Foreign transactions under IT scanner, govt softens stance

But does this mean that the dozen odd companies that have paid the capital gains tax under protest will be let off the hook?

CNBC-TV18's Aakansha Sethi reports, the prime minister's first priority was always investor interest and he was not in favor of the retrospective amendment of section 9. Despite this, after the parliament passed the Finance Bill 2013, the amendment is now a law and the tax department will have to initiate collections from companies where assessments have been opened.

In fact, sources in the IT department say that with Vodafone's Rs 8000 crore penalty notice in the public eye, the tax department is now likely to serve penalty notices to all the companies that did not pay up in time.

The overseas transactions that have been under the scanner include Sab Miller-Fosters, Sanofi Aventus and Aditya Birla Nuvo and Idea. However, the silver lining is the fact that no new assessments prior to 2012 will be opened.

The IT department has been uncharacteristically silent on Vodafone's Rs 20000 crore tax demand due to the former finance minister Pranab Mukherjee's presidential ambitions. The department is now waiting for a response to the reference to the AG on the method of initiating tax collections. Clarity is expected on Tuesday when an inter-ministerial group meets to discuss a reply to Vodafone's demand for on an undertaking that the retro amendment does not apply to them.

On Foreign Institutional Investors exempting P-notes from tax net

With no relief for these overseas transactions, the softening of the tax stance will come in the form of a circular for FIIs that will exempt P-notes from the capital gains tax even when a FII based out a low tax jurisdiction is availing treaty benefits from it.

On GAAR

The PM may also extend an olive branch to the industry by postponing GAAR. A clarification on unintended consequences of Section 9 such as royalty payments and inter group transfers is also likely.

But there is unlikely to be any relief for merger and acquisition deals already under litigation, unless the courts declare the amendment unconstitutional.

Mcleod Russel is under the scanner for its buyout of Borelli Tea Holdings’ 74% stake in Williamson Tea Assam. It has already filed a writ petition in the Calcutta High Court and the government is gearing up for such appeals in courts across the country.