firm Cairn Energy
plc has accused a senior finance
ministry official of "privately" advising billionaire Anil Agarwal-led Vedanta Group to withhold its dividend income
for a potential squaring off of a retrospective tax
Cairn Energy, which is the only company whose assets have been frozen for a retrospective tax
demand, has in a written application to an international arbitration tribunal stated that its dividend income
from its erstwhile subsidiary Cairn India
(now a Vedanta Group firm) has not been paid for last three financial year.
This, it alleged, was done at the behest of an "advise" a senior finance
ministry official gave to Vedanta in "private meetings", multiple sources in the tax
department and industry said. It has also written to Sebi
on the issue.
The income tax
department had in January 2014 draft assessment estimated Rs 10,247 crore tax
due on Cairn Energy
for capital gains it allegedly made on a 2006 transfer of India
assets to a newly created subsidiary Cairn India
and then listing it on stock exchanges.
sold a majority stake in Cairn India
to Vedanta Group in 2011 but retained 9.8 per cent stake which the tax
department had barred it from selling.
After sending draft assessment order, the tax
department had in April 2014 also raised a similar tax
demand on Cairn India
for not withholding tax
Though dividend income
can be frozen only after a formal tax
demand is raised, which happened only on March 31 2017 after a full assessment was completed and June 15 2017 was given as the due date for payment, Cairn has not received Rs 670 crore of dividend income
for three fiscals.
When contacted for comments, the Finance
Ministry said it does not comment on individual cases. Sources, however, said the tax
department will reply to the arbitration panel saying it does not interfere in matters between two companies.
spokesperson said: "The dividends due to Cairn Energy
Plc for the last three years are lying in an unpaid dividend account as they were subject to an attachment order under section 281B (of Income tax
"We would like to reiterate that these dividends are not available for use by Cairn (now Vedanta)."
He further said: "Cairn Energy
Plc has also been in touch with us and we have been responding to their mails/letters sharing our predicament in view of the notice now issued to them post the order of the Income Tax
Tribunal for payment of tax
liability by June 15, 2017."
and Cairn India
have confirmed receipt of the letter," the spokesperson said.
The tribunal asked the tax
department if it had stopped Cairn India
from paying dividend. The Tax
department in its reply stated that the matter was between the two companies
and it had no role to play, sources said.
When replying to that notice, the tax
department had internally observed that there can be no attachment of the dividend unless formal tax
demand is raised and tax
is not paid.
Sources said based on tax
department statement, the Tribunal gave its verdict that it will not intervene.
This led to Cairn Energy
on March 8 stating in a press statement said the tax
department has agreed to lift the freeze it being paid dividend by Cairn India, but it will continue to be restrained from selling the residual stake pending a tax
But the dividends never flowed to the company, prompting it to approach Sebi.
replied to that letter saying it had deposited the dividend amount in a scheduled bank within five days of declaring the dividend.
However, it is awaiting the advice of the revenue authorities whether dividend can be paid.
Sources said Cairn Energy
also wrote to the tax
authorities on why it was not clearly stating its position on the freezing of dividend payments.
Now, Cairn Energy
has written to arbitrators saying a senior finance
ministry official in "private meetings" with Vedanta has advised it against payment of dividend.