Rajya Sabha flips tax amendment bill to quash retrospective tax claim

The Rajya Sabha on Monday returned to Lok Sabha the 2021 Tax Laws (Amendment) Bill in the Lok Sabha, which seeks to reverse the effect of the 2012 Finance Bill amendment to impose tax liability on the tax on gains resulting from the indirect transfer of Indian assets with retroactive effect. Since the Tax Laws (Amendment) Bill 2021 is certified as a money bill by the President of Lok Sabha, the …

Rajya Sabha on Monday returned to Lok Sabha the Tax Laws (Amendment) Bill 2021 in the Lok Sabha, which seeks to reverse the effect of the amendment made by the 2012 Finance Law to impose tax liability on the tax on gains resulting from the indirect transfer of Indian assets with retroactive effect. effect.

Since the Tax Laws (Amendment) Bill 2021 is certified as a money bill by the President of Lok Sabha, the Rajya Sabha has limited powers over it. According to article 109 of the Constitution, the Rajya Sabha can only return a bill of money to the Lok Sabha with or without his recommendations. It is then up to the Lok Sabha to pass the bill, whether or not it accepts the recommendations made by the Rajya Sabha.

Yesterday, the Rajya Sabha passed a motion by Union Finance Minister Nirmala Sitharaman to send back the Tax Laws (Amendment) Bill 2021, which aims to end all tax claims made to companies like Cairn Energy and Vodafone using the 2012 Indian Assets Transfer provision of the Finance Act by May 28, 2012. The Upper House made no recommendations regarding the bill.

“We keep India’s sovereign right to tax absolutely intact but that said, when it has been applied retrospectively, causing a complete upheaval in the order of things for business, creating uncertainties,” the minister said. Finances to Rajya Sabha during the discussion. She said the bill would end the “ghost” retrospective taxation clause that we have carried since 2012. The opposition staged a walkout during the debate. Last week, the Lok Sabha passed the bill.

The 2012 amendment was passed to overturn the Supreme Court’s verdict in the Vodafone case, that gains resulting from the indirect transfer of Indian assets are not taxable under the then-current provisions of the 1961 Act. on income tax.

After that, the provisions of the Income Tax Act 1961 were amended by the Finance Act 2012 with retroactive effect, to clarify that gains from the sale of shares of a foreign company are taxable. in India if this share, directly or indirectly, derives its value mainly from assets located in India. The 2012 finance law also provided for the validation of the request, etc.

This amendment has given rise to many criticisms, especially in international districts, on the grounds that the retroactive effect goes against the principle of tax security. In the statement of the objects and reasons of the bill, the ministry indicated that the retrospective clarifying amendment “continues to be a sensitive point with potential investors”.

The Bill on Tax Laws (Amendment) proposes to amend the Income Tax Act to indicate that the effect of the 2012 amendment will be prospective in nature.

The bill proposes to amend the Information Technology Act to provide that “no tax claims will be raised in the future on the basis of this retrospective amendment for any indirect transfer of Indian assets into transaction before May 28, 2012 “. May 28, 2012 is the date on which the 2012 finance law received the approval of the President.

The bill further proposes to provide that the request for indirect transfer of Indian assets made before May 28, 2012 will be revoked if specified conditions are met, such as the withdrawal or the provision of a commitment for the withdrawal of Indian assets. an ongoing litigation and the provision of a commitment to the effect that no claim for costs, damages, interest, etc., will be filed. It is also offered to repay the amount paid in these cases without any interest on it. The bill also proposes to amend the finance law for 2012 to provide that the validation of the request, etc., under article 119 of the finance law for 2012 ceases to apply when specified conditions are met, such as withdrawing or providing an undertaking for withdrawal from pending litigation and providing an undertaking that no claims for costs, damages, interest, etc., will be made.

“The country today finds itself at a time when a rapid economic recovery from the COVID-19 pandemic is the need of the moment and foreign investment has an important role to play in promoting more economic growth. fast and employment, ”the government said.

The bill, if passed, will likely benefit many companies, including Vodafone and Cairn Energy, who had to pay taxes on the basis of the hindsight law.


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