Year Tax: Retro amendment, GAAR keep revenue department busy in 2012
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Controversy generated by retrospective tax amendment to bring into net Vodafone-type deals and concerns over implementation of GAAR kept the Revenue Department busy throughout the year amid expectations that the government will resolve them in the coming year.
In a bid to restore the investor confidence the government roped in the services of tax expert Parthasarathy Shome whose two reports – on GAAR and taxation of indirect transfer of assets – is being considered by the Finance Ministry and some decisions are expected in the next Budget.
The controversy began with the then Finance Minister Pranab Mukherjee announcing in Budget 2012-13 to amend the Income Tax Act, 1961, with retrospective effect to undo the Supreme Court judgement in the Vodafone tax case.
The Income Tax department had slapped Rs 11,000 crore tax on Vodafone for its USD 11 billion acquisition of Hutchison Essar in 2007, a claim which was subsequently dismissed by the Supreme Court.
The apex court had ruled that Indian tax authorities did not have jurisdiction over the Vodafone-Hutchison deal, which was executed in Cayman Islands.
The Budget proposal to undo Supreme Court judgement evoked sharp reaction from international community. British Prime Minister and US Treasury Secretary Timothy Geithner took up the issue with the government saying that such a move could deter investment sentiments.
Besides retrospective amendment, the General Anti Avoidance Rules (GAAR) proposal to check tax evasion dented investor confidence as the industry feared that GAAR rules would provide unbridled powers to tax officials.
Amid widespread concerns, Mukherjee, postponed the implementation of GAAR till April 2013.
The Finance Ministry initiated stakeholder consultation and even came out with a draft GAAR guidelines in July after Mukherjee became the President.
However, the GAAR draft by the Central Board of Direct Taxes (CBDT) did not find favour with Prime Minister Manmohan Singh, who was looking after the finance portfolio then. He had announced setting up of Shome panel to come up with fresh report after talking to stakeholders.