Hague court docket cites statements by Modi, Jaitley to overturn Rs 10k crore tax demand from Cairn

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[] In 2016, the prime minister was quoted by the Financial Times as saying that the federal government ‘won’t resort to retrospective taxation; we’re making our tax regime clear, secure and predictable’

[] Representational Image. News18

[] New Delhi: A 3-member tribunal on the Permanent Court of Arbitration in The Hague cited statements by Prime Minister Narendra Modi and different ministers pledging to not use retrospective taxation to overturn a Rs 10,247 crore tax demand on British oil and fuel firm Cairn Energy Plc.

[]The tribunal, in a 582-page judgment on 21 December, ordered the return of the worth of shares that the Income Tax Department bought as additionally the dividend it seized and tax refunds it withheld to recuperate tax demand that was levied following the 2012 modification to the Income Tax Act that gave authorities powers to hunt taxes on previous offers.

[]It dominated that the 2006 reorganisation of Cairn Energy’s India enterprise previous to itemizing on native bourses was not “unlawful tax avoidance” and ordered tax authorities to drop the tax demand.

[]In the order, the tribunal, which consisted of 1 member appointed by the Indian authorities, stated the Bharatiya Janata Party’s (BJP) 2014 “election manifesto criticised the preceding government for having unleashed ‘tax terrorism’ and ‘uncertainty’, which ‘negatively impact[ed] the investment climate’.”

[]In his first finances speech in July 2014, then finance minister Arun Jaitley proposed {that a} CBDT-supervised ‘High-Level Committee’ be carried out to scrutinise recent instances that had arisen following the 2012 Amendments.

[]After stating that, “[t]his government will not ordinarily bring about any change retrospectively which creates a fresh liability”, he introduced that “henceforth, all fresh cases arising out of the retrospective amendments of 2012 in respect of indirect transfers and coming to the notice of the Assessing Officers will be scrutinized by a High Level Committee to be constituted by the CBDT before any action is initiated in such cases,” the order stated.

[]On 7 November, 2014, Jaitley, in keeping with the order, insisted that his authorities had taken a “policy decision that as far as this government is concerned [] even though there is a sovereign power of retrospective taxation, we are not going to exercise that power”.

[]On 13 January, 2015, Jaitley was quoted as saying that the 2012 Amendment had “scared away investors from India” and that “the government had no intention of using the retrospective tax provision”.

[]”This view was confirmed by Prime Minister Narendra Modi on  14 February, 2016. The prime minister was quoted in the Financial Times as saying that the government “won’t resort to retrospective taxation; we’re making our tax regime clear, secure and predictable”, the tribunal said.

[]The Income Tax Department in 2015 slapped a Rs 10,247 crore tax demand on Cairn for alleged capital gains it made in the 2006 business reorganisation. Cairn denied the scheme, avoided any tax that were prevalent on that date and challenged the demand through an arbitration.

[]During the pendency of the arbitration, the government sold Cairn’s near five percent holding in Vedanta Ltd, seized dividends totalling Rs 1,140 crore due to it from those shareholdings and set off a Rs 1,590-crore tax refund against the demand.

[]The tribunal ordered the government to return the value of shares it had sold, dividends seized and tax refunds withheld to recover the tax demand along with interest. Also, it was asked to reimburse the cost of arbitration. All this totalled to $1.25 billion plus interest.

[]The government in response to the arbitration award had stated that it will study the order and “will contemplate all choices and take a choice on the additional plan of action, together with authorized treatments earlier than applicable fora”.

[]This is the second loss the government has suffered in three months over the retrospective levy of taxes. In September, UK’s Vodafone Group won an international arbitration against the demand of Rs 22,100 crore in taxes.

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