The tax department will waive interest liability if the principal demand of capital gains tax is paid by companies like Cairn India and Vodafone plc.
The Central Board of Direct Taxes (CBDT) on March 24 issued a circular for waiver of interest in disputed tax demand in different scenarios.
In cases where tax liability arose because of retrospective amendment to the law or a court ruling, the interest payable on the demand will be waived, it said.
“However, no reduction or waiver of such interest shall be ordered unless the principal demand… stands fully paid or satisfactory arrangements for payment of the principal demand have been made,” CBDT guidelines to Chief Commissioner of Income Tax and Director General of Income Tax said.
The guidelines came seven weeks after the Direct Tax Dispute Resolution Scheme, announced by Finance Minister Arun Jaitley on February 28 last year, closed.
The scheme, which closed on January 31, provided for waiver of interest and penalty if the principal amount involved in retrospective tax cases is paid and all appeals against the government challenging constitutional validity of back-dated amendment to Income Tax laws are withdrawn.
Vodafone faces Rs 14,200 crore tax bill for failing to collect taxes when it paid USD 11 billion to acquire Hong Kong-based Hutchison Whampoa’s 67 per cent stake in India mobile-phone business in 2007.
UK’s Cairn Energy plc has been slapped with over Rs 29,000 crore in tax demand including Rs 10,247 crore in principal due, for alleged capital gain it made in 2006 when it transfered its India business into a new subsidiary, Cairn India, and got it listed.
Simultaneously, the tax department also raised a tax demand of Rs 20,495 crore on Cairn India for failing to deduct withholding tax on alleged capital gains made by its erstwhile parent company Cairn Energy in 2006-07 when it reorganised India business.
While the tax scheme that closed on January 31 primarily targeted Cairn Energy and Vodafone, the new guidelines will be applicable for Cairn India as well as Vodafone.
Neither Cairn Energy nor Vodafone participated in the scheme that closed on January 31 and have dragged India to arbitration contesting the demands.