Capital gains made on transfer of equity or any other asset, which derive its’ value from the underlining business in India were and are capital gains made in India. The Government has every justification to tax such capital gains. To tax something, you need an explicit law authorising it. Unfortunately, when Hutchinson made capital gains by selling its equity in a non-resident company which controlled the Hutchinson-Essar telecom business in India to Vodafone, such capital gains were not specifically taxable in the country.
The Government raised demand on buyer Vodafone for collecting tax on the capital gains which seller Hutchinson made, which got blown up to over Rs 30000 crore later. The Supreme Court struck down this demand in 2012. The Government lost.
To make taxability of such capital gains abundantly clear in law, Government amended the IT law and framed detailed rules to collect this tax. Tax laws usually have prospective effect. In this matter, however, the Government used its sovereign power to make such transactions taxable retrospectively. This raised howls of protests; some called it tax-terrorism.