UDDHAV...

Stating reasons behind the amendment in the Bill, Sitharaman said: “It is further proposed to provide that the demand raised for indirect transfer of Indian assets made before 28th May, 2012 shall be nullified on fulfilment 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, etc, shall be filed.”

“It is also proposed to refund the amount paid in these cases without any interest thereon,” she added.

The Bill is an attempt to end around 18 vexed legal disputes, particularly with Cairn and Vodafone, people aware of the matter said, asking not to be named. Once passed, it will also require the government to refund part of the tax already paid by companies such as Vodafone and Cairn. HT could not immediately assess the size of these refunds.

Spokespersons for Cairn did not respond to a query on this matter. A Vodafone spokesman declined comment . A person close to one of the companies said: “This is a good signal to international investors. Companies [Cairn and Vodafone] would also like to amicably settle the dispute outside the court.”

For Vodafone Idea (Vodafone India’s current avatar after its merger with Idea Cellular), the announcement could provide some relief. The company is staring at a huge payout to the government for adjusted gross revenue liability, and spectrum, and Kumar Mangalam Birla, who stepped down as its chairman on Wednesday, wrote to the cabinet secretary in June offering to surrender his entire stake in Vodafone India to the government to keep it going, and pointing out that the company would collapse without relief on its payouts.

On September 25, 2020, an international arbitration tribunal in The Hague, the Netherlands, ruled that the Indian government’s decision to retrospectively amend the Income Tax Act, 1961, in the 2012-13 budget to impose a tax liability on Vodafone Plc, along with interest and penalties, was not consistent with an investment treaty signed between India and the Netherlands.

Another international arbitration tribunal, constituted under the agreement between UK and India for the promotion and protection of investments and the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL), in December 2020, ruled in favour of Cairn.

Last month, Cairn Energy Plc also secured an order from the French court, Tribunal judiciaire de Paris, to freeze through judicial mortgages residential real estate owned by the government of India in the central Paris.

Experts avoided commenting on individual cases of retrospective tax disputes.

Himanshu Parekh, partnertax at consultancy firm KPMG India said the proposed amendment will help curtail long drawn litigation on the aspect of “indirect share transfers” undertaken prior to May 28, 2012, and provide tax certainty to multinational companies (MNCs). “The relief from tax liability will be subject to certain conditions such as withdrawal of cases and claims for costs, interest and damages by the relevant taxpayers.”

“Retrospective amendments in tax legislation negate the fundamental principle of certainty and consistency required for attracting foreign investment into the country. The decision to withdraw the retrospective amendment on indirect transfers by the government must be applauded as this is not just a timely retreat from the confrontation position but instead assuages the concerns of the foreign investors,” said Ajinkya Gunjan Mishra, partner at law firm L&L Partners.