The Upper House of Parliament in India has Approved a Measure to Abolish Retroactive Taxes
The Rajya Sabha, India's upper house, adopted The Taxation Laws Amendment Bill on Monday, which aims to eliminate all retrospective taxation on indirect asset transfers in India. The tax bill's goal is to overturn the effects of modifications made by the Finance Act of 2012, which attempted to impose tax responsibility on gains deriving from the indirect transfer of assets domiciled in India retrospectively.
According to Article 110 of the Indian Constitution, any bill dealing with the imposition, repeal, remission, change, or regulation of any tax is considered a money bill. As a result, while the tax measure meets the criteria of a money bill, Article 109 of the Constitution only allows the Rajya Sabha to adopt it with recommendations to the lower chamber.
Alternatively, Rajya Sabha has no jurisdiction to reject the tax bill, and the law would have been declared enacted by both houses of Parliament even if it had not been approved within the 14-day deadline. The Lok Sabha must now agree to and accept any Rajya Sabha suggestions on the tax bill, although it can pass the law without doing so. As a result, in situations concerning taxation or tax legislation, the Rajya Sabha has extremely limited authority.
The tax bill would modify the Income Tax Act to clarify that the Finance Act's impact will be prospective, invalidate certain limitations on indirect transfers of India-based assets made before May 28, 2012, and make other changes to the Finance Act.
The Finance Act was an attempt to get around the precedent in the Vodafone case, which found that earnings deriving from the indirect transfer of assets in India were not taxable under the Income Tax Act's then-current provisions.
Conclusively, because of the retroactive clause in the Finance Act, the tax law would effectively eliminate any tax demands against corporations like Cairn Energy and Vodafone. The law is still awaiting Lok Sabha ratification, which may or may not adopt Rajya Sabha's recommendations.