Rajiv Gandhi National University of Law

ECONOMICS PROJECT

SCRAPPING RETROSPECTIVE TAXATION: A

MAJOR BOOST TO INDIAN ECONOMY

Submitted By: Submitted To:

Name: Aditi Mittal Dr. Brindpreet Kaur

Roll Number:22229 Assistant Professor

Section: C of Economics

Semester: 4 RGNUL, Punjab

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 TABLE OF CONTENTS

Acknowledgement ............................................................................. 3

Bonafide Certificate .......................................................................... 4

1. Introduction……………….…………………………………………5

2. Retrospective Conundrum……………………………………..…5-8

3. The Vodafone Issue………………………………………………..8-9

4. Dynamics of Bilateral Investment Treaty………………………9-10

5. The Carin Energy Dispute……………………………..……….10-12

6. Taxation Laws Amendment Bill, 2021…………………..…….13-15

7. Conclusion…………………………………………………….…16-17

8. Biblography………………………………………………….…..18-19

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 Acknowledgement
The success and final outcome of this project required a lot of
guidance and assistance from many people and I am extremely
privileged to have got this all along the completion of my project. All
that I have done is only due to such supervision and assistance and I
would not forget to thank them.

I shall always remain obliged to the Vice Chancellor of RGNUL,

Professor Jai Shankar Singh for providing me an opportunity to
showcase my project and skills in an esteemed university like RGNUL.

I respect and thank Ma’am Dr. Brinpreet Kaur, for providing me an

opportunity to do the project work in RGNUL and giving us all
support and guidance, which made me complete the project duly. I am
extremely thankful to her for providing such a nice support and
guidance, although he had busy schedule managing the corporate
affairs.

I am thankful to and fortunate enough to get constant encouragement,

support and guidance from all Teaching staff who helped us in
successfully completing our project work. I extend my thanks to all
the staff members of the IT lab and library who supported my
research process.

Thank You

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 BONAFIDE CERTIFICATE

This is to certify that Aditi Mittal is a bonafide student of Rajiv Gandhi National
University of Law, and has been Diligently working on this project. Further,
this project is an original work of her on the case study of “SCRAPPING
RETROSPECTIVE TAXATION: A MAJOR BOOST TO INDIAN
ECONOMY” and has completed this under guidance of Assistant Professor Dr.
Brindpreet Kaur.

SIGNATURE
Aditi Mittal

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 1. INTRODUCTION

Scraping retrospective taxation could provide a major boost to the Indian economy by fostering
a more conducive business environment. Retrospective taxation refers to the practice of
imposing new tax laws or regulations on past transactions, often leading to uncertainty and
hindrances in economic activities. This project aims to explore the implications of eliminating
retrospective taxation in India, considering its potential to attract foreign investment, boost
investor confidence, and stimulate economic growth. The Parliament on 9th August passed the
Taxation Laws (Amendment) Bill, 2021 which seeks to do away with contentious retrospective
tax provision which will impact retro tax cases of Cairn Energy and Vodafone, among others.
The Bill proposes to amend the Income Tax Act of 1961 to provide that no tax demand shall be
raised in the future based on the retrospective amendment for any indirect transfer of Indian
assets if the transaction was undertaken before May 28, 2012.1

2. Retrospective Tax Conundrum

As the name implies, retrospective taxation allows a country to pass a law taxing specific
products, items, or services and charge businesses from a time before the date the law is
passed. Countries use this route to correct any flaws in their taxation policies that have
previously allowed companies to exploit such loopholes. While governments frequently use
retroactive amendments to taxation laws to "clarify" existing laws, they end up harming
businesses that had knowingly or unknowingly interpreted the tax rules differently2.
Apart from India, many other countries, including the United States, the United Kingdom, the
Netherlands, Canada, Belgium, Australia, and Italy, have retrospectively taxed companies that
took advantage of loopholes in previous legislation.
When Parliament amended the Finance Act in 2012, the onus to pay the taxes shifted to
Vodafone. The amendment was criticized by investors around the world, who said the change
in the law was "perverse." Following international criticism, India attempted to reach an
amicable settlement with Vodafone but was unable to do so. When the new NDA government
took office, it stated that it would not impose any new tax liabilities on companies through

1
National University of Singapore, https://www.isas.nus.edu.sg/papers/retrospective-tax-withdrawn-the-
indiangovernment-bites-the-bullet/, Accessed on 15th Feburary, 2024.
2
Auerbach, Alan J. “Retrospective Capital Gains Taxation.” The American Economic Review, vol. 81, no. 1, 1991,
pp. 167–178. JSTOR, www.jstor.org/stable/2006793.
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retrospective taxation. By 2014, all attempts to resolve the issue by the telco and the Finance
Ministry had failed. The Vodafone Group then invoked Clause 9 of the Bilateral Investment
Treaty (BIT) between India and the Netherlands.

