2012-2021: Retrospective Tax Gone, But The Ghost May Remain For Some Time

The Income Tax Department lost the Vodafone case because it didn’t contest well in the Supreme Court, held the lawmakers. And to address this, the then Finance Minister Pranab Mukherjee introduced the retrospective tax in the Income-tax Act in 2012, though he was not happy with the decision when he understood the implications. (Vodafone was asked to pay $3.79 billion, including $2 billion in tax, interest and penalties – a claim called incorrect by an international arbitration tribunal). The retrospective tax is gone, but its ghost may remain. Seasoned observers say the decision to do away with the controversial tax provision is purely a political one. The Central Board of Direct Taxes officials maintain that income arising out of the sale of assets on Indian soil must be taxed in India, and they will keep doing so. Now that the I-T provision is gone, it would be interesting to see how the existing cases are handled by the taxmen. The Income-tax Act is a powerful piece of legislation that gives the tax department immense powers to deal with any case in the way it wants, if it is decided at the top level of the Board. The companies involved in the retrospective tax cases may feel happy that the provision has been quashed, but they should wait for some more time before it turns out to be a final respite.