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Taxation Laws Amendment Bill to Impact retro tax cases of Cairn Energy, Vodafone.

Taxation Laws Amendment Bill to Impact retro tax cases of Cairn Energy, Vodafone.

The Union Ministry of Finance on Thursday tabled the Taxation Laws (Amendment) Bill 2021 in the lower- house (Lok Sabha) of the Parliament.

This bill seeks to nullify the amendment brought through the 2012 Finance Act which had retrospectively imposed tax liabilities on gains arising from indirect transfers of Indian assets.

The 2012 amendment was brought with an intention to overrule the verdict of the Apex Court in the Vodafone 4G case where the court had opined that the gains arising from indirect transfers of Indian assets were not taxable as per the then existing provisions under 1961 Income Tax Act.

The Union Government therefore through the 2012 Finance Act amended the provisions of the 1961 Income Tax Act and made it clear that the gains arising from sale of share of a foreign company will be taxable in India if the share derives its value directly or indirectly from assets which are substantially located in the Indian territory.

The amendment was subject to sharp criticism specifically amongst international world as the amendment was perceived to be in derogation of the principle of tax certainty due to its retrospective applicability.

As a course correction the 2021 Bill seeks to prospectively apply the 2012 amendment. The Bill therefore harmonizes the 2012 amendment with the principle of tax certainty.
The bill proposes to amend IT Act, so as to provide that “no tax demand shall be raised in future on basis of said retrospective amendment for any indirect transfer of Indian assets if transaction before 28th May, 2012”.

May 28, 2012 was the date on which the Finance Act 2012 received the assent of the President.

The bill if passed by the Upper House will provide great relief to many companies like Vodafone and Carim Energy who had paid taxes as per the provisions of the retrospective law.

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