Sovereign Right to Taxation

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Sovereign Right to Taxation

Sovereign Right to Taxation

Recently, it has been decided to withdraw the ‘Retrospective Taxation Amendment’ in the IT Act enacted by the Government of India in March 2012.

Background:

  • It may be noted that in the year 2012, the Income Tax Act was amended retrospectively by the Government of India. This amendment was made in response to a decision given by the Supreme Court. In this judgment, the Supreme Court had held that Vodafone cannot be taxed for transactions done in the year 2007. It is to be noted that Vodafone had bought 67% stake in Hutchison Whampoa company for $ 11 billion, on which the Indian Income Tax Department had demanded ‘tax’.

Meaning of ‘Sovereignty’:

  • The law which cannot be stopped or annulled by any other power recognized under the constitution of the country is called the law of sovereign power.

What is the ‘sovereign right of taxation’ in India?

  • In India, under the Constitution, the government has been given the right to levy taxes on individuals and organizations, but it has also been clarified that no one has the right to levy or collect taxes except the legal authority. And the basis for any ‘tax’ to be levied must be under a law passed by the legislature or Parliament.

Benefits of canceling the retrospective arrangement:

  • Removal of this retrospective arrangement has shown a ‘clear and predictable taxation law’ and concept to companies that can create their assets while doing business in the country.
  • The move by the government also provides clarity in terms of ‘dealing’ for companies in all countries where these ‘deals’ are not covered by any ‘tax treaty benefits’.
  • For cases prior to the year 2012, companies can retain the profits earned by them, from withdrawal of cases filed in ‘arbitration’ tribunals, and may be adjusted with respect to the tax demand, already paid by them. The ‘tax-amount’ already paid will be refunded.

Source – Indian Express

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