Retrospective Legislation
SOME time back, the Secretary of a Department of the Union of India wanted our help in getting a provision in an Act amended retrospectively. We told him that it is very simple – go to Parliament with a proposal to amend the law retrospectively and it will be done. We also asked him to get the help of the Revenue Secretary who gets a few retrospective amendments passed by Parliament every year. The Secretary told us “it is easy for the Revenue Secretary, because he goes to Parliament every year with the Finance Bill, but my department went to Parliament with a Bill more than thirty years ago; any Bill I take to Parliament will be thoroughly scrutinised and debated – I can't get it passed, but the Revenue Secretary can get his amendments through the Finance bill.”
Yesterday, the Finance Minister said,
“Retrospective fiscal legislation normally should not be brought in. But if a judgment comes that Rs. 5 lakh crore in revenue has to be returned, would it be possible? Everybody knows that it will lead to a financial crisis.
We are making three points quite clear — that India is a not a ‘no tax' or ‘low tax' or even a ‘tax haven.' India is a country where all taxpayers, whether resident or non-resident, will be treated on a par. Secondly, India is a country where tax laws are that if you pay tax in one country, you need not pay tax in the other country of your business operation which is covered by the DTAA. But it cannot be a case that you pay no tax at all.
Why we have to go back to day one is that this is one piece of legislation which is relevant to the date of enactment. Because I am amending the Income Tax Act 1961, Section 90, its relevant date is the date of enactment of the Act and that is why it goes back to 1962.
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… To make the intent of the legislature clear, clarificatory amendments have been proposed. This will bring tax certainty and would also make it clear that India has a right to tax similar transactions.”