I-T dept sells Cairn Energy shares to recover retro tax

The Income Tax department has sold about 40 per cent of British oil firm Cairn Energy plc's shares in Vedanta to recover a part of Rs 10,247-crore demanded as retrospective tax.

Weeks before an international arbitration tribunal begins final hearing in Cairn's challenge to the retrospective tax, ?the Indian I-T department last month sold about 2 per cent of the firm's shares in Vedanta in at least five tranches totalling USD 216 million, and may sell remaining stake as well, the British firm said in a statement.

The tax department had in January 2014 used a two-year-old retrospective tax law to raise a Rs 10,247-crore demand on alleged capital gains made by Cairn Energy on a decade-old internal reorganisation of India business.

This was followed by attaching the company's residual 9.8 per cent shares in its erstwhile subsidiary, Cairn India. Cairn India was subsequently merged with its new parent Vedanta, in which Cairn Energy held about 4.95 per cent stake.

These shares continued to be attached for four years but the tax department had earlier this year got them transferred to it.

Cairn said the tax department has continued to enforce its retrospective tax claim against the company whilst the arbitration initiated under the UK-India Bilateral Investment Treaty has been ongoing.

"To date, the tax department has seized dividends due to Cairn from its shareholding in Vedanta totalling USD 155 million and it has offset a tax rebate of USD 234 million due to Cairn as a result of overpayment of capital gains tax on a separate matter," it said.

The share were sold for around Rs 230 a piece. Vedanta was trading at Rs 223.50 on the BSE at 1400 hours today.

The company, which gave India its biggest onland oil discovery, said it has now been notified that the tax department "has sold part of Cairn's shareholding in Vedanta, realising and seizing proceeds of USD 216 million."
"The drafting and issuance of such an award typically takes several months. In this case, taking into account the delays already suffered by Cairn, the tribunal has stated that it will endeavour to issue its award as expeditiously as possible."
Cairn said it is seeking "full restitution for losses totalling approximately USD 1.3 billion resulting from India's expropriation of its investments in India in 2014, and India's unfair and inequitable treatment of those investments, due to the imposition of retrospective tax measures."