CBDT releases draft regulations for withdrawal of retro tax demands

The income tax department on Saturday released the much-awaited draft rules for the legislation pertaining to the withdrawal of retrospective amendment in taxation concerning entities including Cairn Energy and Vodafone in lieu of irrevocable withdrawal of all legal cases against the government.

The government passed the Taxation Laws (Amendment) Act 2021 in Parliament earlier this month offering a settlement of the retrospective cases pertaining to the 2012 legislation on the offshore indirect transfer of Indian assets.

The draft rules released by the tax department call for a declaration by the companies to “irrevocably withdraw, discontinue and not pursue” any legal proceedings. These include proceedings before the appellate forum, proceedings for arbitration, conciliation, or mediation, and for enforcing or pursuing attachments in respect of any award, order, or judgement.

The CBDT has sought comments on the draft notification by September 4.

"The aim of the amendment made by the 2021 Act is to bring tax certainty and ensure that once specified conditions are fulfilled, the pending income-tax proceedings shall be withdrawn, demand, if any, raised shall be nullified, and amount, if any, collected shall be refunded to the taxpayer without any interest," the income tax department said in a press statement on Saturday.

To implement the amendment made by the 2021 Act, draft rules have been prepared to amend the income-tax Rules, 1962 which specify the conditions to be fulfilled and the process to be followed to give effect to the amendment made by the 2021 Act, it added.

The government has collected Rs 8,000 odd crore from three of the 17 companies — Rs 7,900 crore from Cairn Energy, Rs 44.7 crore from Vodafone, and Rs 48 crore to WNS Capital — which it has proposed to refund under the new legislation if these companies fulfill certain conditions. 

These include withdrawal of pending litigation and furnishing of an undertaking to the effect that no claim for cost, damages, interest, etc., would be filed. The amount paid/collected in these cases shall be refunded, without any interest, on fulfillment of the said conditions. The amendment made by the 2021 Act provides that the demand raised for offshore indirect transfer of Indian assets made before 28th May 2012 (including the validation of demand provided under Section 119 of the Finance Act 2012) shall be nullified on fulfillment of the specified conditions.

Sandeep Jhunjhunwala, partner, Nangia Andersen LLP said that interestingly, any dispute with respect to any of the prescribed forms or orders under these rules would be governed by the Indian laws and Indian courts would have the exclusive jurisdiction to decide disputes.