were validated by the retrospective amendment, out of which the government got tax only in four cases.

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