Cairn India has indemnity from Cairn Energy on Rs 20,000 tax

In Feb this year, IT dept issued a final assessment order seeking over Rs 29,000 crore in tax from Cairn Energy including Rs 18,800 crore in interest

Cairn India has full indemnity from its former promoter, Cairn Energy of the UK, against levy of any tax for past deeds, including the two-year Rs 20,495 crore retrospective tax demand, new owner Anil Agarwal has said.

Cairn India was in April 2014 slapped with a tax demand of Rs 20,495 crore for not deducting withholding tax on alleged capital gains made by its erstwhile parent company, Cairn Energy, in 2006-07 when it reorganised the India business.

Agarwal’s Vedanta Group acquired Cairn India in 2011 and in the sale purchase agreement Cairn Energy has indemnified it from any tax liability for past years, he told PTI here.

“Our tax demand is purely on the basis of tax demand on the principal company, that is Cairn Energy. We have absolutely nothing to do with retrospective tax. It is between them (Cairn Energy and the income tax department),” Agarwal said.

The tax notice on Cairn India came three months after the income tax department using retrospective legislation slapped a Rs 10,247-crore tax notice on Cairn Energy in January 2014. In February this year, the department issued a final assessment order seeking over Rs 29,000 crore in tax from Cairn Energy including Rs 18,800 crore in interest.

On the rationale for the notice on Cairn India when the capital gains were allegedly made by its erstwhile promoter, Cairn Energy, Agarwal said, “The government probably as a precaution got to us.”

“They wanted to be sure that if something goes wrong there, they have something here,” he said. “It is not a liability at all for Cairn India nor are we party to it. It is purely of Cairn Energy.”

Cairn India had moved Delhi High Court against the tax demand n April last year and the next date of hearing is April 18.

The tax demand was in respect of Cairn UK Holdings Ltd, a subsidiary of Cairn Energy Plc, transferring shares of Cairn India Holdings Ltd to Cairn India as part of an internal group reorganization in 2006-07, resulting in Rs 24,503.50 crore of capital gains, preceding an initial public offering (IPO) of shares by Cairn India.

Cairn India had also slapped an arbitration notice under the UK-India Investment Treaty but arbitrators or judges to decide on the tax case haven't been appointed yet.

"Just notice has been exchanged. Notice has gone. We are still looking at what happens to Cairn Energy," he said alluding to separate arbitration initiated by the British firm against the tax demand.

Asked if Cairn Energy should accept the government offer to settle the case by paying the principal tax amount with interest and penalties being waived off, Agarwal said, "it is for them to decide."

"Government is keen to settle the dispute. I hope something comes out. As far as we are concerned, our company is not the one which has defaulted," he added.