In what may sound as music to the ears of companies such as Vodafone, the government-appointed Parthasarathi Shome Committee has recommended that companies facing tax liability following retrospective amendment to the Income Tax Act should be exempted from payment of interest and penalty.
In its ‘Draft report on retrospective amendments relating to indirect transfer’, which was put on the public domain on Tuesday for comments from stakeholders till October 19, the committee said: “In all cases where demand of tax is raised on account of retrospective amendment relating to indirect transfer...no interest...should be charged in respect of that demand so that there is no undue hardship caused to the tax payer.”
In such cases, no penalty should be levied in respect of the income brought to tax on application of retrospective amendment, said the Shome panel, which was asked by Finance Minister P Chidambaram to look into the retrospective amendment to tax laws following the vehement protests by investors at home and abroad against the budgetary move to bring such deals to tax.
While the Income-Tax Department had initially raised a tax demand of Rs.7,900 crore on Vodafone for acquisition of Hutchinson's stake in Hutch-Essar through a deal in Cayman Islands in 2007, former Finance Minister Pranab Mukherjee had sought to go round the Supreme Court judgment, which ruled in favour of Vodafone, saying that the “legislative intent” to tax such transactions was always there in the I-T Act. In its report, the Shome panel has noted that retrospective amendment of tax laws should occur in exceptional or rarest of rare cases and with particular objectives and apply to matters that are ‘genuinely clarificatory’ in nature. In this regard, it has countered the Finance Ministry's view on retrospective tax amendment stating that “provisions relating to taxation of indirect transfer as introduced by the Finance Act, 2012, are not clarificatory in nature and instead, would tend to widen the tax base.”
The panel has argued that retrospective amendments are banned in several countries as they create tax uncertainty for investors and such amendments are not a good idea but went on to point out that no recommendation has been made from that perspective since it was not the mandate of the committee. It has also suggested that listed companies’ P-notes and stock market transactions be kept out of the ambit of the Section 9 retrospective amendment.
Keeping a distance from the Shome panel report, the Finance Ministry, in an official statement, said that the views expressed in the committee report were that of “an independent Committee and it should not be construed in any manner whatsoever as the views of the government…The views of the government on the recommendations of the Expert Committee will be formed after receipt of their final report.”
