Retrospective change in I-T act must go, say experts

The retrospective amendment in Income Tax Act introduced by Pranab Mukherjee in 2012-13 to deal with cases like Vodafone Plc must be done away with and any alternative dispute mechanism in such cases would be a welcome, legal experts pointed.

The Indian government has permitted conciliation with Vodafone Plc, what could turn out to be an alternate dispute mechanism for many other such tax cases. While Vodafone Plc had asked for conciliation for tax dispute under United Nations Commission on International Trade Law (UNCITRAL) rules, the government has accepted conciliation only under part III of the Arbitration and Conciliation Act.
 
Majority of experts agreed that in the Vodafone tax case the government should have accepted recommendations made by the Parthasarathi Shome Committee. The Shom committee which was appointed by finance ministry to study controversial retrospective tax amendment had clearly indicated that the amendment was wrong, running counter to the basic tenets of law. CNBC-TV18 spoke to three legal experts on this development. Here's what they had to say:
"An amendment to the Income Tax Act as per the Shome Committee recommendations to remove the retrospectivity would be an ideal solution both from an investment climate point of view as well as from the point of view of giving tax certainty,” Sudhir Kapadia of Ernst & Young.
Sandeep Parekh Of Finsec Law Advisors said, “He was not overly optimistic about a resolution happening through conciliation and given the way any person in the government thinks. If there are five views possible they will always take the most conservative view.”
The issue is much beyond Vodafone because the conciliation is there only in so far as Vodafone is concerned. The larger issue over here is the certainty of the tax policy, it is the message that India is trying to communicate to the foreign investors at large
Mukesh Butani, Managing Partner of BMR Legal said that the retrospective tax amendment was much beyond Vodafone tax issue. “The larger issue over here is the certainty of the tax policy, it is the message that India is trying to communicate to the foreign investors at large.
While it is yet to be seen how government chooses to settle the matter with Vodafone, Butani said, “More importantly we should be asking the government, what happens to other similar transactions who haven’t gone through a trial that Vodafone has been through.”
Most legal experts felt that government lacked conviction to remove retrospective amendment. “If the government wanted to take the bull by the horn it could have done a very simple thing. It could have just repealed the 2012 retrospective amendment which I think they missed the opportunity in the 2013 Budget,” Butani argued.
Agreeing to him, Kapadia of E&Y said, “There is no visibility on any attempt being made by the government to remove the retrospective amendments. Why has the government not considered that obvious step based on the recommendation of the Shome committee is something which the government has to answer?,”
More importantly, legal experts believe that conciliation with Vodafone paves way for alternative dispute mechanism. “The broader aspect for India to consider is that what are the alternative dispute mechanisms when it comes to the plethora of tax disputes, which we are facing today in the country…I think any attempt being made to table any alternative dispute mechanisms therefore in-principle should be welcome, aside from this particular case,” Kapadia said.
He further pointed that conciliation with Vodafone could be an attempt under the plan B as suggested by Shome committee. The Shome committee had suggested that if for whatever reasons the government is unable to rollback the retrospective amendments then it must look at the waiver of interest and penalties.
The move to go for conciliation with Vodafone instead of eliminating retrospective amendment also points to government’s desperate attempts of reining in fiscal deficit. “I completely agree that at a time when the GDP story is not looking very good, the time when the investment climate is not looking very good this is a great opportunity. As I am saying to resolve Vodafone removing retrospective amendments is the right step. Having said that, I also agree that it is not just one dispute as we know from experience, disputes after disputes are piling up. We should look at alternative dispute mechanisms as well,” Kapadia said explaining how conciliation could more rewarding for government than getting rid of retrospective amendment in I-T act.