Court queries Cairn India over guarantee for tax demand

The Delhi High Court began hearing on Wednesday the Rs.20.495 crore tax case slapped on Cairn India, asking the company to revert to it by April 22 with a proposal on how it intended to guarantee an upfront payment of half that amount, as required.

The Cairn India counsel told the division bench of Justice B.D. Ahmed and Justice Sanjeev Sachdeva that the company had already secured Rs. 4,200 crore of the principal tax demand as its shares worth that amount stood frozen by the authorities.

The counsel said a proposal regarding the remaining Rs.6,000-odd crore will be furnished by April 22, while reiterating that its petition had sought the quashing of the tax demand, as it felt there was an undue delay in initiating the proceedings -- a lapse of over six years.

Referring to various judgments, the company said such proceedings must be initiated within a reasonable period of four years, and pleaded that in the present context the late demand has been "unreasonable and atrocious" on part of the authorities.

Appearing for the government, Attorney General Mukul Rohatgi strongly opposed Cairn India's submissions and said issue of computation of tax, as well as the delay, cannot be debated before the high court. The matter must go to a dispute settlement body first.

When the the company, at the outset, said it can give a guarantee for the remainder amount of the principal tax, Rohatgi declined the offer. He said at least half of the amount claimed be paid in cash and the rest through bank guarantee.

While the original tax demand as per the authorities was Rs.10,248 crore, there was also an interest component of Rs.10,247 crore on the company.

The demand is for alleged failure by Cairn India, a part of the Vedanta Group, to deduct a withholding tax on capital gains that arose when it was acquired from the parent company in Britain in 2006-07.

Earlier this month, the company had moved the high court against tax department's order. It also said cannot be penalised because it could not have withheld the said tax, anticipating a retrospective amendment to the laws.

The Rs.20,495 crore tax demand comprises Rs.10,248 crore tax and Rs.10,247 crore interest.