Finance Minister Pranab Mukerjee on Tuesday stood his ground on deferring implementation of the General Anti-Avoidance Rules, which are aimed at preventing tax evasion and have led to fears that it would target foreign institutional investors, was not out of any “apprehension”.
“GAAR I have agreed to defer but not because of fear or apprehension. I am not afraid of any consequences,” he said while presenting the Finance Bill for 2012-13. The Bill has been passed by the Lok Sabha.
He also came out strongly in support of tax amendments that would retrospectively tax overseas deals involving assets in India, such as the one involving Vodafone’s 2007 acquisition of Hutchison Essar.
Speaking in the Lok Sabha, Mr. Mukherjee said such deals must be guided with by double taxation avoidance agreements or must pay tax here in India.
“(You) Cannot make money on assets made in India by not paying tax in India or somewhere else, some tax haven through a series of subsidiaries and make huge capital gains on assets based in India,” he told Parliament.
The Income Tax department had claimed that Vodafone was liable to pay $2.2 billion in capital gains because the underlying assets for the deal were based in India, but that argument was rejected by the Supreme Court.
Mr. Mukherjee countered criticism that he was challenging the ruling of the Supreme Court on the retrospective taxation issue by saying that it is solely the right of the legislature to frame laws.
“I am aware of power of legislature, it is power of legislature to make law. Supreme Court can interpret, but legislature can make amendment to correct the flaw,” Mr. Mukherjee said.
“Law has to be framed by us. If there is conflict between intent and interpretation of judiciary, then we respectfully say that it is our right.”