Income Tax Act was enacted in 1961, there was a Case known as the ‘Vodafone Case’ The problem started when the company made their Acquisitions in India in 2007. Vodafone brought 67% shares from Hutchison Whampoa an Indian Telecom company for USD 11.2 billion, which was the biggest FDI at that time.
Following which gave Income Tax Department a thought that it is great for them too. The government said that now the Company has to pay Capital gains from the value of assets in India. Vodafone contended that as it is overseas it has no Jurisdiction and overseas company according to Law is free from Taxes. Income Tax Department ruled that there cannot be a deal that attracts no Tax. Income Tax that U.K.’s Vodafone has to pay Rs 11,000 crore as tax for a buyout deal involving Indian business. Mr Mukherjee said the government’s concern was to get its due share.
Vodafone lost the case to The Income Tax department in High Court, Company appealed in the Supreme Court for the grievance caused. The SC in early 2012 gave a judgement that the company was right, that overseas company according to the Act is barred from taxes imposed by the IT department.
Mr Pranab Mukherjee the then Finance minister stated that ‘State is Supreme’ and the Taxes must be imposed, so (ITA 1961), was amended and became Finance Act in 2012. The sole principle behind this was so that such deals don’t get away with Taxes, that is ‘When the value of shares is drawn from assets based in India, Then India has Right to Tax it. He changed The Act Retrospectively which applied to all the cases before 28 May 2012; He took the Legislative route to overturn SC judgement.
Now after a huge gap, The 2012 amended Act is reversed by Taxation Law Amendment Act 2021 when recently it was passed in Lok Sabha last week. Further, no Retrospective Tax demand will be made for Taxation issues settled before 2012.
So far 17 cases have been filed under this Retrospective Act out of which Two are pending in HC and of the remaining; Four cases have been taken for International Arbitration under The Bilateral Investment Protection Treaty with UK and Netherlands. International Arbitration Courts have ruled against the Government of India and decided in favour of Appellant that is Carin And Vodafone Cases.
In Cairn Case, It claimed that the Indian government’s actions violated the India-UK bilateral investment treaty aimed at promotion and protection of rights of investors. The Permanent Court of Arbitration ruled in Cairn Energy’s favour in December 2020, handing it an award of $1.7 billion. In March 2015, Cairn Energy — which gave the country its biggest oil discovery -was slapped with a demand for Rs 10,247 crore tax on alleged capital gains. So now any claims on Company’s do not sustain further.
It was necessary to bring the 2021 Bill as the last amendment took away Tax certainty by Retrospective effect, Damaged India’s reputation as an attractive investment destination where actually during these Covid times there should be more FDI and at last Amendment is for flexibility and not for a particular case.
All of this was done in the thought that The State must always win. Mr Pranab Mukherjee followed the principle of a controlled system where this went wrong. Mr Pranab Mukherjee conveyed that it was being opposed by various people like Mr Manmohan Singh who was more inclined towards Free market and Reform and others like Mr.P. Chidambaram, Mr Kapil Sibal and even Executive officer of Vodafone came and said The Finance Minister to not amend in this way.
We are keeping the sovereign right of India to tax-absolutely intact but with that said, when it was retrospectively applied to cause a complete disturbance in the scheme of things for businesses, creating uncertainties”, the Finance Minister said in Rajya Sabha during the discussion. She said that the bill will end the “ghost” of retrospective taxation clause which we have been carrying all these while from 2012.
“The country today stands at a juncture when quick recovery of the economy after the COVID-19 pandemic is the need of the hour and foreign investment has an important role to play in promoting faster economic growth and employment”
At last, the concern needed a change but became a Political Fear which now has been overpowered by The Government in The virtue of the Taxation Laws Amendment Bill, 2021