Lok Sabha passes taxation amendment bill, scrapping of retro tax law

The Lok Sabha passed the Taxation Amendment Bill to amend Finance Act 2012, kicking into motion scrapping of the retrospective taxation aspect of the law which taxes indirect transfers of Indian assets.

Finance minister Nirmala Sitharaman introduced the bill in Lok Sabha Friday stating reasons for making the changes to the provisions.

"We're fulfilling the word, the commitment that Arun Jaitley had made in this august House. Let the House debate it, support us in passing it," Sitharaman said in Lok Sabha Friday while presenting the bill.


The bill was passed by voice vote.

In 2012 the Supreme Court ruled that such income is not taxable under the existing 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.

"However, there has been a lot of disagreement for this measure and even when we were in the Opposition, we had very clearly raised this objection saying that it is bad in law and bad for investor sentiments," Sitharaman said.

The issue of levying income tax on income derived from Indian assets through the transfer of shares of a foreign company was a subject matter of prolonged litigation, she added.

"After coming to power in 2014, finance minister Arun Jaitley clearly made a commitment here in the House that we do not believe in applying the law in retrospect and we would form a high-level committee which would look into all such cases," she said.

Between 2014 and today, the committee has dealt with several cases but no claim was based on the amendment made in 2012.

For the cases that have been prior to 2012, 17 such cases are there of which two went to the Court which were stayed and claims could not be pursued further.

In two cases where the government of India couldn't win the case and therefore the arbitral awards were announced, she said.

Sitharaman added that the government could not take the step earlier as the then finance minister Arun Jaitley had said that the government will wait for the ongoing two cases to reach their logical conclusion, which was reached in September 2020 in once case and in December 2020 in the second case.

She did not name the companies, but arbitral award in favour of Vodafone Group was issued in September, followed by award favouring Cairn Energy Plc in December 2020.

The bill paves way for settling long-drawn litigation with Vodafone Group and Cairn Energy among others and doing away with a key hurdle to overseas investment.