Waive interest, penalty in retro tax changes: Shome

In a recommendation that could provide relief to firms like Vodafone, a government-appointed committee on Tuesday favoured companies facing tax liability following retrospective amendment to the Income Tax Act should be exempted from payment of interest and penalty.

"In all cases where demand of tax is raised on account of retrospective amendment relating to indirect transfer...no interest...should be charged in respect of that demand so that there is no undue hardship caused to the tax payer," said Parthasarathi Shome panel's draft report on retrospective amendment relating to indirect transfer.

Moreover, the report added, in such cases no penalty should be levied in respect of the income brought to tax on application of retrospective amendment.

Finance Minister P Chidambaram had asked tax expert Shome to look into the retrospective amendment to tax laws which had evoked sharp reaction from the international business community.

The then Finance Minister Pranab Mukherjee had sought to undo the Supreme Court judgement in the Rs 11,218-crore tax case which went in favour of Vodafone.

The Income Tax Department had originally raised a demand of Rs 7,900 crore on Vodafone on its acquisition of Hutchinson's stake in Hutch-Essar through a deal in Cayman Islands in 2007.

The Shome panel has said that retrospective amendment of tax laws should occur in exceptional or rarest of rare cases and with particular objectives and apply to matters that are "genuinely clarificatory" in nature.

It also contradicted Finance Ministry's view on retrospective tax amendment saying that "provisions relating to taxation of indirect transfer as introduced by the Finance Act, 2012 are not clarificatory in nature and instead, would tend to widen the tax base."