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Lok Sabha: Taxation Laws (Amendment) Bill 2021 passed to end retro tax

Legal Correspondent: Aastha Jain


August 7, 2021: The Taxation Amendment Bill was passed by the Lok Sabha with the view of amending Finance Act, 2012. The main aspect of the Act is scrapping of the contentious practice of retrospective taxation aspect of the law which taxes indirect transfers of Indian assets. The move was basically taken to withdraw tax demands made by India on 17 firms including Vodafone and Cairn Energy.

The Taxation Laws (Amendment) Bill 2021 was introduced after India lost retrospective tax demand cases against Cairn Energy Plc. and Vodafone. The verdict was challenged by the Centre in both these cases but the continued existence of retrospective taxation had been raising many questions within the country.

Sitharaman said that the government had started consultations with various stake holders once the two lawsuits were settled, “Now, we have come up with this Bill at the next available opportunity.”

The bill also states that any demand raised for "indirect transfer of Indian assets made before May 28, 2012, shall be nullified on fulfilment of specific 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."

While debating on the Taxation Laws (Amendment) Bill 2021, Finance Minister Nirmala Sitharaman said, "Keeping up the commitment of BJP that we don't believe in the retrospective application of tax, we are fulfilling that word by bringing this amendment". The Finance Minister up-holded the 2012 legislation as both ‘bad in law’ and ‘bad for the investors’ sentiments. She further came up with the declaratory view that the government’s move was towards fulfilment of the promise made by the ruling BJP, Prime Minister Narendra Modi and former finance minister Arun Jaitley as early as in 2014. The latter had held that the controversial piece of legislation introduced by the UPA-II government in 2012 shall be reviewed, as “we don’t believe in retrospective taxes.”

Using that retrospective tax law, Vodafone was slapped with a tax demand of Rs 14,200 crore in January 2013. Cairn Energy was also charged with Rs. 10,247 crore in January 2014.

Finance secretary TV Somanathan said on Thursday: “We are consistent with earlier position — we have the sovereign right to tax and we preserve that right. Still we don’t accept that the sovereign right of Parliament is being arbitrated in foreign courts. But we won’t enforce tax demands based on retrospective change and amount collected would be refunded without interest”.


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