The upper house of the Indian parliament (Rajya Sabha) on Monday approved The Taxation Laws Amendment Bill (“tax bill”) aiming to end all retrospective taxation imposed on indirect transfer of assets in India.

Specifically, the purpose of the tax bill is to nullify the effect of amendments brought forth by the Finance Act of 2012, which sought to retroactively impose tax liability on gains arising from the indirect transfer of assets based in India.

Any bill that concerns the “imposition, abolition, remission, alteration or regulation of any tax” is considered a money bill per Article 110 of the Constitution of India. Thus, since the tax bill is covered under the definition of a “money bill,” Article 109 of the Constitution only authorizes Rajya Sabha to approve the tax bill with recommendations to the lower house (Lok Sabha).

In other words, Rajya Sabha has no authority to reject the tax bill and even if it had not approved the tax bill within a 14-day period, the bill would have been deemed passed by both houses of Parliament.

It is now up to the Lok Sabha to agree and accept any recommendations on the tax bill from Rajya Sabha, but it can pass the bill without accepting any of the recommendations. Thus, Rajya Sabha has very limited powers in cases involving taxation or tax laws.

The tax bill would amend the Income Tax Act to state that the effect of the Finance Act will be prospective in nature, nullify specified conditions on indirect transfers of India-based assets made before 28th May 2012, and propose various other amendments to the Finance Act.

The Finance Act was an attempt to bypass the Supreme Court verdict in the Vodafone case, which held that gains arising from indirect transfer of assets in India were not taxable under the then existing provisions of the Income Tax Act.

The tax bill would effectively end all tax demands made on companies like Cairn Energy and Vodafone by virtue of the retrospective provision in the Finance Act. The bill still awaits final approval from Lok Sabha, which may or may not accept any recommendations made by Rajya Sabha.

The tax bill was passed amid protests, and walkouts by opposition parties, including the Indian National Congress party, who complained that insufficient time was granted to have a thoughtful discussion on the proposed legislation. However, some commentators welcomed the bill stating that retrospective taxes have created uncertainty and are not being respected by international arbitration tribunals.