Rajya Sabha clears Bill on scrapping retro tax

Parliament on Monday cleared a Bill to bury the ghost of retrospective taxation which had created 'discontent' among foreign investors even as Finance Minister Nirmala Sitharaman assured the Rajya Sabha that the legislation does not dilute the sovereign right of India to levy taxes.

The Rajya Sabha returned The Taxation Laws (Amendment) Bill, 2021, after a brief discussion. Opposition parties, Congress, DMK and TMC had walked out of the House to protest against listing of the Bill in the supplementary business circulated just hours before the House took it up. The amendment bill, passed by the Lok Sabha last week, will enable the government to withdraw all tax demands made on companies like Cairn Energy and Vodafone using a 2012 legislation on indirect transfer of Indian assets prior to May 28, 2012.

The 2012 legislation, commonly referred to as the retrospective tax law, was enacted after the Supreme Court in January that year rejected proceedings brought by tax authorities against Vodafone International Holdings BV for its failure to deduct withholding tax from $11.1 billion paid to Hutchison Telecommunications in 2007 for buying out its 67 per cent stake in a wholly-owned Cayman Island incorporated subsidiary that indirectly held interests in Vodafone India Ltd.

The Finance Act 2012, which amended various provisions of the Income Tax Act, 1961 with retrospective effect, contained provisions intended to tax any gain on transfer of shares in a non-Indian company, which derives substantial value from underlying Indian assets, such as Vodafone's transaction with Hutchison in 2007 or the internal reorganisation of the India business that Cairn Energy did in 2006-07 before listing it on local bourses. Using that law, tax authorities in January 2013 slapped Vodafone with a tax demand of Rs 14,200 crore, including principal tax of Rs 7,990 crore and interest. This was in February 2016 updated to Rs 22,100 crore plus interest.

Replying on the debate, Finance Minister Nirmala Sitharaman said, "This (bill) is appealing enough and putting an end to this ghost which we have been carrying all these while from 2012." She stressed that the government has a right to tax, "but to apply it in retrospective has created a lot of discontentment". "I seek support of the House to make India look very clear, transparent and fair taxation land. ...this whole thing about retrospective amendment bill, which was brought in, since then we were bearing the negativity of this all over the world."

The minister also told the House the bill provides for no payment of interest on refunds made under this and the parties seeking relief would not pursue further appeals or litigation in these cases.