Indirect transfer tax provision would apply prospectively
Background
The Government of India has finally passed a bill to withdraw
the retrospective nature of the Indirect Transfer tax amendment.
This retrospective amendment to the Income Tax Act was introduced
after the Hon'ble Supreme Court's verdict in the case of
Vodafone. It was held by Hon'ble Supreme Court that gains
arising from indirect transfer of Indian assets in respect of
transaction between Vodafone and Hutchison Essar are not taxable
under the provisions of the Act.
However, as per the Government, the verdict was inconsistent
with the intention of the law, and thus an amendment was brought by
the Finance Act, 2012, with a retrospective effect from 1961. The
amendment clarified that the gains arising from the sale of a
foreign company's share are taxable in India if such a share,
directly or indirectly, derives its value substantially from the
assets located in India.
