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Pranab defends bid to amend IT Act,adds retrospective changes not ideal

FM's defence comes a day after Finance Secretary R S Gujral engaged himself on issue at an interaction.

FINANCE Minister Pranab Mukherjee on Sunday conceded that retrospective amendments to tax laws are not ideal but made a strong case for his Budget proposal to amend the Income Tax Act,1961 retrospectively to enable Indian authorities to tax Vodafone-type transactions.

“Retrospective fiscal legislation should normally not be done,” Mukherjee told correspondents at an interaction,adding that the amendment would prevent outflow of revenue that has been already collected and appropriated. “Suppose,if as a result of the court’s judgment,Rs 5 lakh crore of revenue has to be returned,would it be possible?” he asked.

The Finance Minister’s defence comes a day after Finance Secretary R S Gujral engaged himself on the issue at an interaction and drew parallel with countries such as China that had made retrospective clarifications in law to protect its tax base.

“Every finance minister will have to protect the interests of the government from a revenue point of view. He will have to protect the revenue which is otherwise liable to be returned,” Mukherjee said.

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In the Finance Bill,2012,the minister proposed changes to Section 9 of the Income Tax Act,1961,to ensure that cross-border deals are made liable to pay capital gains tax in the country. If passed by Parliament,it would have implications on the Rs 11,000-crore tax dispute between the British telecom firm and the Income Tax department. It will also impact other similar cases involving taxes to the tune of about Rs 35,000 crore-Rs 40,000 crore.

The move comes following the Supreme Court’s decision in January that the Vodafone-Hutchison deal is not taxable in India. The government has already filed a review petition before the Supreme Court.

“I had to move this amendment at the earliest available opportunity…,” said Mukherjee in response to a question on why he did not wait for the Supreme Court’s response to the review petition. “Had I done it after the Court’s order,everybody would have criticised me again,” he said.


The amendment is being moved retrospectively from 1961 only to make the legislature’s intent clear that tax is liable in all such cases from the date of enactment of the IT Act. “The Supreme Court in its judgement has indicated that the government should try to bring tax certainty by taking effective legislative measures. It has not said that these legislative measures should be prospective or retrospective,” Mukherjee said,adding that cases beyond six years will not be re-opened.

The minister also pointed out that retrospective amendments to tax laws is not a new phenomenon. “Retrospective amendments have been done umpteen number of times. The Finance Bill,1998 proposed nine amendments— some of them were with effect from 1976-77,while some from 1992-96. Changes were also brought in to the tax laws by Finance Bills of 2008,2009,2010,2011,” he said.

India Inc has raised apprehensions that the amendments would create negative sentiment among foreign investors. “Making changes,seemingly substantive and retrospective in tax laws,will make the investors question our governance and our legal systems. This might create an impression of India being an investor-unfriendly country especially at a time when we need urgent investment,” said B Muthuraman,CII President at a post-budget interaction of industry chambers with the Finance Minister.


Montek Singh Ahluwalia,Deputy Chairman,Planning Commission,said his personal view was that in general,one should avoid retrospective amendments. “I am not commenting on the Vodafone case since it is sub-judice,” he told The Indian Express.

But Mukherjee made it clear that tax would have to be paid in the country on any asset that is created by business based in India. “India is not a no-tax country. If someone offered to invest $200 billion in India only if there is no tax,I will not allow it. This is because India is not a tax haven,zero-tax or low-tax country,” he said. The government would guarantee that foreign investors would be treated at par with a domestic investors and will be covered by tax avoidance agreement if they have paid tax in the country of origin.

First published on: 18-03-2012 at 21:56 IST
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