The government will give 45 days to companies to drop all claims and seek a settlement of the controversial retrospective tax claims relating to the overseas sale of Indian assets once the final settlement rules are notified. The aim is to conclude the process in three to five months, depending on the current status of the dispute.
Companies involved in 17 disputes, including Cairn Energy Plc and Vodafone Group Plc, will have to file an undertaking to the designated tax official, agreeing to withdraw all claims, petitions, appeals, and arbitration award enforcement efforts, to settle the cases under the recently passed amendments to the Income Tax Act.
Once the companies commit to stop pursuing the cases, the tax official will accept or reject them within 15 days. The draft rules were released for public consultation on Saturday. The consultation period ends on 4 September.
In cases where no claim or proceeding is initiated by the disputing party and it undertakes not to do so in the future and waives all rights relating to the retrospective tax dispute, the official will decide within 30 days whether or not to allow settlement of the dispute.
The process takes a bit more time in cases where companies have initiated proceedings such as appeals, arbitration or arbitral award enforcement measures.
Once they give the undertaking to withdraw these, they have to do so within 60 days of the tax department acknowledging the undertaking and file a form.
Based on this form, the tax official will, within 30 days, decide whether to give relief or not, that is, settle the case under the Taxation Laws (Amendment) Act passed in the monsoon session of Parliament.
The amendment seeks to end the 17 long-drawn disputes over taxation of offshore sale of Indian assets. It seeks to nullify the tax demands raised or confirmed before 28 May 2012 by applying an anti-abuse provision introduced in the Income Tax Act in 2012 by the previous United Progressive Alliance government. There is unanimity among the government and the opposition about the need to settle these cases.
According to official estimates, the total tax refund to be made as part of the settlements is around ₹8,100 crore. Out of the total 17 tax disputes, only four or five entail a refund requirement. Among these, the biggest chunk, of around ₹7,900 crore, is estimated to go to Cairn Energy, Mint had reported on 6 August. The estimated refund to Vodafone Group is around ₹45 crore.
Emails sent to Cairn Energy and Vodafone Group on Saturday seeking comments for the story remained unanswered at the time of publishing.
The strict timelines given in the draft rules indicate the keenness of the Modi government to put an end to these disputes and move on as the policy focus is on enabling the economy to pick up growth momentum. The government is keen to attract investments into manufacturing and infrastructure, which it expects will add more jobs and create sustainable growth.
“The need for strengthening foreign investor confidence is essential especially in light of the ‘Make in India’ initiative and the goal of projecting India as a formidable competitor to global players,” said Nishant Shah, partner, taxation at Economic Laws Practice.
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