Govt approaches 17 companies to settle retrospective tax cases

A couple of weeks after the Income-Tax (I-T) Act was amended to junk the contentious retrospective taxation provision, the government is reaching out to 17 affected companies to withdraw cases from various judicial levels and derive the benefit of the legal correction.

The government has made the first move and offered to settle the retrospective cases because it would be a fresh challenge if these companies decide not to withdraw cases pertaining to the 2012 legislation on the indirect transfer of Indian assets.

The rules under the Taxation Laws (Amendment) Act, 2021, are expected this week. The government has collected about Rs 8,000 crore from three of the 17 companies — Rs 7,900 crore from Cairn Energy, Rs 44.7 crore from Vodafone, and Rs 48 crore from WNS Capital — which it has proposed to refund on certain conditions getting fulfilled, including withdrawing pending litigation and furnishing an undertaking that no claim for cost, damages, interest, etc. would be filed.

This condition is part of the Taxation Laws (Amendment) Bill, 2021, passed by Parliament in the monsoon session.

Government officials had earlier said, now that the legislation to remove retrospective taxation was in place, it was for the companies to reach out to the government and settle these cases.

However, last week Central Board of Direct Taxes (CBDT) Chairman J B Mohapatra wrote to the jurisdictional officers — the principal chief commissioners of I-T — to approach those cases that were likely to benefit from the new amendments to the retrospective taxation.

“Instead of waiting for the other side to approach the government, the latter is approaching these companies to settle the cases. The government now wants their judicial closure. These cases are a big cost for the government too,” said an official.

In one of the cases, Earlyguard, a British subsidiary of Japanese conglomerate Mitsui & Co., commenced arbitration under the India-UK bilateral investment treaty in May 2021 over the Rs 2,400-crore tax demand related to a transaction that took place in 2007.

Brij Mohan Khaitan Group-controlled McLeod Russel, the largest integrated tea conglomerate in the world, was the first Indian company to challenge the retrospective amendments to tax laws in the Calcutta High Court (HC), alleging that they were unconstitutional and arbitrary.

Similarly, IHC Mauritius Corporation and SABMiller plc had filed a case in the Bombay HC.

The CBDT chairman asked tax officers to identify the eligible cases under the new legislation. A template of the communication for these companies has also been shared with the respective officers. Also, the officers have been asked to send details of the eligible cases and the related arbitration to the board.

“Besides the three companies — Cairn, Vodafone, and WNS Capital — there isn’t much to refund the other players. Therefore, it is on the companies to withdraw cases and do settlement with the government,” said a government official.

India lost the international arbitration with Cairn Energy at The Hague in December and the former was given an award of $1.2 billion. India appealed it in March and a hearing for setting aside the order is scheduled in September.

The government also wants London-based Vedanta Resources to withdraw arbitration in Singapore as part of the settlement with Cairn Energy. Vedanta has sought damages worth close to Rs 5,000 crore under the India-Singapore investment treaty over a significant decline in share value due to the Rs 10,250-crore tax notice to its erstwhile subsidiary Cairn India. The Indian entity subsequently merged with Bombay Stock Exchange-listed Vedanta, leading to Cairn Plc holding in Vedanta as well.

London-based Vedanta Resources has also served notice of claim against the government under the India-UK bilateral investment treaty, challenging the tax demand on March 27, 2015. India also lost international arbitration against Vodafone in September last year, against which India filed an appeal in Singapore.

RETRO EFFECT

Deals which saw retro tax being imposed

• $981 million Mitsui-Vedanta in Sesa Goa
• $770 million Sanofi-Aventis and Shantha
• $500 million GE and Genpact
• $150 million Idea Cellular and AT&T
• $120 million SABMiller plc and Fosters