Vodafone not the only retro rule in Budget, there there are 25 others

Retrospective amendment in the Finance Bill, 2012, is not restricted to the Vodafone case, where the taxman hopes to realise Rs 12,000 crore in capital gains tax despite a Supreme Court ruling against the government. An analysis of the Bill shows that Finance Minister Pranab Mukherjee has proposed 25-odd explanations or amendments that will empower revenue authorities to reopen cases beyond six years. Several of these changes seek to overturn earlier court judgments.

For instance, the Bill has added an explanation to Section 9(1)(vi) to treat income realised from sale of computer software and granting of a licence as royalty that can be then taxed. This explanation, according to the Bill, is with effect from June 1, 1976.

Significantly, Delhi High Court had settled the issue in a case filed by the I-T department against Ericsson. It held that software supplied as part of GSM system was not taxable as royalty. It had noted that consideration paid merely for right to use can't be termed as royalty.

Another example — innocuously inserted as explanation for "removal of doubts" — pertains to bringing under the ambit of the term "process" all income earned from providing transmission services by satellite (uplinking, amplification, conversion of downlinking of any signal), cable, optic fibre or any other technology. This would impact many telecom companies that have imported network equipment since there is invariably some software element embedded in such equipment.

Here too, Delhi High Court had ruled in favour of Asia Satellite Telecommunications that income from rendering data transmission services is not eligible to tax as royalty. The new explanation will overturn the court ruling and will be retrospectively effective from June 1, 1976.

Another amendment that has spooked corporate India relates to the format of residency certificate required from foreign countries to claim benefits under the tax treaties that India has signed with these countries. This amendment to Section 90, proposed prospectively from April 1, 2012, states that a non-resident assessee must furnish a certificate containing particulars prescribed by the income-tax department.

... contd.

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