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Cairn turns to global panel for injunction against I-T dept over tax issue

UK-based firm has approached an international arbitration panel to intervene in the matter

Press Trust of India  |  New Delhi 

Cairn India, Cairn, tax

UK-based Cairn Energy plc has approached an international arbitration panel seeking an injunction against Indian department initiating proceedings to recover Rs 10,247 crore in retrospective

Within weeks of tribunal ITAT upholding levy of retrospective on 2006 transfer of shares by the firm to a newly created Indian unit Cairn India, the Department had on March 31 issued a fresh demand notice of Rs 10,247 crore and set June 15 as the time to pay the tax, failing which it would initiate recovery proceedings.

Cairn Energy is contesting the demand through an international arbitration and has not participated in the amnesty scheme the floated last year by promising to waive interest and penalty if the principal is paid.

Fearing that the department will proceed to takeover or sell its residual 9.8 per cent stake in (now Vedanta Ltd), confiscate Rs 1,500 crore of refund and $100 million of dividend income after June 15, the British firm approached the same arbitration tribunal seeking a stay on Indian action, officials and sources said.

Cairn Energy in the May 6 petition to the panel sought urgent hearing, they said, adding that the three-member arbitration panel is likely to hear the case next week.

The outcome will be known by Wednesday, they said.

While Cairn Energy wants no recovery action be taken during pendency of the arbitration proceedings, the Indian department is contesting the very jurisdiction of the panel to give direction to a sovereign nation.

India, they said, is contesting that the cannot be arbitrated under the bilateral investment protection treaties and no international arbitration panel can decide on the legislative power of Indian Parliament to frame laws.

Cairn has resorted to arbitration under the India-bilateral investment protection treaty.

The department had on January 24, 2014 in a draft assessment order stated that Rs 10,247 crore was due on Rs 24,503 crore of short term capital gains made by Cairn Energy.

The company, the order said, made the gains when its direct subsidiary Cairn Holdings Ltd during October- December 2006 sold 25.12 crore shares of haven Jersey- incorporated Holdings Ltd, which derived their value substantially from the assets situated in India, to newly created for Rs 26,281 crore.

It said CUHL had acquired these shares at 251.22 million pounds (Rs 2,178 crore) during August-September 2006 and so when it sold them to CIL it made a capital gains of Rs 24,503 crore.

Cairn Energy contests this saying what was done in 2006 was an internal business reorganisation to get its assets listed on stock exchanges.

The ITAT had in its March 9 order held that while Cairn Energy was liable to pay on the 2006 transfer of assets to newly created Cairn India, prior to its listing, interest cannot be charged as the demand was raised using retrospective legislation.

The final assessment order does not include interest.

First Published: Thu, June 08 2017. 16:21 IST