The retrospective law aplomb the foreign investors for many years. Finance Minister Smt. Nirmala Sitharaman finally on Thursday 5th August 2021 introduced a Bill in the Parliament to amend the provisions of the Income Tax Act,1961.
What is Retro Tax?
The retrospective tax rule was an amendment to the Income Tax Act, 1961, under the then Finance Minister Sri. Pranab Mukherjee, to raise tax demands on income from sale or transfer of an asset situated in India, even if the transaction takes place outside the country.
The Hon'ble Supreme Court ruled in favour of the Assessee with respect to a transaction of Capital Gain arising out of a transaction outside India, which the Ministry of Finance brought to tax by retrospective amendment to the Income Tax Act,1961.
The Famous Vodafone and Cairn Case
Vodafone Case
- Vodafone bought a majority stake from Hutch India, a telecom operator.
- The acquisition took place outside India including the registration formalities.
- The Indian Government held that Vodafone was to pay Capital Gains Taxes even if the transactions took place outside the Indian territorial borders.
- Vodafone Challenged the claim and the Hon'ble SC provided relief to Vodafone and no claims were to be recoverable.
- But the case was reopened in 2012, due to the amendment of the Finance Act and imposing tax liability retrospectively.
Cairn Case
- Cairn is a global oil and gas company based out of Scotland the Company held its assets in India.
- The history goes back to 2006, when Cairn decided to transfer its assets to Cairn India.
- In 2007, Cairn raised Rs 5,000 Crores through IPO. Since the retrospective amendment was made with effect from 1962, this transaction was also hit under the amendment.
- Cairn took the matter to international level. The Hague awarded $1.2 billion including interest.
- All decisions were in the favour of Cairn Energy, even in the international arbitration.
- To recover the same Cairn has filed cases in the US, the UK, Netherlands , Canada, Singapore and France to seize the Assets of India, if India did not abide by the decision.
What Happened on 5th August 2021?
On 5th August 2021, Finance Minister Smt. Nirmala Sitharaman introduced a Bill to the Parliament to withdraw the retrospective amendments to the Income Tax Act,1961 that had raised demands on Vodafone, Cairn and some others paving hopes for Foreign Investors.
What is the Trade- off?
In conclusion the amendment has given hopes to Foreign investors and put a lot of uncertainty to rest. Thus ensuring ease to do Business in India.
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Indian Government |
Companies |
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Government to return all the retrospective taxes without Interest |
To withdraw all the cases filed against the Indian Government over the Retro Tax. |
Also Read:
Lok Sabha passes Bill to settle retrospective taxation - Taxation Laws (Amendment) Bill, 2021
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