Justice Pranab, in the budget 2012, proposes clarificatory and retrospective amendments to Sections. 9 and 195 as if to restate the legislative intent regarding the scope and ambit of these provisions, thus far not expressed in the language/text of the provisions.

Following are the proposed amendments to Sec 9 and other related sections of the income tax act:-

(i) Amend section 9(1)(i) to clarify that the expression ‘through’ shall mean and include and shall be deemed to have always meant and included “by means of”, “in consequence of” or “by reason of”.

(ii) Amend section 9(1)(i) to clarify that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.

(iii) Amend section 2(14) to clarify that ‘property’ includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever.

(iv) Amend section 2(47) to clarify that ‘transfer’ includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterized as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India.

(v) Amend section 195(1) to clarify that obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident has:-

(a) a residence or place of business or business connection in India; or

(b) any other presence in any manner whatsoever in India.

These amendments are sought to be made effective retrospectively from 1st April, 1962 and will accordingly apply in relation to the assessment year 1962-63 and subsequent assessment years.

Ironically, these amendments to Section 9 follow the recent verdict of the Hon'ble Supreme Court in the VODAFONE case.

This move by Pranab bears me out on the worst fears of misplaced priorities of the Finance Ministry and Taxmen in my earlier submission on this website http://www.governancenow.com/views/columns/myopia-over-dtaas .

Justice Pranab’s move is clearly  leading to Government of India loosing out brownie points for its efforts to increase the falling FDI inflows by scrapping press note 1 of 2005 in 2011.

Unmindful of the sovereign responsibility to actually implementation of the DTAAs, on whose strength most FDI inflows have come in, Justice Pranab  now seeks to tell the foreign investors and the Hon’ble Supreme Court about the legislative intent behind Section.9, which the parliament had intended but forgotten to express.

Is Justice Pranab confused between the need to make short-term gains and the need to position India as an emerging economic power by standing to its commitments under global treaties and DTAA agreements with other countries and stand out amongst other similarly placed emerging economies of the day? The answer should not be difficult for many.

The Hon’ble Supreme Court’s elementary lessons to taxmen on the basic principles of taxation (refer  my earlier submission on the Vodafone judgment on this website http://www.governancenow.com/views/columns/thank-god-vodafone-could-dial-court) has not convinced Justice Pranab. The FM therefore now seeks to tell the Hon'ble Supreme Court about the legislative intent, which he thinks the Hon'ble Court missed out on.

Normally, the logical way forward for Justice Pranab ought to have been to gracefully approving other long-pending executive approvals regarding Vodafone, so that Supreme Court judgment could be given effect to and the transfer of shares can be completed before the appointed date. On one hand the transfer has been unfairly linked to extant sectoral caps and on the other hand the Taxman has gone for a review before the Supreme Court – now also armed with this counter pronouncement of ‘actual’ legislative intent (thus far not expressed) by Justice Pranab. What does Justice Pranab desire from the Supreme Court? Would not be difficult for most of us to guess.

Hon’ble Supreme Court has maintained very clear views about retrospective application of law. This case is far worse, being a clarificatory expression of legislative intent thus far not yet expressed. In a 1996 judgment, even where Supreme Court happened to change its own view (on the contract labour abolition act in that case), it had clearly clarified that the new view would not affect the past rulings by various Courts on the same issue. The legal validity of these amendments are therefore also very doubtful.

Pettiness now stands in the way of letting Vodafone get back its core business? Delay is entailing denial of justice and cementing the impression that various line ministries in India can behave as the sovereign with no one bothered/accountable about the big picture.

Fortunately, India has the Supreme Court!  But unfortunately, Justice Pranab is all set to make every investor get justice only from there and not expect sanity from the Government ?

Justice Pranab needs to mindful that India isn’t the only place on earth which investors find attractive.