Retrospective changes in IT Act not to hurt investment: Govt

The government on Friday said its proposal to amend the Income Tax Act with retrospective effect to tax Vodafone-type merger and acquisition deals will not hurt foreign investment.

“These (Income Tax Act) amendments will not have any impact on foreign investment flow in the country”, the Minister of State for Finance S.S. Palanimanickam told the Lok Sabha in a written reply.

Moreover, the Minister added, as proposed changes in the Income Tax Act, 1961 are only clarificatory in nature they, “will not override the provisions of Double Taxation Avoidance Agreements with 82 countries, which are relevant for taxation of non-residents in the case of offshore mergers and acquisitions.”

Finance Minister Pranab Mukherjee in Budget 2012-13 proposed to amend the Income Tax Act with retrospective effect to tax overseas M&As involving domestic assets.

The amendments will have implications for the British telecom giant Vodafone which won the Rs. 11,000-crore tax case in the Supreme Court.

In view of the implications of the proposed amendments on overseas deals, several global organisations have appealed to the Indian government not to go ahead with the retrospective amendment of the IT Act arguing that the decision would hurt foreign investments.

Pointing out that the government has received several representations from various corporate bodies, Palanimanickam said, “these proposed amendments just clarify what is already there in law to remove ambiguity and provide certainty, and hence they have to be made effective from the date of coming into statute of relevant section.”

The proposed amendments, he said, seek to clarify the ’legislative intent’ with regard to offshore mergers and acquisitions.

As regards the opening of old cases following the approval of the amendment by Parliament, the Minister said, .

“no case where assessment has been completed can be reopened beyond six years from the end of the year in which it would have been first assessed because of the limitation provided section 149 of the Income Tax Act, 1961.”