Govt draws the line, says no arbitration for tax issues
New Delhi: The government has set the record straight on tax disputes, maintaining they are not covered by the Bilateral Investment Promotion and Protection Agreement (BIPA) and need to be judicially and legally settled.
“…But again on the BIPA issue, let me mention, it has been our consistent view that that tax disputes can not be a matter of arbitration. They have to be judicially and legally settled,” Revenue Secretary Shaktikanta Das told a private news channel.
Das was replying to a query on a notice sent by Cairn Energy of the United Kingdom invoking the UK-India Investment Treaty against the tax demand raised by the Revenue Department on an internal business reorganisation seven years ago.
In the Notice of Dispute, Cairn has sought withdrawal of all notices, release of attached shares and payment of full compensation for any resulting damages sustained by it, including for the diminution in value of the attached shares.
The Income Tax Department last month had slapped a Rs 10,247 crore (USD 1.6 billion) tax demand on Cairn Energy Plc.
The tax demand relates to an alleged Rs 24,500 crore worth capital gains it made in 2006 while transferring all its India assets to a new company, Cairn India, and getting it listed on the stock exchanges.
On recent tax notices to foreign institutional investors (FIIs), which have kicked up a storm, Das said, “Now, if there is one judicial pronouncement, the answer is go to next higher judicial forum and not expect or not to rush to the government saying you amend the law retrospectively.”
Noting that the issue of minimum alternate tax (MAT) on capital gains made by the foreign investors has been resolved prospectively, the Revenue Secretary said, “The past problem which is bound by judicial pronouncement has been completely isolated and it has to be dealt with in a proper legal manner.”
Recently, Finance Minister Arun Jaitley had also sought to defend the notices saying legitimate tax demand cannot be considered “tax terrorism” because India is not a tax haven.
