Authorities amends Earnings Tax Act to repeal retroactive tax claims

After the setbacks by Vodafone and Cairn, the Union government decided on Thursday to end retroactive taxation by amending the Income Tax Act.

A bill to amend the Income Tax Act has been tabled in Lok Sabha to mitigate the feared retrospective amendments to the 2012 Finance Act.

The government has proposed that no retrospective tax claim will be made if the transaction occurs before May 28, 2012

“Bill is proposing to amend IT law to ensure that, based on this retrospective change, no future tax claims will be made on indirect transfers of Indian assets in transactions prior to May 28, 2012,” the government said. “In recent years, major reforms have been initiated in the financial and infrastructure sectors that have created a positive environment for investment in the country. However, this retrospective clarification and the resulting demand in some cases is still a sore point. ”With potential investors. The country is now at a point where rapid economic recovery from the COVID-19 pandemic is the order of the day and foreign investment plays an important role in promoting faster economic growth and employment, “the government said .

After the Supreme Court ruled in 2012 that the Vodafone Group’s interpretation of the Income-Tax Act of 1961 was correct and that it did not have to pay tax on the share purchase, Finance Minister Pranab Mukherjee circumvented the ruling by proposing an amendment to the Finance Act, which gave the IT department the power to tax such transactions retrospectively.

The law was passed by parliament this year and the tax burden fell back on Vodafone.

The same law was also used to tax the transfer of shares in Cairn Energy Plc.

Cairn, a Scottish company, invested in the oil and gas sector in India in 1994 and made a huge oil discovery in Rajasthan a decade later. In 2006 it listed its Indian assets on the BSE. Five years later, the government passed a retroactive tax law billing Cairn Rs.10,247 billion plus interest and penalties for the reorganization associated with the IPO.

The state expropriated and liquidated Cairns’ remaining stake in the Indian company, confiscated dividends and withheld tax refunds to collect part of the debt.

Cairn has challenged the move in an arbitration court in The Hague, which awarded it $ 1.2 billion (over Rs.8,800 billion) plus costs and interest in December, which increased to $ 1.725 million in December 2020 (12,600 billion rupees).

The company, which previously said the verdict was binding and enforceable under international contract law, has since asked Indian government officials for the money to be paid out. But the government has not agreed to pay.

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