Retro tax no more; refunds to Cairn, Vodafone demands likely: 10 things to know
The move to scrap retrospective tax law comes as Cairn is threatening to confiscate overseas Indian assets to cover for its arbitration award
Central government has finally found it in its heart to bury the retrospective tax law. Amendments to the Income-tax Act, 1961, were introduced in the Lok Sabha on Thursday for withdrawing all retrospective tax demands raised under the contentious law and issue refunds, without interest, against such.
The move comes as Cairn Energy is threatening to confiscate overseas Indian assets following an international arbitration tribunal order in its favour. The tribunal had overturned the retrospective tax demand raised by India and ordered refund of shares sold, dividend confiscated and tax refunds withheld to recover such demand.
There is also the Vodafone retrospective tax case, where the arbitration tribunal ruled against India. While India has no liability in this case, it still has to pay $1.2 billion arbitration award to Cairn.
"This is indeed a very pragmatic step by the government and should help it contain the widespread litigation in cases similar to Vodafone and Cairn. A worthy battle to lose,” said Kumarmanglam Vijay, Partner, J Sagar Associates.
Here's a look at what retrospective tax law was and what happens after its end:
- In 2012, Indian government had retrospectively amended Income-tax Act to justify the retrospective tax demand raised against Vodafone for buying Hutchison Telecommunication's stake in Hutchison Essar.
- The amendment made the Section 9(1)(i) of the Income-tax Act applicable retroactively to generate tax demands on income through or from the transfer of an asset or a capital asset situated in India in consequence of the transfer of a share or interest in a company or entity registered or incorporated outside India.
- In 2014, the government once again exercised the 2012 amendment to raise tax demand against Cairn energy for an internal corporate restructuring carried out in 2006.
- With the retrospective tax law gone, government has said that any tax assessment, reassessment or order under this rule made before May 28, 2012, the day it came into effect.
- Demand under retrospective tax law raised before May 28, 2012, shall be nullified on fulfilment of specified conditions such as withdrawal or furnishing of undertaking for withdrawal of pending litigation and furnishing of an undertaking to the effect that no claim for cost, damages, interest, etc. shall be filed.
- If the taxpayers paid the tax demand raised against them under retrospective tax law, then such amount shall be refunded to them, but no interest under section 244A shall be paid on that amount.
- Income Tax demands had been raised in 17 cases under retrospective tax law. In two cases assessments are pending due to stay granted by High Court.
- Arbitration under Bilateral Investment Protection Treaty with the United Kingdom and the Netherlands had been invoked in four cases, two of which India lost - against Cairn Energy and Vodafone. While the government has no liability against Vodafone, it still has to pay $1.2 billion to Cairn as arbitration award.
- The retrospective tax law had spooked investors nine years ago, and continued to be a sore point for potential investors now, government acknowledged.
- Centre expects the removal of retrospective law would lead to foreign investment growing in India, a much needed development as the country looks to reverse the impact of Covid-19 pandemic.
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Business NewsNewsIndiaRetro tax no more; refunds to Cairn, Vodafone demands likely: 10 things to know
First Published:5 Aug 2021, 07:31 PM IST
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