New Delhi, Aug 5: In a big and unexpected move that may facilitate settlement of the Indian government’s international tax arbitration with Cairn Energy and Vodafone, finance minister Nirmala Sitharaman on Thursday introduced the Taxation Law Amendments Bill, 2021, which provides for withdrawal of retrospective amendments to the tax laws made in though the Finance Act of 2012.
The Bill proposes to amend the Income-tax Act, 1961, providing that no tax demand will be raised in future on the basis of the said retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before 28th May, 2012. (i.e., the date on which the Finance Bill, 2012 received the assent of the President).
“It is further proposed to provide that the demand raised for indirect transfer of Indian assets made before 28th May, 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. It is also proposed to refund the amount paid in these cases without any interest thereon,” said the statement of object and reasons of the Bill.
In wake of the tax litigation between Vodafone and the central government, the Supreme Court ruled in 2012 that gains arising from indirect transfer of Indian assets are not taxable under the extant provisions of the Act.
The then Congress-led government had introduced amendments to the Income Tax Act, via the Finance Act, 2012, with retrospective effect. The amendment made the gains arising from sale of the share of a foreign company taxable in India if such share, directly or indirectly, derives its value substantially from the assets located in India.
In December last year, Cairn Energy won an international arbitration on the matter and the Indian government was ordered to refund $1.4 billion to the firm. Over the past few months, Cairn Energy has been filing lawsuits overseas to acquire Indian assets abroad as a part of measures to enforce the award.
Before that in September last year, The Hague-based arbitration court also ruled in the favour of Vodafone.
