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Arbitration Panel Cites Prime Minister, Minister’s Claim on Retro Tax to Override Cairn Tax Lawsuit | India News


NEW DELHI: A three-member tribunal of the Permanent Court of Arbitration in The Hague cited statements by Prime Minister Narendra Modi and other ministers who pledged not to use retrospective taxation to set aside a 10,247 crore tax lawsuit against the British company oil and gas company Cairn Energy Plc. .
The court, in a 582-page ruling on December 21, ordered the return of the value of the shares that the Income Tax Department sold, as well as the dividend it seized and the tax refunds it withheld to recover the tax claim. which was imposed after the 2012 amendment to the Income Tax Law that gave authorities powers to collect taxes on previous agreements
It declared that the 2006 reorganization of Cairn Energy’s business in India prior to listing on the local stock exchanges was not “illegal tax evasion” and ordered the tax authorities to withdraw the tax claim.
In the order, the court, which consisted of a member appointed by the Indian government, said that the 2014 election manifesto of the Bharatiya Janata Party (BJP) criticized the previous government for unleashing ‘fiscal terrorism’ and ‘uncertainty’, that ‘negatively impact[ed] the investment climate ”.
In his first budget speech in July 2014, the new Finance Minister Arun Jaitley proposed that a ‘High Level Committee’ overseen by the CBDT be put in place to examine new cases that had emerged after the 2012 Amendments. .
After saying that, “[t]your government will not normally produce any retrospective changes that create a new liability, “he announced that” from now on, all new cases arising from the 2012 retrospective amendments regarding indirect transfers and brought to the attention of the Assessing Officials they will be examined by a High Level Committee that will be constituted by the CBDT before any action is initiated in such cases, “the order said.
On November 7, 2014, Jaitley, according to the order, insisted that his government had made a “political decision that, as far as this government is concerned […] although there is a sovereign power of retrospective taxation, we are not going to exercise that power ”.
On January 13, 2015, Jaitley was quoted as saying that the 2012 Amendment had “scared off investors from India” and that “the government had no intention of using the retrospective tax provision.”
“This view was confirmed by Prime Minister Narendra Modi on February 14, 2016. The prime minister was quoted in the Financial Times as saying that the government” will not resort to retrospective taxation; we are making our tax regime transparent, stable and predictable, ”the court said.
In 2015, the Income Tax Department imposed a 10,247 crore tax lawsuit on Cairn for the alleged capital gains it made in the 2006 business reorganization. Cairn denied the scheme, avoided any prevailing taxes on that date and challenged the claim through arbitration.
During the arbitration proceedings, the government sold Cairn’s close to 5 percent stake in Vedanta Ltd, seized dividends totaling Rs 1,140 crore owed to it on those stakes, and offset a tax refund of Rs 1,590. against the lawsuit.
The court ordered the government to return the value of the shares it had sold, the seized dividends and the tax refunds withheld to recover the tax claim along with interest. In addition, the cost of the arbitration was reimbursed. All of this amounted to $ 1.25 billion plus interest.
The government in response to the arbitration award had stated that it will study the order and “consider all options and make a decision on the further course of action, including legal recourse to the appropriate forums.”
This is the second loss the government has suffered in three months due to retrospective tax collection. In September, the UK’s Vodafone Group won an international arbitration against the claim for Rs 22.1 billion in tax.

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