“Our government is ready to take the greatest risk in the interests of the nation. GST was only stuck for so many years because those who used to be in government couldn’t muster the courage to take political risks. Not only did we implement GST, we are now experiencing record-breaking GST coverage. We recently decided to abolish the industry-acclaimed retrospective tax. It will strengthen the bond between government and industry. ”- These powerful words from Prime Minister Narendra Modi at the recent CII meeting sums up the essence of the Modi government’s economic philosophy, which is based on taking calculated risks for the common good.
The historic retro taxation law passed by the Modi government in the 2021 monsoon session of Parliament proposes to abolish the tax rule that gave the tax authority the power to go back decades and collect capital gains where property is overseas had changed hands, but the business assets in India. The Tax Amendment Act, which aims to nullify retrospective corporate tax claims, will instill investor confidence, boost FDI and urgently spur India’s goal of becoming a $ 5 trillion economy.
The Taxation Laws (Amendment) Bill 2021 aims to withdraw tax claims made using retrospective 2012 legislation to tax the indirect transfers of Indian wealth and also to refund the amount paid in those cases without interest. The 2012 law was used to collect a cumulative tax of Rs 1.10 lakh crore on 17 companies including UK telecommunications giant Vodafone and Cairn. It would encourage companies about to make a decision to invest in India, avoid unnecessary litigation, and save the government time and money, as well as strengthen predictable tax policy.
The Taxation Laws (Amendment) Bill provides for the withdrawal of tax claims on “indirect transfers of Indian assets if the transaction was carried out before May 28, 2012 (ie the date on which the retrospective tax legislation came into effect)”. Laws will be put in place giving companies a reasonable amount of time to come and pledge to the government not to pursue the cases. They must also undertake to waive interest on amounts collected.
The Modi administration’s bold move to bury controversial retrospective taxation, one of the worst legacies of the Congress-led UPA regime, will bring relief to companies that indirectly transferred assets prior to May 28, 2012. But India continues to retain its sovereignty for taxation under Section 9 (1) (i) of the Income Tax Act. The abolition of retroactive taxation will also create clarity for transactions between companies from countries in which such transactions are not subject to double taxation agreements (DTAA).
Any indirect transfer of assets where the underlying assets are located in India will be subject to Indian tax payable and accordingly they will arrange their assets. That is tax planning for the future. In the future, the change in the law is now done and wealth can be arranged to keep tax liability to a minimum, which is good news. The immediate beneficiaries would be those who made their transactions before 2012, and from them the government will not collect the tax. And if it is picked up, it will be refunded.
The incapable congressional government had retrospectively changed the income tax law in 2012. This was in response to a Supreme Court ruling that found that Vodafone would not be taxed on a transaction in 2007 that involved the purchase of a 67 percent stake in Hutchison Whampoa for $ 11 billion can. Later in 2014, the Congressional government again used the same section to file tax claims against Cairn Energy Plc for the 2006 restructuring. The Modi government corrected a historical error that was nearly nine years old. After the retrospective change, the total litigation amount in all cases is approximately Rs.8,100 billion, of which approximately Rs.7,900 billion relates to the Cairn dispute alone. The bill would withdraw the retrospective changes to the Income Tax Act that had made claims against Vodafone, Cairn and a few others, suggesting the Modi government’s move to attract foreign investment and remove procedural bottlenecks.
The Modi government has proposed amendments to the Income Tax Act and Finance Act 2012 to effectively stipulate that indirect transfers of Indian assets may not be subject to tax claims if the transaction was carried out before May 28, 2012 The transfer of Indian assets made before May In 2012, if certain conditions are met, such as Section 9 (1) (i) of the Income-Tax Act states that any income accruing or accruing outside India as a result of a business relationship in India is deemed to be accrued or accrued in India and is taxable in the case of all agents regardless of their residence status. Corporations are now expected to withdraw their litigation for business before 2012, with a clear and definitive tax regime that will help boost Foreign Direct Investment (FDI).
“It is argued that such retrospective changes run counter to the principle of tax security and damage India’s reputation as an attractive travel destination,” said the statement on the objectives and rationale of the new bill. There is Vodafone where the amount is Rs 45 crore and there is WNS Capital where the amount involved is around Rs 48 crore. In Vodafone’s case, the total tax claim (including interest and penalties) was Rs 22,000 crore, but the government expects Rs 45 crore to be spent by Telecom on legal fees. Last year, Vodafone won the international arbitration case against which the Indian government had appealed. The appeal is now to be withdrawn. The repeal of the 2012 retrospective law on indirect transfers of downstream assets in India is an excellent move by Prime Minister Narendra Modi and his government.
Honoring the award is a step in the right direction and a clear signal to foreign investors that there will be tax security in the future. The bill will amend the Income-Tax Act 1961 so that, based on the aforementioned retrospective change, no future tax claims will be made on indirect transfers of Indian assets if the transaction was made before May 28, 2012, the date on which the 2012 Finance Act received the approval of the President, according to the statement of the aims and reasons of the legislation.
The Tribunals Reforms Bill, which aims to abolish many appellate courts set up under various statutes, is another historic bill passed by parliament in the monsoon session.
Courts the bill seeks to abolish include the Film Certification Appeals Court, the Airport Appeals Court, the Extended Rulings Authority, the Intellectual Property Appeal Court, and the Plant Variety Protection Appeal Court. The tasks of these courts will be transferred to the existing judicial organs. The tribunals under the Geographical Indications of Goods (Registration and Protection) Act, 1999, and the Control of National Highways (Land and Traffic) Act, 2002, would also be liquidated once this bill comes into effect. Any litigation pending in any of these courts or authorities will be referred to the Commercial Court or the High Court.
The draft law proposes to include provisions on the composition of the selection committees and the term of office in the law itself. According to Section 3 (7) of the draft law, the chairman and the members of the various courts are to be appointed on the proposal of the search committee. The bill amends the 2017 Finance Act to stipulate that the members of the committee will be (i) the chairman of the Supreme Court of India or a Supreme Court judge appointed by him, (ii) two secretaries appointed by the central government, (iii ) the incumbent or outgoing presiding judge or a retired Supreme Court judge or a retired Supreme Court Justice; and (iv) the secretary of the department under which the tribunal is constituted, according to PRS Legislative Research.
The regional courts will have separate search commissions. These committees consist of (i) the chairman of the state’s Supreme Court, (ii) the chief secretary of the state government and the chairman of the state’s public service commission, (iii) the incumbent or outgoing chairman or a judge of the supreme court retired and (iv) the Secretary or Chief Secretary of the General Administration of the State. The center should decide on the recommendations of the selection committees within three months of the date of the recommendation. The Tribunal Reforms Bill provides for a four-year term (subject to the age limit of 70 years for the chairman and 67 years for members). In addition, it stipulates a minimum age of 50 years for the appointment of a chairman or a member.
It would be fitting to end with Prime Minister Modi’s quote in which he said, “The new India of today is ready to move with the new world. India, which once feared foreign investment, now welcomes all types of investment. In fact, Modinomics is inclusive and reforms under the Modi government are initiated out of conviction rather than coercion.
Disclaimer:The author is an economist, national spokesman for BJP and bestselling author of “Truth & Dare – The Modi Dynamic”
(The views expressed in this article are those of the author and do not represent the standpoint of this publication.)
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