Report by Gurpreet Kaur
Government to refund the paid tax amount
New Delhi, Aug 16: The Taxation Laws (Amendment) Bill became an Act after receiving President Ram Nath Kovind’s assent on August 13th, 2021. The bill modifies the Income Tax Act 1961 and Finance Act 2012 and nullifies etrospective Tax demands. With the Retrospective Tax getting scrapped, the Government of India will now have to retract the retrospective tax demands made for transactions done before May 28th, 2012. The demands will be nullified if the concerned companies withdraw all the legal suits. After submitting the declaration of withdrawal of suits, the government will return the amount paid without any interest.
Government of India has raised income-tax demands in seventeen cases in the past. Of these, the most contentious (disputed) ones are Cairn (paid ₹7880 crore as tax), New Singular Wireless (₹119 crore), WNS Capital (₹47 crore) and Vodafone (₹44.74 crore).
Case Study – Vodafone
What is Retrospective Tax: In terms of taxation, retrospective taxation refers to the application of a
current law amendment prior to the effective date of the changes. It slaps a tax on a transaction that
occurred before the law was enacted.
May 2007 – Vodafone International Holding (a Dutch company) paid $11 billion for a 67 percent share
in Hutchison Whampoa (an Indian company).
September 2007 – The Indian government demanded Rs 7,990 crore in capital gains from Vodafone.
2011 – Vodafone challenged the demand notice in the Bombay High Court, which ruled in favor of the
Income Tax Department. Vodafone then appealed the High Court’s decision to the Supreme Court.
2012 – The Supreme Court found that Vodafone Group’s view of the Income Tax Act of 1961 was
valid, and that the stake purchase was tax-free. The government of India got around the Supreme
Court’s decision by proposing a modification to the Finance Act, granting the Income Tax Department
the right to tax such transactions retroactively. The onus once again fell on Vodafone to pay the tax.
2014 – India faced a lot of criticism after introducing the Finance Act and all efforts made by India to
settle the dispute amicably failed. Vodafone invoked Bilateral Investment Treaty (BIT), signed between
India and the Netherlands in 1995, and took the case to the Permanent Court of Arbitration in Hague.
The treaty was signed to promote and protect investment of companies of each country in the other’s
jurisdiction. The court favored Vodafone and ruled that India had breached the terms of agreement
under BIT and need to stop efforts to recover the tax amount from Vodafone.
Bill – A bill is a proposal to make a law. It is in the form of a document that summarizes the policy behind the proposed law. It is then presented in the Legislative Assembly or the Houses of Parliament to get approval from the sitting members
Act – When the bill gets approved by the Legislature, it is sent to the President for his assent. When the President signs
the Bill, it becomes an Act.
Law – A law is a general set of rules and regulation to be followed. A law can be in the form of ordinances, by-laws,
orders, regulations, etc.