The tax, while appearing to be a banal economic duty with the justification that it is paid to the
state for services such as roads, water and law enforcement, is not simply that. There is a
deeper metaphysical justification in that the individual acknowledges that they are beholden to
the state and the society they live in through the social contract, with tax being the
consideration for this particular contract. It also follows that, because you, as an individual,
have implicitly or explicitly decided to be a part of the state or derive economic benefit from it,
you have a duty to the rest of society, and the method for fulfilling this duty is to pay tax to the
state, which in turn redistributes this amongst society and accepts it as payment for services
rendered.

This not only emphasizes the importance of taxes in society, but also underscores the need for
a fair and non-arbitrary taxation system, as it is something more sacred than a mere economic
duty that one fulfills, but rather an acknowledgement that you are a member of a particular
society. To that end, can retrospective amendments to taxation statutes be considered truly fair
or just, given that people would be subjected to them in the past when they did not even exist?

Retrospective means looking back on or dealing with past events or situations; in legalese, it
refers to a distinct substratum of laws that take effect on a specific date in the past. In contrast
to the normative position that laws have a prospective effect and create legally binding
obligations from the present point in time, retrospective laws are unique in that they create
obligations from a past date even before people were aware that these particular obligations
existed in the first place. In general, a retrospective statute is presumed to be unjust and
oppressive unless the statute expressly or implicitly provides for such retrospective effect.

Unless explicitly stated, it is assumed that a piece of legislation is not intended to be

retroactive. This rule is based on the principle of lex prospicit non respicit, which means that
the law looks forward rather than back. Because the logic of retrospective statutes appears to
be counterintuitive, as people could potentially be prejudiced by laws that they were not even
aware of when they were breaking them. To that end, retrospective legislation must be enacted

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 cautiously and sparingly to avoid abhorrent legislative arbitrariness.3

Taxation has been one arena where retrospective laws have been used the most, primarily for
two reasons: first, retrospective amendments enacted by Parliament to undo certain judicial
decisions and clarify a particular law; second, there is an implicit understanding that in the
formative years of Indian taxation statutes, there were many ambiguities and inconsistencies,
resulting in a lack of a coherent flow or order. 4

The courts have traditionally weighed two factors in determining whether or not a retroactive
tax is justified: the period of retrospectivity and the degree of the financial burden imposed on
the taxpayer3. Intuitively, taxation legislation would be prospective in nature, so that people
would be aware of the tax they would incur if they performed a specific transaction, rather than
unfairly making them pay a cost that they did not know existed at the time and allowing them
to accurately do a cost-benefit analysis of the specific transaction. 5 This is also the norm in
other jurisdictions where, in the vast majority of cases, tax legislation is prospective in nature.

The first major court battle over the issue of retrospective taxation occurred in Chhotabhai
Jethabhai Patel v Union of India, 6 in which a duty was imposed on manufactured tobacco, and
the date of the law taking effect was not the day it was voted in by Parliament, but rather the
day it was introduced in Parliament. The Supreme Court was asked two questions: first,
whether the constitution allowed for retrospective tax legislation, and second, whether such
retroactive legislation violated Part III of the Constitution.

The Supreme Court relied heavily on foreign judgments to substantiate its position. On the first
question, the Supreme Court answered affirmatively, holding that the Constitution did allow
the legislature to impose tax retrospectively because there was no strict construal of words
regarding tax imposition and that it could only be done prospectively, ergo holding that the
Constitution permitted retrospective legislation. On the second question, while the court agreed
that Part III did apply to taxation statutes, it went on to say that just because legislation is
retroactive does not automatically make it arbitrary and subject to being overturned.

