Pranab Mukherjee's bid to shield revenue from court rulings

Finance minister Pranab Mukherjee is trying every tool available to him to ensure that he does not lose revenue due to court or tribunal rulings. It now emerges that he has inserted a clause in the Finance Bill which proposes to ensure that notwithstanding a court or tribunal ruling, all capital gains tax notices or demands either levied or recovered under provisions of the Income Tax Act related to a share or income arising out of India will stay valid. The move is ostensibly aimed at ensuring that the government collects taxes in merger and transactions involving an Indian asset, which is held by foreign entities. The clause is in addition to amendments to Section 9 of the Income Tax Act that has come under sharp criticism from tax experts and investors. The second provision, inserted through clause 113 of the Finance Bill, is something that Mukherjee had alluded to during an interaction with the media on Sunday. What he did not mention was his intent to ensure that government revenue is not lost and "fiscal chaos" is not a mere statement but is backed by a proposal awaiting parliamentary sanction. Tax practitioners, however, said the proposals are fraught with the risk of facing fresh judicial scrutiny as they seek to ensure that the executive has its way even if the court interprets a decision to be against the prevalent legal norms. From the government's point of view, the idea is to ensure that the exchequer does not lose Rs 35,000-40,000 crore in total as a fallout of the Vodafone deal. The government has asked the global mobile giant to pay around $2 billion in taxes, which were due from Hutch, and should have been deducted by Vodafone while acquiring the company's 67% interest in Hutch Essar for a consideration of $11.9 billion. Although the Supreme Court had struck down the demand on the grounds that it was an "offshore" transaction, Mukherjee is seeking to amend the law retrospectively from April 1962 to ensure that it does not lose revenue.