New Delhi: Finance minister Pranab Mukherjee's move to amend the law retrospectively to get merger and acquisition deals such as the Hutch-Vodafone transaction in the tax net may cause embarrassment to the government, especially after Prime Minister Manmohan Singh's assurance to Gordon Brown in 2010, the then British Prime Minister.
"I can assure you that Vodafone will have the full protection of law and access to the legal system in India. I also understand there is no retrospective application of taxation and a recent court judgment has affirmed this position," Singh said in a letter to Brown on February 5, 2010. Brown, a former finance minister, like Singh, had written to the Indian Prime Minister twice in December 2009, questioning the jurisdiction of Indian tax authorities to levy capital gains tax on Vodafone, the plea the telecom giant took in the court. In his response, the Singh made it clear that the action taken by the income tax department "was based on specific facts of the case" and came with the assurance that "a transparent and growth-oriented environment for profitable international investment" will be provided.
Two years later, Mukherjee, after a setback to a tax claim of Rs 11,000 crore in the Supreme Court, has proposed to amend the Income Tax Act with effect from April 1962 to ensure that the government does not lose revenue. While the Budget proposal has come in for strong criticism from all quarters, the finance ministry has sought to defend the move arguing that it cannot lose revenue. In fact, Mukherjee had gone to the extent of saying that there will be "fiscal chaos" if the law was not amended and cited the trend of retrospective amendments to argue his case.
"Retrospective fiscal legislation normally should not be done. There is no two opinion about it. But at the same time, I cannot create a fiscal crisis and fiscal chaos. Suppose, if I do not do it and because of a court judgment Rs 5 lakh crore revenue is to be returned, will it be possible?" the finance minister had said during a post-Pudget meeting with journalists.
Manmohan Singh
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