This set the tone for subsequent retrospective taxation legislation to be enacted retrospectively,
3
Harish Salve “Retrospective Taxation – the Indian Experience”.
4
The law of Income Tax by Kanga and Palkhivala – 8th Edition.
5
Pradip R. Shah, Retrospective Amendments – High-time for Introspection by India, April 1, 2010 6
6
Chhotabhai Jethabhai Patel v Union of India, AIR 1962 SC 1006.
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 though the Supreme Court did not cast a particularly wide net preventing legislative misuse by
holding that the legislature should be allowed to make minor repairs to its enactments.
7
However, as time passed, this attitude shifted from the removal of minor impediments to
larger changes for which the judiciary created legal fiction to support these claims. In Maneka
Gandhi v. Union of India, the Supreme Court went on to clarify that the legislature does have
the power to legislate with retroactive effect, subject to fundamental rights restrictions. The
first major case of its kind was Lohia Machines Ltd and Anr vs. Union of India, 8 in which the
Income Tax Act provided exemptions to new industries, but there was a rule that contradicted
the parent act, which a majority of High Courts also ruled was invalid because it was
inconsistent with the main statute. Parliament then added the rule to the Parent Act,
retroactively applying it. This was challenged in court because the ruling was inconsistent with
the rest of the statute and could not be arbitrarily added, changing the entire schema of the act
itself. The Supreme Court, on the other hand, was of a completely different mind, with the
majority ruling that the retrospective amendment was merely clarifying in nature and thus
valid, even though the minority in the decision did strike the amendment down. The law on
retrospective amendments thus becomes that if a statutory provision is not expressly made
retrospectively but is of an explanatory or clarifying nature, it must be judicially construed as
such.9 The logic is that an explanation given to a specific part of a statute was always intended
to be there and should have been construed in that way since its inception, with the amendment
simply removing any ambiguity.

3. The Vodafone Issue

That same year, the then-Finance Minister, the late Pranab Mukherjee, proposed an
amendment to the Finance Act, giving the Income Tax Department the authority to tax such
transactions retroactively. 10 The Act was passed by Parliament that year, and the responsibility
for paying the taxes was transferred to Vodafone. By then, the case had become known as the
"retrospective taxation case."
In December 2006, Vodafone International Holdings BV29 (Vodafone's Netherlands entity)
agreed with Hutchison Telecommunications International Ltd ("HTIL") – a Cayman Island
company – to purchase HTIL's 67 per cent stake in an Indian company Hutchison Essar Ltd

7
Assistant Commissioner of Urban Land Tax and others v Buckingham and Carnatic Co Ltd 1969 2 SCC 55.
8
Lohia Machines Ltd and Anr vs. Union of India -(1985) 152 ITR 308 (SC).
9
Allied Motors (P) Ltd. v. CIT, (1997) 3 SCC 472.
10
Nishith Desai, http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/VodafoneHoldings-
B.V.-versus-Republic-of-India.pdf
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 ("HEL") for 11 billion USD. 30 Following this transaction, the Indian tax authorities imposed a
capital gains tax of USD 2.2 billion on Vodafone. Vodafone claimed that because the
transactions did not involve a capital asset located in India, no capital gains tax was owed. The
Indian tax authorities, on the other hand, argued that Vodafone's income is taxable under the
Indian Income Tax Act of 1961.
The case was heard by the Supreme Court of India. After interpreting all relevant provisions of
the Income Tax Act, the Supreme Court concluded that Vodafone owed no tax to the Indian
government.11 The ruling of the highest court of the land was thought to be the final word on
this complex tax battle. However, soon after the Supreme Court decision, the government
introduced a bill in parliament to amend the Income Tax Act.12 The amendment not only
clarified that such offshore transactions are taxable, but it also applied it retroactively from 1
April 1962, the date on which the Indian Income Tax Act was enacted. The amendments were
intended to achieve two goals: the first to overturn the Supreme Court's decision on Vodafone,
and the second to force Vodafone to pay taxes. The amendments legalized the Supreme Court's
decision to overturn Vodafone's tax demands.

Following the amendment, Vodafone issued a notice to the Indian government on April 17,
2012, announcing its intention to challenge the retrospective changes in tax laws under the
India-Netherlands BIT. Since the matter was not resolved, Vodafone served a notice of
arbitration to India under the India-Netherlands BIT on April 17, 2014, alleging that the
retrospective application of tax laws violates India's obligations.

