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Nothing new about retrospective tax, courts have upheld them: Govt
April, 04th 2012

The government has defended its budget proposal to retrospectively tax cross-border share sales, saying that retrospective taxation was nothing new and had been experimented with earlier. Such decisions to levy taxes with retrospective effect had also been upheld by the courts.

"These are difficult decisions. I am sure that the finance minister would have thought deeply while proposing retrospective tax. Such decisions are not new. We have earlier experimented with such decisions and these have been upheld by the high courts and the Supreme Court," law minister Salman Khurshid told on Tuesday.

When asked to comment on the intervention by visiting British chancellor of the exchequer George Osborne and Vodafone CEO Vittorio Colao's warning that "arbitrary and punitive retrospective treatment" would hit India's image as an investment destination, Khurshid insisted that the finance minister would have thoroughly thought out such repercussions before deciding to propose the retrospective tax clause in the Union budget 2012-13.

"In terms of action and response (to the concerns raised by Osborne and Vodafone), you should really be asking the finance minister," he added.

Khurshid's stout defence of retrospective changes in the tax laws relating to cross-border share sales, which allow the government to override the Supreme Court's January order clearing Vodafone of any tax liability for its deal with Hutchison, comes a day after Osborne said, "the UK has an interest in (Indian) tax regime being predictable and welcoming of investment."

Colao, in a letter to Prime Minister Manmohan Singh, had said, "arbitrary and punitive retrospective treatment of one of India's most prominent long-term foreign investors by tax authorities could only tarnish the image of India as a destination for inward investment," he warned in his letter dated March 26.

Countering the government's argument that budget proposal was 'clarificatory', Colao wrote: "Were they to do so prospectively, we and other investors would be able to plan our affairs for the future with confidence.

But the bill contains extraordinary retrospective changes that are not 'clarifications', but substantive changes to settled law as it has been applied for 50 years and as determined by the Supreme Court."

The issue concerns the finance ministry's determination to ask Vodafone to pay around $2.3 billion in capital gains tax on a 2007 transaction that involved the purchase of a controlling 67% stake in Indian telecom company Hutch Essar from a company controlled by Hong Kong-based conglomerate

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