The government’s take on recommendations to be given by the Parthasarthi Shome Committee on the General Anti-Avoidance Rules (GAAR) and the N Rangachary panel on taxation on IT sectors may be incorporated in the proposed Direct Taxes Code (DTC).
The recommendations by both Shome and Rangachary panels are likely to come up as part of the DTC Bill, officials in the finance ministry told Business Standard.
Meanwhile, the DTC Bill was not likely to be tabled in the ongoing monsoon session of Parliament, the officials said. Parliament’s standing committee on finance has already submitted its report on DTC.
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Officials, however, did not rule out some important income tax provisions coming up in the winter session of Parliament as well. The Monsoon session is slated to conclude on September 8.
Finance Minister P Chidambaram has already directed a review of retrospective amendments to the Income Tax Act. Besides, the terms of reference of the Shome panel has been extended to cover the impact of the retrospective amendments on foreign institutional investors (FIIs).
GAAR, announced in the Budget for 2012-13, was opposed by the industry. In fact, Mauritius Foreign Affairs and Trade Minister Arvin Bolell as well as Singapore Prime Minister Lee Hsien Loong pitched for predictability of laws. As such, Prime Minister Manmohan Singh, holding charge of the finance ministry portfolio after Pranab Mukherjee resigned to contest the Presidential fray, set up a panel under the chairmanship of tax expert Shome to review GAAR.
This was done, even as the Finance Ministry had come out with draft guidelines on GAAR. The draft guidelines had turned down foreign institutional investors’ demand that capital market transactions be exempted from the proposed GAAR, but tried to soften the blow by clarifying that non-resident investors among FIIs would not be taxed. It means that liability to pay tax would not fall on participatory notes holders, but on FIIs.
GAAR is basically aimed at taxing those business structures whose primary aim is not commercial but tax avoidance. It could even override tax treaties, a provision opposed by Mauritius.
The Shome Committee has been given time till August 31 to come out with the second draft on GAAR for the feedback from stakeholders.
Later, its ambit was enlarged to review the impact of retrospective amendments on FIIs. These amendments were carried out in the Finance Bill to bring overseas deals like Vodafone where underlying assets are in India under the tax net. The amendments were done after Supreme Court had ruled that the Income Tax department has no jurisdiction to tax Vodafone for its 11 billion dollar deal to buy stake in Hutchison Essar (now Vodafone India.)
After the industry objected to retrospective amendments as back as 1962, the government announced review of the amendments. But, that happened only after Pranab Mukherjee quit the Finance Ministry. The work on standing committee’s recommendations on DTC Bill has not started yet.
There are vast differences between the first draft bill initiated by Chidambaram and the bill tabled by then Finance Minister Pranab Mukherjee.