4. The dynamics of the Bilateral Investment Treaty

On November 6, 1995, India and the Netherlands signed a BIT to promote and protect the
investment by companies from each country in the jurisdiction of the other. The treaty stated,
among other things, that both countries would strive to "encourage and promote favourable
conditions for investors" from the other country. The BIT requires the two countries to ensure
that companies operating in each other's jurisdictions are "always accorded fair and equitable
treatment and enjoy full protection and security in the territory of the other."13
While the treaty was between India and the Netherlands, Vodafone invoked it because its Dutch

11
Vodafone International Holdings BV v Union of India [2012] 1 SCR 573, 778 (‘Vodafone v India’).
12
The Finance Bill 2012 (introduced in Lok Sabha, 16 March 2012) (‘Finance Bill 2012’).
13
Prabhash Ranjan, India and Bilateral Investment Treaties—A Changing Landscape, ICSID Review - Foreign
Investment Law Journal, Volume 29, Issue 2, Spring 2014, Pages 419–450.
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 subsidiary, Vodafone International Holdings BV, had purchased Hutchinson
Telecommunication International Ltd's Indian business operations. As a result, it was a
transaction between a Dutch firm and an Indian firm. The India-Netherlands Bilateral
Investment Treaty (BIT) expires on September 22, 2016.
In June 2016, an arbitration tribunal was established, which is currently hearing the dispute.
While BIT arbitration under the India-Netherlands BIT is ongoing, Vodafone served another
notice of dispute on 15 June 2015, followed by a notice of arbitration under the India-UK BIT
on 24 January 2017, challenging the imposition of a multi-billion dollar tax resulting from a
retrospective amendment to the tax laws. Following receipt of the notice, the Indian
government approached the Delhi High Court, seeking an order preventing Vodafone from
initiating BIT proceedings under the India-UK BIT. India claimed that Vodafone was engaging
in "abuse of process" by initiating a parallel BIT proceedings on the same issue. On 22 August
2017, the Delhi High Court complied with the government by issuing an ex-parte interim order
prohibiting the Vodafone Group from pursuing arbitration under the India-UK BIT. 41 This
was followed by an order from the Delhi High Court on 26 October 2017, clarifying that the
representatives/counsel for the parties were free to participate in the proceedings for the
appointment of a presiding arbitrator under the India-UK BIT. The Indian government has
filed a Supreme Court petition to overturn the Delhi High Court's decision. On December 14,
2017, the Supreme Court upheld the Delhi High Court's order of October 26, 2017. However,
because the final arguments were to be heard by the Delhi High Court, the Supreme Court
made no observations on the merits of the arguments. Finally, on May 7, 2018, the Delhi High
Court dismissed the Indian government's request for an anti-arbitration injunction against
Vodafone's participation in the India-UK BIT arbitration.14

5. Cairn Energy Dispute

The Cairn Energy Plc and Cairn UK Holdings Private Limited v The Republic of India (Cairn
Award) arbitration centred on whether India's retroactive tax amendments to tax offshore
indirect transfers (OIT) violated the UK–India Bilateral Investment Treaty (UK–India BIT).15
OITs are transactions involving the sale of shares or other instruments of a foreign company
outside of the country, where the value of the shares or other instruments is derived in large

14
Union of India v Vodafone Group Plc United Kingdom & Anr, CS(OS) 383/2017 & IA No 9460/2017 (Delhi
High Court, 7 May 2018).
15
Agreement between the Government of India and the Government of the United Kingdom for the Promotion and
Protection of Investments dated 14 March 1994 (enforced 6 January 1995) (UK–India BIT),
https://dea.gov.in/sites/default/files/United%20Kingdom.pdf [Accessed 16 February 2024].
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part from assets located in India. In such a case, the transaction becomes an offshore sale of
shares rather than an onshore sale of assets.

