Taxmann’s Analysis of the Taxation Laws (Amendment) Bill, 2021
- Blog|News|Income Tax|
- 2 Min Read
- By Taxmann
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- Last Updated on 7 August, 2021
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The issue of taxability of income, arising on indirect transfer of assets located in India due to the transfer of the shares of a foreign company, was a subject matter of prolonged litigation. This issue first time arose in the case of Vodafone International Holdings. In 2006, Vodafone International Holding (Vodafone) and Hutchison Telecommunication International Limited (HTIL) entered into a transaction by which HTIL transferred the share capital of its Cayman Islands based subsidiary company to Vodafone. By this transaction, Vodafone indirectly acquired a controlling interest of 67 percent in Hutchison Essar Limited (HEL), an Indian Joint venture company.
The Income-tax Department in 2007 served a notice to Vodafone for its alleged failure to deduct withholding tax from the consideration paid to HTIL. The controversy finally settled in favour of Vodafone by the Supreme Court. The Supreme Court had ruled in favour of Vodafone that it was not liable to deduct tax as gains arising to HTIL from indirect transfer of Indian assets was not chargeable to tax in India
However later, the Govt. amended the provisions of Section 9 by the Finance Act, 2012 with retrospective effect. The Finance Act, 2012 inserted Explanation 4 and Explanation 5 to Section 9(1)(i) with retrospective effect from 01-04-1962. The amendment has clarified that gains arising from the sale of shares of a foreign company are taxable in India if such shares, directly or indirectly, derive their value substantially from the assets located in India. The Govt. had termed the amendments as clarificatory in nature.
These clarificatory retrospective amendments and consequent demand continue to be a sore point with the potential investors. Thus, the Govt. has introduced the Taxation Laws (Amendment) Bill, 2021 in the parliament to propose revocation of the amendments made in Section 9. A snippet of changes proposed by the Taxation Laws (Amendment) Bill, 2021 is presented in this article.
Read Taxmann's Analysis Get the Full Copy of the TLA Bill, 2021
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