Govt To Amend Income Tax Act To Nullify Retrospective Tax Demands

With this, the government proposed to refund companies in disputes over retrospective tax, including Vodafone Group and Cairn Energy.

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New Delhi: The government on Thursday introduced a Bill in the Lok Sabha seeking to bury retrospective tax demands it had made on companies such as Cairn Energy Plc and Vodafone Group of UK.

Finance minister Nirmala Sitharaman introduced The Taxation Laws (Amendment) Bill, 2021 in the Lok Sabha which seeks to withdraw tax demands made on indirect transfer of Indian assets prior to May 28, 2012. (May 28, 2012 was the date when the 2012 Finance Act, which gave legal backing to retrospective taxation, was assented to by then President Pratibha Patil.)

With this, the government proposed to refund companies in disputes over retrospective tax, including Vodafone Group and Cairn Energy.

Both firms had won international arbitrations against levy of retrospective taxes on them.

“It is also proposed to refund the amount paid in these cases without any interest thereon,” the Bill said.

“It is further proposed to provide that the demand raised for indirect transfer of Indian assets made before 28th May, 2012 shall be nullified on fulfilment of specified conditions such as withdrawal or furnishing of undertaking for withdrawal of pending litigation,” Sitharaman said.

Analysts told Reuters that the amendment to the tax law, applicable after approval from both houses of parliament and president, could help settle at least 17 disputes over tax payments amounting to Rs 50,000 crore ($6.7 billion) or more, analysts said.

“This decision helps to clarify our position with the investors,” Tarun Bajaj, revenue secretary at the finance ministry told ET Now TV channel, adding it would help solve pending cases with Cairn Energy and Vodafone if they withdraw litigation and meet certain conditions.

The government has proposed repaying only the principle amount and not interest, he said.

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An international arbitration tribunal in The Hague last year ruled that India’s imposition of a tax liability on Vodafone, as well as interest and penalties, breached an investment treaty between India and the Netherlands.

Cairn, which has oil and gas operations in India, was awarded damages of more than $1.2 billion, plus interest and costs, in December by the Permanent Court of Arbitration at The Hague after a lengthy tussle with the Indian government over certain retrospective tax claims.

“This is a big development and will surely put a lot of uncertainty to rest,” said Amit Maheshwari, tax partner at AKM Global, a tax and consulting firm.

The government’s proposed amendment in the law comes after a French tribunal last month ordered a freeze on some 20 centrally located properties belonging to the Indian government as part of a guarantee of the amount owed to Cairn.

The government has for years defended controversial retrospective amendments in the tax law introduced in 2012 by the previous government designed to claim tax from international companies which acquired assets of Indian companies.

(With inputs from PTI and Reuters)