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Govt to soften retro tax blow in Budget
January, 09th 2013

In an attempt to soften the blow of retrospective amendments passed by Parliament in 2012-13, the finance ministry is looking at options, including waiving the penalty and interest payment from companies facing tax liability due to these amendments.

“The government essentially wants to mitigate the damage done by retrospective amendments. Therefore it is looking at introducing the corrective measures in Budget 2013-14. One of the options being considered is waiving the penalty and interest on the amount paid by the assessee who face the tax liability under the amendments,” a government official told The Indian Express.

In the Budget 2012-13, the then finance minister Pranab Mukherjee had retrospectively amended Section 9 of the Income Tax Act, clarifying that any share in a company registered outside India will be deemed as situated in the country if the share derives its value, both directly and indirectly, from assets located in India.

The clarification was issued retrospectively from April 1, 1962, since the implementation of the I-T Act, ensuring that all Vodafone-Hutch like transactions would be taxed.

Apart from creating uncertainty, the amendment also scared the investors away. Taking note of the concerns, finance minister P Chidambaram mandated the Prime Minister Manmohan Singh-appointed Shome panel to look into the issue and suggest corrective measures.

The Shome panel had suggested waiving both penalty and interest in all cases where the demand for tax is raised on account of the retrospective amendment.

If introduced in the Budget, the provision will not only provide a huge relief to Vodafone, entangled in a fierce legal battle with the department, but also several other cases including Idea Cellular-AT&T $150-million deal, SABMiller’s acquisition of Foster’s in India, Mitsui-Vedanta’s $981-million Sesa Goa deal, GE-Genpact $500-million deal and Kraft-Cadbury $19-billion deal, which are stuck at various levels of litigation.

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