Lok Sabha on Friday approved a bill to amend the Taxation Laws. This will end retrospective taxation of capital gains arising out of sale of assets located in India. This is expected to settle cases such as Cairn and Vodafone, beside others, provided they also take one step forward.
“The Bill proposes to amend the Income-tax Act, 1961 so as to provide that no tax demand shall be raised in future on the basis of said retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before May 28, 2012,” the statement of objects and reasons of the bill said. May 28, 2012 was the date when Finance Bill 2012 got assent of the President.
The bill further proposed to provide that demand raised for indirect transfer of Indian assets made before May 28, 2012 will be nullified. However this will be subjected to conditions such as withdrawal or furnishing of undertaking by the company concerned for withdrawal of pending litigation and furnishing of an undertaking to the effect that no claim for cost, damages, interest, etc., shall be filed.
Once these conditions are fulfilled, the Government will refund the tax amount paid by the companies. It is estimated that the government will have to pay around ₹8,100 crore, out of which Cairn alone will get around ₹7,900 crore . There is another provision to amend Finance Act 2012 which will result in closure of the matter after the company concerned withdraws the case.
This bill has been brought at a time, when a French court ordered freezing certain Indian government properties in the case pertaining to Cairn Energy after the company alleged that Indian government was not paying according to an award by 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 already filed an appeal. Earlier, another award went against India in a matter related with Vodafone. The government has filed an appeal in the Singapore High Court.
In both and other 15 cases, tax demands were validated by amendments in the Finance Act 2012, which the government feels, have invited a lot of criticism. “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 created in a few cases continues to be a sore point with potential investors, the bill said.