In the Cairn Award, the arbitral tribunal established by the Permanent Court of Arbitration (the
Tribunal) was asked whether the 2012 Amendment violated India's obligations under the UK–
India BIT, particularly the fair and equitable treatment (FET) standard. The Republic of India
(India) argued first that the Tribunal lacked jurisdiction to hear the dispute because fiscal
measures fell within its sovereign functions and thus were not subject to arbitration. In any
case, India claimed that the matter would be covered by the UK–India Double Tax Convention
(UK–India DTC). Second, on the merits, India justified the 2012 Amendment by claiming that
it was merely clarifying and that even if retroactive, it did not violate the FET standard. The
Cairn Award is significant for the general public because it is a landmark decision on the
interaction of Double Taxation Conventions (DTCs) and Bilateral Investment Treaties (BITs).
The Cairn Award paves the way for investment arbitration to be used as an effective alternative
dispute resolution mechanism to DTCs or domestic courts in the future. This note focuses on
the Cairn Award sections that are relevant to a tax audience. The emphasis is on India's
jurisdictional objections as well as sections dealing with retroactive legislation, including
potential public policy justifications for enacting retroactive legislation following a state's BIT
obligations. As a result, the analysis of the contours of BIT standards is restricted to this.

The Cairn dispute arose in 2006-07 when Cairn UK transferred shares of Cairn India Holdings
to Cairn India as part of its restructuring for an IPO (IPO). Before the IPO, Indian businesses
were routed through Cairn UK's Cayman Islands-based subsidiary. Following that, in 2011,
Cairn India's business was sold to the Vedanta group, with Cairn India retaining a 9.8 per cent
stake in Vedanta.

Tax authorities claimed in 2014 that Cairn UK had made capital gains of approximately 245
billion Indian rupees as a result of the restructuring in 2006-07, prompting them to issue a tax
demand based on the retrospective amendment of 2012. The tax authorities prohibited the
transfer of 9.8 per cent of Vedanta's shares to Cairn India pending adjudication of the demand,
causing severe financial problems for Cairn India and resulting in the layoff of 40% of its India
staff. Cairn UK filed a notice of dispute under the India-U.K. BIT in 2015 and requested
arbitration. While arbitration was ongoing, the tax authorities seized approximately 20 billion
Indian rupees in dividends and tax refunds to Cairn India's accounts in 2017. The tax

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authorities also attached and auctioned Cairn India shares to recover alleged tax due. The
dispute has finally resulted in an international tribunal awarding India 80 billion Indian rupees
to Cairn for violations of its international commitments under the India-UK BIT. Surprisingly,
it is a unanimous decision in which the arbitrator appointed by India also ruled in Cairn's
favour.

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6. Taxation Laws Amendment Bill, 2021

In the Finance Act of 2012, the then Finance Minister, Shri Pranab Mukherjee introduced the
concept of retrospective taxation. It tried to nullify the Supreme Court judgement by saying
that, “If there are two non-resident Indian companies and they are dealing, either within India
or outside India, but if the value of the trade is because of assets in India, then the Income Tax
authorities shall have the right to impose a tax on such transaction.” So basically the Income
Tax authorities could now tax any deal happening between any two companies in any part of
the world, directly or indirectly, provided the deal derives its value because of the assets
present in India.

Now, the most important and contentious point of this legislation was that the Government of
India decided to go with retrospective applicability, which meant that all the transactions post
the Income Tax Act of 1961 could be covered under the ambit of this particular law. So, the
law which was introduced in 2012 has its application on all the transactions that took place in
the past. So, what happened was now the Income Tax authorities could take any deal or
transaction that took place in these past 50 years, impose the tax and send a tax notice.

The tax authorities used the provision to send a huge tax notice to Vodafone, adding interest
and penalties. Now, since Vodafone is a British company, they used the provisions of the
Bilateral Investment Treaty of Britain with India. The BIT states that the respective
governments will have to give certain protections to foreign investors and so Vodafone
approached the Permanent Court of Arbitration in The Hague. Now the PCA found that the
Government of India, by raising the issue of retrospective taxation, has violated the provisions
of the Bilateral Investment Treaty and has not undergone 'fair and equitable treatment.’

Following these cases, there was much speculation about how the Centre would react. In the
Cairn case, the finance ministry promised "constructive discussions" to find an "amicable
solution to the dispute within the country's legal framework." The Modi government has
responded to questions about repealing the retroactive tax law by stating that the law will not
be applied in future cases. For several years, it has treaded carefully around this issue. At a
meeting in Washington, D.C. in 2015, then-finance minister Arun Jaitley stated, "As far as
retrospective taxation is concerned, I believe India's experience has been very adverse."
If any government engages in that misadventure in the future, the consequences will be
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 severe." Union finance minister Nirmala Sitharaman said on August 5 that the centre proposes
refunding the amount paid in these cases, reiterating the government's commitment to
improving the ease of doing business. The total amount of the refund is estimated to be around
Rs 8,100 crore.16

