A. Meaning of Retrospective Amendments: Two sort of amendments are being done by legislature,(i) Prospective and (ii) Retrospective. Prospective amendments are kind of amendments which become effective from future dates as mentioned therein and Retrospective amendments means amendment which become effective from a back date i.e. the date prior to the date of making such change.
If an amendment is done in statute to nullify its defect or to cure its defect, will be called, clarificatory or declaratory amendment and the said amendment will be effective from the date of inception of provision or from the back date mentioned in the amendment.
B. Effect of Retrospective Amendments: In India, amending law retrospectively is looks like a fashion and the said trend was again encountered after the Vodafone case. More than 25 retrospective amendments had been done in Finance Bill 2012 though, all such amendments were not against the assessee but most of them were.
Retrospective amendments shake confidence of foreign as well as domestic taxpayer. These amendments unsettled the settled law and affect negatively on Businessmen, Investors and other taxpayers. It also shows disrespect of law makers towards judicial system of the country and by doing this government annul some of the decisions of supreme courts and high courts which the tax department does not like.
Some time it also happened that Government amends the law retrospectively and the said amendment affect Double Taxation Avoidance Agreement (DTAA). In such kind of situation AO takes adverse action by ignoring the fact that at the time of signing DTAA with other country, law at that time was not that, as stood today. DTAA is not a domestic law which can be changed unilaterally it should be implemented in good faith as it is bilateral contract between two governments.
Indian tax laws is very clear on it that whenever provisions of Income Tax Act and DTAA are differ, DTAA will prevail as held in Vishakhapatnam Port Trust Case (1983) (144 ITR 146). CBDT has also accepted this by issuing Circular no. 333 which clearly says that: the correct legal position is that where a specific provision is made in the double taxation avoidance agreement, that provisions will prevail over the general provisions contained in the Income-tax Act. In fact that the double taxation avoidance agreements which have been entered into by the Central Government under section 90 of the Income-tax Act, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective countries except where provisions to the contrary have been made in the agreement. Thus, where a double taxation avoidance agreement provides for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income-tax Act. Where there is no specific provision in the agreement, it is basic law, i.e., the Income-tax Act that will govern the taxation of income.
But in case of where DTAA and Income tax act differ and Income tax act is more beneficial to the assessee in that case section 90(2) will come in to picture which says that: Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.
Further, in a recent judgment in the case of DIT Vs New Skies Satellite BV, (ITA 473/2012 vide order dated 08.02.2016), the Hon‘ble Delhi High Court has observed that no amendment to the Act, whether retrospective or prospective can be read in a manner so as to extend its operation to the terms of an international treaty. In other words, a clarificatory or declaratory amendment, much less one which may seek to overcome an unwelcome judicial interpretation of law, cannot be allowed to have the same retroactive effect on an international instrument affected between two sovereign states prior to such amendment. An amendment to a treaty must be brought about by an agreement between the parties. Unilateral amendments to treaties are therefore categorically prohibited. Even the Parliament is not competent to effect amendments to international instruments. Therefore, mere amendment to Section 9(1)(vi) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. Hon‘ble Delhi High Court concluded in the said decision (supra) that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word “royalty” prior to the amendment in the Income Tax Act will continue to hold the field for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both parties.
(Author is a Manager Taxation with KGK Group of Companies )
