New Delhi [India], August 6 (ANI): After Union Finance Minister Nirmala Sitharaman on Friday moved the Taxation Laws (Amendment) Bill, 2021 for consideration, it was passed in the Lok Sabha without debate amid sloganeering and protests by the Opposition members of Parliament.
The bill seeks to do away with the contentious retrospective tax provision.
Moving the bill for consideration and passing, Sitharaman while addressing the Lower House of Parliament said, "On the reason why we are coming up with this bill, I would like to say a few words. On the issue of levying income tax on income derived from the issue of Indian assets through the transfer of shares of a foreign company was the subject matter for prolonged litigation. In 2012, the Supreme Court ruled that such income tax, such income is not taxable under the provisions of the Income Tax Act.
"Consequently, the Finance Act of 2012, amended the Income Tax Act, 1961 with retrospective effect to clarify that such income is taxable. The Finance Act 2012 also provided that the demand raised for this income shall be valid even if the said demand has been struck off by the courts. So what has happened is, this retrospective tax was brought in as a clarificatory amendment. However, there has been quite a lot of disagreement for this measure and even as we were in opposition, we had very clearly raised this objection that this is bad in law and also bad for investors' sentiments," said the Union Minister.
She further told the Lok Sabha, "After coming into power in 2014, led by Prime Minister Narendra Modi, Finance Minister Arun Jaitley in 2014, clearly made a commitment here in the House, that we do not believe in applying the law in retrospect and we would certainly form a high-level committee which will look into all such cases and I am happy to say that between 2014 and till today, the high-level committee has dealt with this matter and we have not had one claim based on the amendment made in 2012."
"However, for the cases prior to 2012, for which it was retrospectively applied, 17 such cases are there. Out of these, two went to the court which were stayed. The claims couldn't be pursued further. As promised by the then Finance Minister Arun Jaitley, in principle we do not believe in this. However, we couldn't act on this even in 2014 because there were two cases going on," said Sitharaman in the Lower House.
Stating that the then Union Finance Minister Jaitley had then said that the government shall wait for them to reach a logical conclusion, Sitharaman informed the Lok Sabha that the logical conclusion was reached in September 2020 in one case and in December 2020 in another case.
She further stated, "These cases were studied by the government, consultations were held with the Law Ministry and because the budget session was contracted the government could not take up many activities then."
"We have come to the next available session which is the monsoon session, which is now, to keep up the word given by former Finance Minister Arun Jaitley under the leadership of Prime Minister Narendra Modi keeping up the commitment of BJP, that we don't believe in a retrospective collection of tax. We are fulfilling that word. So, I request the House to discuss the bill and let it be passed," added the Union Finance Minister.
The Taxation Laws (Amendment) Bill proposes to amend the Income Tax Act, 1961 to provide that no tax demand shall be raised in the future on the basis of the retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before May 28, 2012.
The Finance Bill, 2012 had received the assent of the President on this day.
The new bill proposes that the demand raised for indirect transfer of Indian assets made before May 28, 2012, shall be nullified on fulfillment 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 shall be filed.
British oil and gas company Cairn Energy is seeking to recover USD 1.2 billion from India after winning an arbitration against retro tax. An appeal against the order was filed in the Hague Court of Appeal on March 22, 2021 by the Indian Government.
The Finance Act, 2012 provided for validation of demand under the Income-tax Act, 1961 for cases relating to indirect transfer of Indian assets.
In its pursuance, income tax demand had been raised in seventeen cases.
In two cases, assessments are pending due to stay granted by High Court.
Arbitration under Bilateral Investment Protection Treaty with the United Kingdom and the Netherlands had been invoked in four cases. In two cases, the Arbitration Tribunal ruled in favour of taxpayers and against the Income Tax Department.
The statement of objects and reasons of the new bill states that clarificatory amendments made by the Finance Act, 2012 invited criticism from stakeholders mainly with respect to the retrospective effect given to the amendments.
"It is argued that such retrospective amendments militate against the principle of tax certainty and damage India's reputation as an attractive destination. In the past few years, major reforms have been initiated in the financial and infrastructure sector which has created a positive environment for investment in the country," it said.
"However, this retrospective clarificatory amendment and consequent demand created in a few cases continue to be a sore point with potential investors," it added.
The statement said that the country today stands at a juncture when quick recovery of the economy after the COVID-19 pandemic is the need of the hour and foreign investment has an important role to play in promoting faster economic growth and employment. (ANI)