According to Shankar Sharma of First Global, an international asset management firm, while
India is a good place to find political democracy, it is also a place to find economic
dictatorships, as seen in the Vodafone case. "There is a significant difference between what
happens on paper and what happens on the ground," he says, adding that rules are frequently
changed arbitrarily. The bill to amend the tax code retroactively was an example of this.17

"To improve its image on the ease of doing business, the government should now be projecting
that it has solved the problem," he adds. Another economist at a global investment bank says
his phone hasn't stopped ringing since amendment bill passed. "Investors want to know what
will happen in the other cases," he says. According to reports, in addition to Cairn Energy and
Vodafone, the repeal of the retrospective tax law will have an impact on 15 other cases.

Doing Away with Retrospective Taxation: The Bill proposes to amend the Income Tax Act,
1961 to ensure that no new tax demand can be raised based on the retrospective amendment if
the transaction was carried out before May 28, 2012.

Conditions of Nullification of Tax: Tax raised for the indirect transfer of Indian assets before
May 2012 would be "nullified on fulfilment of specified conditions" such as the withdrawal of
pending litigation and an undertaking that no damages claims would be filed.

Refund of Retrospective Tax: The bill also proposes to refund the amount paid by the
companies facing trial in these cases without interest thereon.

Ensuring Consistency to Investors: Be it fluctuating trade tariffs or shifting GST rates and
rules, India needs to demonstrate greater clarity and consistency in policy across the board to
fix its broken credibility.
Establishing a Business Friendly Climate: The address of the long pending demand of

16
S. Chakrabarti & R. Joseph, “Permanent Establishment and Income Attribution in India”, Tax Notes 517
17
Kumar, Y. Shiva Santosh. “India's Taxation Regime: Perspectives on the Proposed Changes.” National Law
School of India Review, vol. 23, no. 2.
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foreign investors for removal of a retrospective tax levy on indirect transfers would go a long
way in placing India as a more attractive investment destination and rekindle the hope that
there would no longer be any ghost of retrospective taxation norms being applied.

Dispute Resolution Mechanism: India needs to craft meaningful and clear dispute resolution
mechanisms for cross-border transactions to prevent disputes from going to international courts
and save the cost and time expenditure.

Bringing Changes in Arbitration Mechanism: India needs a better Arbitration Mechanism,

especially when it today stands at a juncture of quick economic recovery and the COVID-19
pandemic.

Some believe Cairn's combative decision to seize Indian government assets in France
compelled the government to act. Whatever the reason, the Indian government has finally
repealed a law that was opposed not only by multinational corporations but also by
international courts of justice. While the move may not result in an immediate increase in
investment, those who track investments believe it will benefit the country when India begins
discussions with firms about shifting Chinese supply chains to India. While India improved its
ranking in the ease of doing business between 2014 and 2019—it ranked 63 overall in the
World Bank's Ease of Doing Business Rankings 2020—it lags in contract enforcement. It is
ranked 163rd out of 190 countries in this category. Going forward, the spirit of this legal
change must be translated into action. India must transition from a land of policy uncertainty to
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one of opportunity.

7. CONCLUSION

Governments around the world often resort to retrospective taxation as a means to address
perceived revenue shortfalls or close legal loopholes. However, this practice has often been
criticized for its negative impact on investor confidence, economic stability, and the overall
business environment. In a significant move, the Indian government announced the repeal of
the controversial retrospective taxation law in the 2021 Union Budget. This decision was
welcomed by the business community and investors alike, as it is expected to improve India's
standing as an attractive investment destination and foster a more conducive business
environment.
Retrospective taxation is a practice that allows governments to impose taxes on transactions
that have already occurred based on new laws or interpretations of existing laws. This
approach often creates uncertainty and unpredictability for businesses, as it exposes them to
potential tax liabilities long after an investment has been made or a transaction has been
completed. This uncertainty can deter foreign investors and domestic businesses from making
long-term investment decisions, as they may be unsure of the tax implications of their actions.

In the case of India, retrospective taxation had been a contentious issue for several years,
particularly following high-profile cases involving multinational corporations such as
Vodafone and Cairn Energy. These cases saw the Indian government attempting to impose
significant tax liabilities on these companies, leading to prolonged legal battles and damaging
India's reputation as a business-friendly destination. The retrospective taxation regime was
seen as a major deterrent to foreign investment and was widely criticized for its adverse impact
on the ease of doing business in India.

