In the first indication of a softening of stance from revenue authorities on the controversial retrospective tax laws introduced in budget 2012, the country's apexBSE 0.00 % tax body, the Central Board of Direct Taxes or CBDT has recommended waiver of penalties in cases where tax laws are applied retrospectively, two government officials familiar with the development told ET NOW.

"An internal committee has finalized its report on the Shome Panel's recommendations on retrospective taxlaws. It has favoured waiver of penalties in "appropriate cases" but has opposed waiver of the interest component. The report will be soon submitted to theFinance Ministry," said one of the two individuals cited above.

On October 8th 2012, the government appointed Parthasarathi Shome panel had recommended that in cases where retrospective tax laws are applied, adequate safeguards are needed in the form of interest and penalty waiver on the tax demands raised.

"In all cases where demand of tax is raised on account of retrospective amendment relating to indirect transfer...no interest...should be charged in respect of that demand so that there is no undue hardship caused to the tax payer," the panel said.

"Initially, the committee was in favour of rejecting both interest and penalty waivers, but a later a middle ground was reached. The interest component cannot be separated from the tax demand and thus cannot be waived off ," said a senior government official.

Tax experts feel if the CBDT's report is accepted and implemented by the Finance Ministry, then British telecom giant Vodafone's total tax bill in India will be reduced by nearly Rs 8000 crore rupees ie the penalty sought by the income tax department for failure to withhold tax on the 2007 acquisition of Hutchinson's mobile assets in India.

In October 2010, the tax department had slapped a Rs 11,218 crore tax notice ( including principal plus interest) on Vodafone. This lead to a protracted legal battle which ultimately ended with the Supreme Court ruling that the income tax department had no jurisdiction to tax the deal.

Budget 2012 sought to overturn the apex court order by retrospectively amending the tax laws on indirect transfer of assets. (Economic Times)