Lok Sabha passes Bill to settle retrospective taxation

NEW DELHI: Lok Sabha on Friday passed the Taxation Laws (Amendment) Bill, 2021, which will likely help settle disputes with Cairn Energy Plc, Vodafone Group Plc and 15 other companies over retrospective tax demands raised by the Union government.

The Bill was cleared in the lower house, amid uproar by opposition parties, after finance minister Nirmala Sitharaman made a brief statement about the need for the amendment.

Sitharaman said the idea was to fulfil commitments given by the Bharatiya Janata Party (BJP), Prime Minister Narendra Modi and the former finance minister late Arun Jaitley. The minister also explained that during the period when these cases were sub-judice at various platforms, the government could not make legislative changes and had to wait for their logical conclusion in courts.

“We are amending the law to fulfil that commitment,” Sitharaman added.

Sitharaman pointed out that the 2012 Finance Act provision that amended the Income Tax Act to make offshore transactions involving Indian assets--including those executed prior to the change in law, taxable in India--was a “a matter of prolonged litigation.”

After BJP come to power in 2014, the Modi government had said it did not believe in applying the provision retrospectively.

In principle, the Modi administration did not agree with the retrospective use of the anti-evasion provision but could not act as the case was going on, Sitharaman said.

The arbitration was decided upon in the case of dispute with Vodafone Plc. last September and in the case of Cairn Energy Plc. in December.

The new Bill seeks to nullify tax demands raised in 17 disputes, subject to riders. Conditions for dropping the tax claims include withdrawal of pending litigation and dropping of claim for cost, damages, interest, etc., by the disputing party. For amicable settlement of disputes, the government will also refund amount paid in these cases without any interest.