[BREAKING] Finance Ministry introduces Bill to withdraw retrospective amendments to Income Tax Act - A compromise for Vodafone, Cairn judgments

The Central government has introduced Taxation Laws (Amendment) Act, 2021 by which it has proposed to do away with the retrospective application of 2012 amendments to the Income Tax Act which had made gains arising from the transfer of assets located in India through the transfer of the shares of a foreign company, taxable..This move will impact many companies including Vodafone and Cairn Energy who had to pay tax based on the retrospective law. .The said amendments to the Income Tax Act by way of certain clarifications were introduced in 2012 with retrospective effect, in order to get over the Supreme Court verdict in the Vodafone case which had held that gains arising from indirect transfer of Indian assets are not taxable. The 2021 Bill now states that said clarificatory amendments made in 2012 invited criticism from stakeholders mainly with respect to retrospective effect given to the amendments. It was argued by many that such retrospective amendments militate against the principle of tax certainty and damage India's reputation as an attractive destination.Consequently, through the new Bill, it has now been decided that no tax demand will be raised on indirect transfer of Indian assets made before May 28, 2012 when the amendments came into effect..Permanent Court of Arbitration rules against Indian government in the Vodafone tax case (Read DECISION).PCA Tribunal directs Indian government to pay Cairn $1.23 billion in 2006 tax dispute."The Bill proposes to amend the Income-tax Act, 1961 so as to provide that no tax demand shall be raised in future on the basis of the said retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before 28th May, 2012 (i.e., the date on which the Finance Bill, 2012 received the assent of the President)," the statement of objects and reasons of the Bill said. Further, any demand raised for such indirect transfers that happened before 2012 shall be nullified and any amount paid on such demands will be refunded. "It is further proposed to provide that the demand raised for indirect transfer of Indian assets made before 28th May, 2012 shall be nullified on fulfilment of specified 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. It is also proposed to refund the amount paid in these cases without any interest thereon," it stated. .Effects of the Bill1. Income-tax demand raised in seventeen cases including Vodafone, Cairn Energy would be dropped subject to fulfilment of specified 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.2. Any tax amount paid pursuant to such transactions before May 28, 2012 shall be refunded with interest on fulfillment of the above conditions..3. No tax demand shall be raised in future on the basis of the said retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before May 28, 2012.4. The Bill also proposes to amend the Income Tax so as to provide that the validation of demand, etc., under section 119 of the Finance Act, 2012 shall cease to apply on fulfilment of specified conditions such as withdrawal or furnishing of undertaking for withdrawal of pending litigation and furnishing of an undertaking that no claim for cost, damages, interest, etc., shall be filed..[Read Bill]