Friday 12 October 2012

“I'm the Parliamentary Draftsman, I compose the country's laws. And of half the litigation, I'm undoubtedly the cause.”


Pranab Mukherjee proved THAT right. Introducing retrospective amendments through the Budget wasn’t a smart move, which is what anyone with a rational mind has been screaming since March. The result was evident – the investor community was outraged, the Rupee took a sharp fall. The moment Mukherjee got elected as President, the Government almost fell over itself in a haste to soothe investor sentiment. The Prime Minister appointed a Committee to review GAAR and the retro tax policies (with respect to indirect transfers). And in a lot of press conferences, Chidambaram has been advocating a ‘non-adversarial tax regime’ (whatever that means).

And oh, Justice S.H. Kapadia retired. :( Not that this has any specific relevance, it is just sad. In this regime of flip-flops, he was truly a shining beacon of steadfastness. 

Despite having a SUPREME COURT ruling in its favour, it absolutely flabbergasts me to see that there still remains a doubt as to whether Vodafone could be made liable to tax. IT BLOODY WELL CANNOT. And I do hope it doesn’t cave and ‘settle.’ Incidentally, the Committee appointed to review the retrospective amendments in relation to indirect transfers (the Shome Committee) has recommended that the amendments be made applicable ‘prospectively.’ 

The Committee’s Report, made public on October 9, states, “The Committee concluded that retrospective application of tax law should occur in exceptional or rarest of rare cases, and with particular objectives: first, to correct apparent mistakes/anomalies in the statute; second, to apply to matters that are genuinely clarificatory in nature, i.e. to remove technical defects, particularly in procedure, which have vitiated the substantive law; or, third, to ‘protect’ the tax base from highly abusive tax planning schemes that have the main purpose of avoiding tax, without economic substance, but not to ‘expand’ the tax base.” This is an interesting point. An amendment seeking to ‘widen’ or ‘increase’ the tax base cannot be considered as ‘clarificatory.’ 

The Supreme Court said “Sec 9(1)(i) is not a ‘look through provision’ and cannot, by a process of interpretation be extended to cover indirect transfers of capital assets/property situate in India. To do so, would amount to changing the content and ambit of Section 9(1)(i). We cannot re-write Section 9(1)(i). … The question of providing ‘look through’ in the statute or in the treaty is a matter of policy. It is to be expressly provided for in the statute or in the treaty.”

Does this lead to a not-so-merry go round?


Who the hell would want to invest in such a climate? Please, Parliamentary Draftsman, ACCEPT the recommendations, end the confusion and establish some certainty. You’re already the cause for half the litigation, don’t become the SOLE cause.

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