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Finance minister Nirmala Sitharaman on Monday told the Rajya Sabha that the amendment to the 2012 retrospective income tax law will not dilute India’s sovereign right to tax.

The Rajya Sabha on Monday passed the bill scrapping the retrospective amendment that had sparked a flurry of litigation, including international arbitration by Vodafone Plc and Cairn Energy Plc, which India lost last year.

The Taxation Laws (Amendment) Bill, 2021, proposes to amend “a clarificatory amendment" that was brought in by the Congress-led United Progressive Alliance (UPA) government in 2012 and became contentious because of its retrospective application, the finance minister said while moving the bill.

The bill would not in any way dilute India’s sovereign right to tax, Sitharaman said. “We are keeping the sovereign right of India to tax absolutely intact," she told the Upper House. The bill was passed by the Lok Sabha on Friday.

The controversial amendment was made about nine years ago, ignoring a Supreme Court ruling, she said. The amendment was made after the court had in 2012 ruled that gains arising from indirect transfer of Indian assets were not taxable under the extant provisions of the Income Tax Act.

“The idea is, a sovereign government has the right to tax, but to apply it in retrospect has created a lot of discontentment," she said. “It was a clarificatory amendment against a Supreme Court order brought in by the Congress and they didn’t do any correction to it."

A former finance minister of the Congress had welcomed the bill when it was passed by the Lok Sabha on 6 August and said it should have come early, Sitharaman pointed out in reaction to a walkout by the party from the House. She, however, did not name the former finance minister.

The amendment would send a message to global investors that “India is a responsible democracy. We take our laws seriously, particularly the tax-related laws. We want to be sure that there is consistency and without consistency in your taxation, obviously, businesses are not going to be able to go forward," the minister said.

The Rajya Sabha on Monday passed two other key bills as well, the Tribunal Reforms Bill, 2021, and the Central Universities (Amendment) Bill, 2021.

Leader of opposition in Rajya Sabha Mallikarjun Kharge earlier lashed out at the government over inclusion of the Taxation Laws (Amendment) Bill in the supplementary list of business, alleging that this is the government’s way of ensuring the passage of bills.

The amendment bill was moved on Thursday in the Lok Sabha and passed the next day. The move is widely seen as investor-friendly and also brings to an end messy litigation and arbitration, especially with Cairn, which has seen the company staking claim to India’s overseas assets.

It proposes to amend the I-T Act, 1961, and the Finance Act, 2012, which were amended during the tenure of then finance minister Pranab Mukherjee to introduce the retrospective tax law, which has since come to stand for all that’s bad in India’s tax regime.

“The proposed amendment to change the retrospective nature of taxation of indirect transfer would also have to factor while determining the rules on how to cover the refund cases where no appeals are filed and/or pending or where they are settled under the VsV (Vivad se Vishwas) scheme," said Amrish Shah, partner at consultancy firm Deloitte India.

“That would be a fair and equitable way to also reward taxpayers who have either not disputed or settled the dispute on this count," Shah added.

letters@hindustantimes.com

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