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CBDT to waive interest liability if tax demand paid in retrospective cases

New guidelines are primarily targeted at companies like Cairn India, Vodafone

Press Trust of India  |  New Delhi 

CBDT to waive interest liability if tax demand paid in retrospective cases

The department will waive interest liability if the principal demand of capital gains is paid by companies like and plc.

The (CBDT) on March 24 issued a circular for waiver of interest in disputed demand in different scenarios.

In cases where tax liability arose because of the retrospective amendment to the law or a ruling, the interest payable on the demand will be waived, it said.

"However, no reduction or waiver of such interest shall be ordered unless the principal demand... Stands fully paid or satisfactory arrangements for payment of the principal demand have been made," guidelines to Chief Commissioner of Tax and Director General of Tax said.

The guidelines came seven weeks after the Direct Tax Dispute Resolution Scheme, announced by Finance Minister on February 28 last year, closed.

The scheme, which closed on January 31, provided for waiver of interest and penalty if the principal amount involved in retrospective tax cases is paid and all appeals against the government challenging the constitutional validity of the back-dated amendment to Tax laws are withdrawn.

faces Rs 14,200 crore tax bill for failing to collect taxes when it paid $11 billion to acquire Hong Kong-based Hutchison Whampoa's 67 per cent stake in mobile-phone business in 2007.

UK's plc has been slapped with over Rs 29,000 crore in tax demand including Rs 10,247 crore in principal due, for alleged capital gain it made in 2006 when it transferred its business into a new subsidiary, Cairn India, and got it listed.

Simultaneously, the tax department also raised a tax demand of Rs 20,495 crore in for failing to deduct withholding tax on alleged capital gains made by its erstwhile parent company in 2006-07 when it reorganised India business.

While the tax scheme that closed on January 31 primarily targeted and Vodafone, the new guidelines will be applicable for as well as

Neither Cairn Energy nor Vodafone participated in the scheme that closed on January 31 and has dragged India to arbitration contesting the demands.

The tax department in the guidelines said the cases where the interest can be waived include ones where tax was not deducted because of an order passed by the High but the same has been reversed by "any retrospective amendment of law or a decision of the Supreme of India or a decision of a larger bench of the jurisdictional High Court."

Earlier this month, tax tribunal ITAT upheld levy of Rs 10,247 crore capital gains tax on UK's Cairn Energy Plc but has held that interest cannot be charged on it as the demand was raised using retrospective tax legislation.

The tribunal had also said that Cairn India should have withheld tax on capital gains made by its parent company.

The guidelines state that interest can be waived in cases where tax deduction at source could not happen because of seisure of books of accounts and other documents by the Income Tax department.

The same can also be done in cases where the default is related to "non-deduction or a lower deduction of tax in respect of a payment made to a non-resident (including a foreign company) being a resident of a country or specified territory outside India with whom India has entered into an agreement."

Commenting on the circular, Amit Maheshwari, Partner Ashok Maheshwary and Associates LLP said: "The interest waiver process will become much faster and efficient. Even existing unresolved waiver requests are covered and this will provide an efficient and quick resolution."

First Published: Mon, March 27 2017. 00:38 IST