Centre to incur cost of retro tax from direct tax receipts

NEW DELHI: The government is expected to offset the cost of settling retrospective tax cases from gross direct tax receipts, as part of tax refunds of the year.

The Taxation Laws (Amendment) Bill, 2021, passed by the Lok Sabha on Friday, says that it does not involve any expenditure, recurring or non-recurring, from the consolidated funds of India. That suggests that the refunds involved in settling the disputes could be processed from the gross direct tax receipts, explained Ved Jain, former president of the Institute of Chartered Accountants of India (ICAI).

The government had seized close to 10% residual shareholding in Cairn Energy, erstwhile Cairn India Ltd, which was later merged with Vedanta Ltd. This, and a further tax refund due to Cairn in an unrelated matter that was also seized by the income tax department, was earlier estimated to be close to ₹10,570 crore or $1.4 billion.

In the case of Vodafone, India collected about ₹45 crore of taxes.

There was no formal response to an email sent to the finance ministry seeking comments for the story till the time of publishing. Emails sent to Cairn Energy and Vodafone Plc. also remained unanswered at the time of publishing.

In the case of two of the 17 tax disputes arising from the retrospective use of the anti-evasion measure introduced in 2012, which the latest amendment seeks to nullify, the department has not made assessment orders and the question of refund does not arise. The government takes the extreme step of freezing assets to protect its revenue interest only in cases where the taxpayer is exiting Indian shores. Where the disputing party continues economic activities within the country, such instances are less frequent.

The other transactions that reached courts because of the retrospective tax include

Vedanta Resources’ purchase of a controlling stake in Sesa Goa, SABMiller’s acquisition of Foster’s India, AT&T’s sale of Idea Cellular India and Sanofi Pasteur Holdings’ acquisition of Shanta Biotech.

The proposed bill aims to fulfil commitments made by the Bharatiya Janata Party (BJP), Prime Minister Narendra Modi and former finance minister, late Arun Jaitley, that the party was not in favour of retrospective changes to the law, Union finance minister Nirmala Sitharaman told the Lok Sabha on Friday.

The government could not make legislative changes when the cases were sub judice at various platforms, she explained.

PTI The Bill, passed by the Lok Sabha on Friday, says that it does not involve any expenditure from the consolidated funds of India.