Cairn tax dispute: I-T takes over dividend, refund to recover Rs 10K cr

I-T dept will now move to take over the 9.8% shareholding Cairn Energy had in Cairn India

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The Income Tax (I-T) Department has ordered coercive action against Cairn Energy of UK, including taking away over Rs 2,000 crore dividend and tax refund, to recover part of the Rs 10,247 crore retrospective tax. 

This follows the British oil firm losing in an international arbitration tribunal its challenge against India's I-T department taking coercive action to recover the tax dues.

A top source said the department has already adjusted Rs 1,500 crore of the tax refund that was due to Cairn Energy Plc, against the principal amount. 

On June 16, it sent a notice under section 226(3) of the I-T Act to the company's erstwhile subsidiary, Cairn India Ltd (now Vedanta India Ltd), saying whatever is due to the British firm in the form of dividend should be transferred to the government. 

As much as $104 million, or about Rs 650 crore, in past and current dividend, is due to the company, the source said, adding that it was likely to be transferred to the exchequer on Monday or by Tuesday. 

Next, the department will move to take over the 9.8 per cent residual stake that Cairn Energy retains in Cairn India even after selling the erstwhile subsidiary to Vedanta. 

The source said the tribunal refused to entertain Cairn Energy's pleas for restraining the I-T department from taking any coercive action and ordering Cairn India to release dividend due to it. 

The assessing officer is in the process of drawing a certificate under the Income Tax (Certificate Proceedings) Rules, 1962, for recovery of tax, as per which the tax recovery officer will go ahead to attach the shares and sell them. 

However, the sale might not happen immediately as the tax department will wait for the best price, the source said, adding that the shares can be sold to LIC or Vedanta whosoever quotes the best price. 

The I-T department had on March 31 issued a notice to Cairn Energy seeking Rs 10,247 crore tax and set June 15 as the deadline for payment. This notice followed Cairn Energy losing an appeal in the tax tribunal ITAT against the levy. 

ITAT had in March upheld levy of retrospective tax on 2006 transfer of shares by the UK firm to a newly created Indian unit Cairn India, for a certain consideration. 

Cairn Energy in an emailed statement confirmed the tax department's move. 

"On June 16, 2017, the Indian Income Tax Department (IITD) issued an order to Vedanta India Ltd (VIL) directing it to pay over any sums due to Cairn. Sums due to Cairn from VIL now total $104 million, including historical dividends of $53 million and a further dividend of $51 million after the merger of CIL and VIL," it said. 

The company said however that it will continue with the international arbitration proceedings against the retrospective tax demand. 

"Cairn is seeking full restitution for (UK-India Bilateral Investment Treaty) Treaty breaches resulting from the expropriation of its investments in India in 2014, the attempts to enforce retrospective tax measures and the failure to treat the Company and its investments fairly and equitably," it said. 

The company said it has a high level of confidence in its case under the Treaty and, in addition to the resolution of the retrospective tax dispute, its claim seeks damages equal to the value of the Group's residual shareholding in Cairn India at the time it was attached (approximately $1 billion). 

The Netherlands-based 3-member tribunal was constituted to decide on Cairn's plea against India slapping a Rs 10,247 crore retrospective tax demand and freezing its assets. 

The Tribunal heard Cairn pleas on June 12. 

Prior to that, it had on June 9 "issued a formal order memorialising the numerous confirmations from the Government of India that the dividends were no longer restricted and authorising that order to be provided to Cairn India Ltd (now named Vedanta Limited (VIL) following the merger of CIL and VIL)", the statement added.