Planning Commission Deputy Chairman Montek Singh Ahluwalia today opined that finance ministry not reopening the Vodafone case based on amending the I-T Act would give assuring signals and said generally changes to laws should not be done retrospectively.
When asked in Karan Thapar's Devil's Advocate programme on CNN-IBN whether it would not help the situation if the Finance Ministry were to announce that they will not reopen the Vodafone case on the basis of amending the law, Ahluwalia said, "I am sure, it would."
Ahluwalia further said, "I think what they (Finance Ministry) have done is, dominantly, to change the law. And I think objectively that particular change is not only an appropriate one, it is something they have signalled in the DTC."
"... As a general rule I agree with you one should avoid retrospective amendment (in laws)," he added.
Finance Minister Pranab Mukherjee in his Budget has proposed amendments in the Income Tax Act with retrospective effect from 1962 to bring into net overseas deals concerning domestic assets.
As per the proposed amendments, all persons, whether residents or non-residents, having business connection in India, will have to deduct tax at source and pay it to the government even if the transaction is executed on a foreign soil.
The amendments, once carried out, will have implications on Vodafone which won the Rs 11,000-crore tax dispute case against tax authorities in the Supreme Court. It will also impact other similar cases involving taxes to the tune of about Rs 30,000 crore.
Meanwhile, the Finance Ministry today allayed fears of negative impact of the proposed amendments on foreign direct investments.
"The apprehension that the retrospective amendments would create negative sentiment for FDI is not correct. FDI comes when there is profitability, FDI does not come only on account of zero tax," Finance Secretary R S Gujral told industry leaders here.
About the impact of the proposed amendment on Vodafone case, Ahluwalia said, "I do not want to comment on the impact on any particular company. I think ... It is not only appropriate one, but something we have siganlled in the proposed DTC. We are going to do that anyway."
In the Vodafone case, the Supreme Court had held that the Income Tax Department does not have the jurisdiction to levy withholding tax for its USD 11 billion acquisition deal with Hutchison Essar in 2007.
When pointed about HDFC Chairman Deepak Parekh's criticism of the proposed amendement, Ahluwalia said, "I am aware that there has been a very negative reaction. I am sure the Finance Minister is also aware of it... So as I said, most people tend to regard retroactive amendment as undesirable".
On the impact of this move on foreign investment flows, he said, "Whenever you have retrospective amendment which affects an individual, he will certainly feel that he has been treated unfairly."
However, he allayed fears that this will impact the flow of foreign funds into the country. "I think that foreign investors should have absolutely no doubt in their mind that the government does not intend to change some of the basic conditions retrospectively.
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