Throwback Budget 2012: Retrospective Amendments to Income Tax Act, 1961
The proposal was to allow the country to retrospectively tax cross-border transactions in which the underlying assets are located in India.
January 31, 2018 / 04:59 PM IST
Finance Minister Pranab Mukherjee in Budget 2012-13 proposed to amend the Income Tax Act, 1961 with retrospective effect.
The proposal was to allow the country to retrospectively tax cross-border transactions in which the underlying assets are located in India. Under the proposed amendment, all persons, whether resident or non-residents, having business connection in India, will be required to deduct tax at source and pay it to the government even if the transaction is executed on a foreign soil.
Following are the sections which were amended:
Section 2(14) - This provision defines a “capital asset”. - it is hereby clarified that ‘property’ includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever”
Section 2(47) - This provision defines a “transfer”. - it is hereby clarified that “transfer” includes and shall be deemed always to have included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company incorporated outside India.”
Section 9 - This provision defines when income is deemed to accrue or arise in India. - it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share of the interest derives, directly or indirectly, its value substantially from the assets located in India.”
The amendments had implications for British telecom giant Vodafone, which won the Rs 11,000-crore tax case in the Supreme Court.
In view of the implications of the proposed amendments on overseas deals, several global organisations had appealed to the Indian government not to go ahead with the retrospective amendment of the IT Act arguing that the decision would hurt foreign investments.