The repeal of the retrospective taxation law signals a shift towards a more predictable and
stable tax regime in India. By eliminating the threat of retrospective taxes, the government has
demonstrated its commitment to creating a more transparent and investor-friendly
environment. This move is expected to boost investor confidence and attract greater foreign
direct investment into the country, as companies can now be more certain about their tax
obligations and liabilities.
The removal of retrospective taxation is particularly significant for the Indian economy, which
is seeking to attract investment and promote economic growth in the aftermath of the COVID-
19 pandemic. By providing clarity and certainty to investors, the government's decision to
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abolish retrospective taxation is likely to encourage greater capital inflows, stimulate business
activity, and create new employment opportunities. This, in turn, will contribute to the overall
development and expansion of the Indian economy.

Furthermore, the elimination of retrospective taxation is expected to have positive implications

for India's reputation as a reliable and trustworthy investment destination. By aligning its tax
policies with international best practices and principles of fairness and equity, India can
enhance its standing in the global business community and strengthen its relationships with
foreign investors and trading partners. This will help to build a solid foundation for sustainable
economic growth and prosperity in the years to come.
In conclusion, the government's decision to remove retrospective taxation in India is a
significant and positive development that is likely to have far-reaching implications for the
country's economy and its standing in the global marketplace. By providing clarity, certainty,
and stability to investors, this move will help to foster a more conducive business environment,
stimulate investment inflows, and drive economic growth. It demonstrates the government's
commitment to promoting transparency, fairness, and predictability in tax administration and
sends a strong signal to the business community that India is open for business and ready to
welcome investments with open arms.

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8. Biblography

Statutes –
1. Income Tax Act, 1961
2. Taxation Laws (Amendment) Act, 2021
3. The Finance Bill 2012 (introduced in Lok Sabha, 16 March 2012)

Journals
1. National University of Singapore, https://www.isas.nus.edu.sg/papers/retrospective-
taxwithdrawn-the-indian-government-bites-the-bullet/, Accessed on 15th Feburary, 2024.
2. Harish Salve “Retrospective Taxation – the Indian Experience”
3. Pradip R. Shah, Retrospective Amendments – High-time for Introspection by India, April
1, 2015
4. S. Chakrabarti & R. Joseph, “Permanent Establishment and Income Attribution in India”,
Tax Notes 517
5. Kumar, Y. Shiva Santosh. “India's Taxation Regime: Perspectives on the Proposed
Changes.” National Law School of India Review, vol. 23, no. 2.
6. Auerbach, Alan J. “Retrospective Capital Gains Taxation.” The American Economic
Review, vol. 81, no. 1, 1991, pp. 167–178. JSTOR, www.jstor.org/stable/2006793.
7. Agreement between the Government of India and the Government of the United Kingdom
for the Promotion and Protection of Investments dated 14 March 1994 (enforced 6 January
1995) (UK–India BIT), https://dea.gov.in/sites/default/files/United%20Kingdom.pdf
(Accessed 16 Feburary 2024)
8. Prabhash Ranjan, India and Bilateral Investment Treaties—A Changing Landscape, ICSID
Review - Foreign Investment Law Journal, Volume 29, Issue 2, Spring 2014, Pages 419–
450.

Case Laws
1. Vodafone International Holdings BV v. Union of India [2012] 1 SCR 573, 778 (‘Vodafone
v. India’).
2. Union of India v Vodafone Group Plc United Kingdom & Anr, CS(OS) 383/2017 & IA No
9460/2017 (Delhi High Court, 7 May 2018).
3. Chhotabhai Jethabhai Patel v Union of India 1962 AIR 1006
4. Assistant Commissioner of Urban Land Tax and others v Buckingham and Carnatic Co Ltd
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 1969 2 SCC 55
5. Lohia Machines Ltd and Anr vs. Union of India -(1985) 152 ITR 308 (SC)
6. Allied Motors (P) Ltd. v. CIT, (1997) 3 SCC 472

Books And Articles

1. NishithDesai,http://www.nishithdesai.com/fileadmin/user_uploadResearch_Papers/Vod
afoneHoldings-B.V.-versus-Republic-of-India.pdf pdfs/
2. The law of Income Tax by Kanga and Palkhivala – 8th Edition.

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