NEW DELHI: India has offered to waive interest liability in a fresh attempt to settle income tax cases such as those involving Cairn India and Vodafone plc, provided the principal amount is paid.
The Central Board of Direct Taxes has issued a circular for waiver of interest in disputed tax demand in different scenarios, including the cases arising due to the controversial amendment to the law with retrospective effect.
In cases where tax liability arose because of retrospective amendment to the law or a court ruling, the interest payable on the demand will be waived, it said.
“However, no reduction or waiver of such interest shall be ordered unless the principal demand… stands fully paid or satisfactory arrangements for payment of the principal demand have been made,” CBDT said in its guidelines to chief commissioner of Income Tax and director general of Income Tax.
The guidelines come weeks after the Direct Tax Dispute Resolution Scheme announced by Finance Minister Arun Jaitley in the budget last year closed on January 31.
The scheme promised to waive interest and penalty if the principal amount involved in retrospective tax cases is paid and all appeals against the government challenging constitutional validity of back-dated amendment to income tax laws are withdrawn.
Neither Vodafone nor Cairn India came forward to settle dues under the scheme. Vodafone International Holdings BV, Vodafone plc, Nokia Oyj, Cairn Energy plc and Vedanata Resources plc have already send notices to the government under the Bilateral Investment Protection and Promotion Agreements India has entered into with other countries, raising the validity of tax demand by India.
The tax department had in October 2010 imposed a tax liability including interest of Rs 11,218 crore on Vodafone International Holdings BV (VIHBV) for its $11billion acquisition of Hong Kong-based Hutchison Whampoa’s 67% stake in India mobile phone business in 2007.
In January 2012 the Supreme Court set aside the order, but the government amended the act retrospectively to validate the demand. A fresh tax notice was issued to the company in January 2013.
The tax department asked UK’s Cairn Energy plc to pay Rs 10,247 crore in principal due for the capital gain it made in 2006 when it transferred its India business to a new subsidiary, Cairn India, and listed it on stock exchanges. Income tax appellate tribunal this month upheld the `10,247 crore capital gains tax on Cairn Energy plc.