Panel rules in favour of Cairn

New Delhi, April 26: In a setback to India, an international arbitration panel has rejected its demand for a stay on an arbitration initiated by British oil explorer Cairn Energy plc against a `10,247 crore retrospective tax notice.

The panel, comprising three judges of international repute, has also turned down India’s application for bifurcation of the issue of whether tax is covered under India-UK bilateral investment protection treaty, sources privy to the development said.

Income-Tax department had in January 2014 charged Cairn Energy of making capital gains on transfer of India assets to a newly created firm, Cairn India and listing it on stock exchanges. Instead of applying long-term capital gains tax, it levied a short-term capital gains tax and slapped a draft tax demand of `10,247 crore.

Also, it debarred Cairn Energy from disposing of its 9.8 per cent remaining stake in Cairn India, which the British firm had in 2011 sold to Vedanta Group.

In April 2014, the tax department slapped a `20,495 crore demand on Cairn India, the UK firm’s erstwhile subsidiary for failing to deduct tax on the capital gains.

BOTH FIRMS denied any tax was due and initiated arbitrations under India-UK and IndiaSingapore treaty