Policy

Govt junks the retrospective tax law

Shishir Sinha New Delhi | Updated on August 06, 2021

Nirmala Sitharaman   -  PTI

Cairn, Voda, others to get back the money paid if they withdraw cases against India

In a move intended to settle the retrospective tax disputes with companies such as Cairn Energy and Vodafone, Finance Minister Nirmala Sithraman on Thursday moved a Bill in the Lok Sabha to repeal retrospective taxation of capital gains from sale of assets located in India by entities registered abroad.

The Bill proposes to amend the Income-tax Act, 1961 and the Finance Act, 2012 to provide that tax demands raised on the basis of the 2012 retrospective amendment for any indirect transfer of Indian assets, if the transaction was undertaken before May 28, 2012, shall be “deemed never to have been passed or made”. It was on May 28, 2012 when the Finance Bill, 2012 got the President’s assent.

Riders for no tax demand

Today’s Bill also envisages that no tax demand will be raised in future for transactions made before May 28, 2012 and the demand already raised will be ‘nullified’ with some conditions. The riders are: The company concerned will have to withdraw legal suits and the government will refund the amount paid in these cases without any interest thereon. Another amendment stipulates closure of the matter after the company concerned withdraws the case.

 

Awards against India

This Bill comes at a time when a French court has ordered freezing of certain Indian government properties in the case pertaining to Cairn Energy after the company alleged that India is not paying up the award given by The Hague-based Arbitral Tribunal on December 21, 2020. According to the award, India is to pay Cairn $1,232.8 million plus interest and $22.38 million towards arbitration and legal costs. India has filed an appeal.

Earlier, another award went against India in the Vodafone issue. The government has filed an appeal in the Singapore High Court on this, too.

In these, and 15 other, cases, the tax demand was validated by the Finance Act, 2012 amendments.

“In the past few years, major reforms have been initiated in the financial and infrastructure sector which has created a positive environment for investment in the country.

“However, this retrospective clarificatory amendment and consequent demand in a few cases continues to be a sore point with potential investors,” the Bill states.

A senior official told BusinessLine that with this the ‘government is taking the bull by the horns’. Asked if this Bill had been brought under pressure, he said: “We are a sovereign and they (Cairn) are a corporation. If the matter goes on like this, it will be a long-drawn battle... That is why companies are also talking privately with the government for settlement.”

Amit Maheshwari, Tax Partner with AKM Global, terming this a big development, felt it should not have taken nine years. With this, the government will not pay any interest on refund dues and other costs which would run into hundreds of millions of dollars in some high-profile cases like Cairn. Overall, this will boost the confidence of taxpayers and help India continue to attract record FDI,” he said.

 

Being pragmatic

Aravind Srivatsan, Tax Leader with Nangia Andersen, feels the action shows a few things including that the government is willing to reverse a long-held non-negotiable position and being pragmatic to business sentiments and respecting the supremacy of the Supreme Court.

“Global boards will no longer pick on India on the retro tax but look at current trends such as the PLI scheme, ease of doing business and push the case for examining India for its intrinsic strengths and make a fresh pitch to make India a much larger and integral part of worlds supply chain,” he said.

 

Published on August 05, 2021

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