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Tuesday, October 26, 2021

Retro tax: Repayment timeline for govt outlined, cos to notify for indemnity

The rules state that such companies will have to indemnify the Indian government against future claims and withdraw any pending litigation or proceeding before any forum in order to settle their retrospective tax cases, the notification dated October 1 stated.

By: ENS Economic Bureau | New Delhi |
October 3, 2021 3:38:03 am
The rules when adhered to will lead to the government withdrawing tax demands raised using the 2012 retrospective tax law and any tax collected in enforcement of such demand is paid back.

Following the decision to scrap the retrospective taxation provision, the Central Board of Direct Taxes (CBDT) under the Ministry of Finance has notified rules that will help close tax disputes with companies such as Cairn Energy and Vodafone Plc.

The rules state that such companies will have to indemnify the Indian government against future claims and withdraw any pending litigation or proceeding before any forum in order to settle their retrospective tax cases, the notification dated October 1 stated.

Explained

Law amended in Aug

After it faced the risk of its properties in Paris getting attached and Air India assets being pursued under the arbitration award in the Cairn Energy case, the government in August amended the Income-tax Act to withdraw retro tax demands, for transactions that took place before May 28, 2012.

The rules also specify other conditions, such as issuance of a public notice or press release by the company stating that claims arising out of or relating to the relevant orders or any related award, judgment or court order, no longer subsist, and include an indemnity against “any claims against the Republic of India or any India affiliate contrary to the undertaking”.

These rules when adhered to will lead to the government withdrawing tax demands raised using the 2012 retrospective tax law and any tax collected in enforcement of such demand is paid back. The repayment will take at least two months as per the timeline outlined in the rules. An Indian affiliate is any department, agency, instrumentality, public sector company or any other entity of the government owned directly or indirectly in India or abroad.

The companies will have to withdraw any pending litigation or proceeding before any forum against the levy of the retrospective tax and also give an assurance that they won’t pursue any further claims in the future. Also, companies will have to file a declaration with the income tax authorities along with a board resolution or legal authorisation besides an indemnity bond, the rules said.

The initial submission of an undertaking to withdraw all pending legal proceedings has to be done in 45 days. Thereafter the relevant Principal Commission of Income tax has to give a certificate accepting or pass an order rejecting the claim in 15 days from the receipt of the application.

After grant of certificate, the companies will have to fulfil the condition of indemnity by all interested parties within 60 days. After this, the order granting relief has to be made within 30 days and only after this the refund will be initiated.

“The declarant and all the interested parties shall indemnify, defend and hold harmless the Republic of India and Indian affiliates from and against any and all costs, expenses (including attorneys’ fees and court’s fees), interest, damages, and liabilities of any nature arising out of or in any way relating to the assertion or, bringing, filing or maintaining of any claim, at any time after the date of furnishing the undertaking,” the rules by the CBDT said.

In August, the government brought in The Taxation Laws (Amendment) Act, 2021, stating that no tax demand shall be raised for any indirect transfer of Indian assets if the transaction was undertaken before May 28, 2012.

The Centre had, in 2012, retrospectively amended the Income-tax Act. This was in response to a Supreme Court verdict, which had held that Vodafone cannot be taxed for a 2007 transaction that involved its purchase of 67 per cent stake in Hutchison Whampoa for $11 billion.

Later in 2014, the Centre again used the same section to raise tax demand against Cairn Energy Plc for restructuring done in 2006.

Following the retrospective amendment by the then UPA government in 2012, tax demands were raised in 17 cases, out of which tax amount of Rs 8,100 crore has been collected for four cases.

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