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Cairn India slapped with Rs 20,495 crore tax demand

Cairn India slapped with Rs 20495 crore tax demand Just two days after slapping Cairn Energy with a tax notice of Rs 10,247 crore, the income tax department of India has sent another notice to Cairn India demanding Rs 20,495 crore tax.

The notice is in lieu of Cairn India’s failure to deduct withholding tax on alleged capital gains made by its erstwhile promoter, Cairn Energy Plc, PTI reported.

Cairn Energy has showed its disappointment on the earlier draft notice and had instructed its lawyers to approach UK-India Investment Treaty to resolve the matter.

“Cairn India Ltd has received an order from the Income Tax Department today for an alleged failure to deduct withholding tax on alleged capital gains arising during 2006-07 in the hands of Cairn UK Holdings Limited (CUHL), our erstwhile parent company, a subsidiary of Cairn Energy Plc,” the company said in a regulatory filing.

This, it said, was in respect of the transaction of CUHL transferring the shares of Cairn India Holdings Ltd (CIHL) to Cairn India Limited as part of internal group reorganisation in 2006-07 to facilitate the IPO of Cairn India Ltd.

“A demand of approx Rs 20,495 crore (comprising tax of approx Rs 10,248 crore and interest of approx Rs 10,247 crore) is alleged to be payable. Cairn India does not agree with this alleged demand and will pursue all possible options to protect its interest,” the company said.

Cairn India said it has always been fully compliant with all Indian income tax laws. “Income tax assessments, including transfer pricing assessment were duly completed for FY 2006-07, earlier,” it said.
The company is latest to join a slew of multinational firms, including Vodafone Group Plc and Royal Dutch Shell Plc, to face tax demand owing to a retrospective tax law. PTI ANZ STS

Earlier this week, its CEO Simon Thomson had said, “Against a backdrop of regular engagement with the Government of India since January 2014 it is very disappointing to have received a draft assessment order at this time. Since the election of the BJP, senior Government Ministers have consistently commented on the negative impact the issue of retrospective taxation has had on international reputation and investor sentiment towards India.”

Also Read: Cairn Energy: Taxman’s $1.6 billion notice is a misstep

The Income-Tax Department had in a January 22 order held that the Edinburgh-based firm made capital gains of Rs 24,503.50 crore when it transferred its entire India business from subsidiaries incorporated in places like Jersey, a tax haven, to the newly incorporatedCairn India in 2006.

According to the I-T Department, Cairn received Rs 26,681.87 crore for the asset transfer against its entire investment of Rs 2,178.36 crore in the India business.

After transferring the assets, the Scottish explorer listed Cairn India on the stock exchanges through an initial public offering (IPO) in 2006 that raised Rs 8,616 crore.

Cairn Energy, which had in 2011 sold majority stake in its Indian unit to mining group Vedanta for $8.67 billion, still holds 9.8% stake in Cairn India.

Under the terms of the UK-India Investment Treaty, the Government of India and Cairn are now required to enter a period of negotiations to seek a resolution to the dispute. To the extent that a satisfactory resolution is not reached during that period, an international arbitration panel will be constituted to adjudicate on the matter.