OPINION: Retrospective tax — Putting an end to a long-standing controversy

• The Centre on Thursday introduced the Taxation Laws (Amendment) Bill to bring closure to the retrospective income tax law which was introduced in 2012.
• The UPA government in 2012 imposed capital gains tax retrospectively on some companies like Cairn and Vodafone.
• British oil and gas company Cairn Energy is seeking to recover 1.2$ billion from India.

The retrospective amendments attracted a lot of attention, both when they were first introduced in 2012 as well as over the years. In the recent past, two arbitral awards were issued under India’s Bilateral Investment treaties, which reignited the debate.

In a welcome step, though delayed, in trying to put an end to this long-standing controversy, the Taxation Laws (Amendment) Bill, 2021 (‘the Bill’) has now been passed by the Lok Sabha to withdraw the retrospective effect of these amendments.

The proposal in the Bill addresses two distinct situations. The first is forward looking and provides that no order will be passed or demand raised going forward in respect of indirect transfer transactions that took place before 28 May 2012 (i.e. the date of enactment of the Finance Act, 2012).

The second part relates to cases where orders of assessment, re-assessment, rectification or in withholding proceedings have already been passed in respect of pre-28 May 2012 transactions. In such cases, the orders are sought to be nullified. In such cases, the taxpayer is also entitled to a refund of taxes already paid in respect of such transactions, but without any interest being paid thereon by the Government. However, such nullification and grant of refund is not unconditional.

The Bill requires the taxpayer to fulfil certain conditions, some of which are set out in the Bill and some which will be prescribed later. The conditions set out in the Bill include withdrawal by the taxpayer of all proceedings initiated by it as well as furnishing an undertaking waiving its right to claim costs, interest, damages or other relief from the Government.

This is where the Bill will have maximum impact. The Statement of Objects and Reasons mentions that demands under these retrospective provisions have been raised in 17 cases, out of which arbitration proceedings under investment treaties had been initiated in 4 cases. In such cases, the order can be nullified and taxes paid (if any) can be refunded subject to the above conditions being fulfilled.

Taxpayers in such situations will effectively have a choice to make. To some extent, this choice will also depend on what further conditions get prescribed in this regard.

I only hope that this move settles the disputes and debate on this topic.





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