‘Cairn liable to pay `10,247 cr capital gains tax’

INCOME TAX APPELLATE TRIBUNAL ORDER

EVEN AS the international arbitration proceedings are ongoing on the retrospective tax demand, the Income Tax Appellate Tribunal (ITAT) has upheld the levy of Rs 10,247 crore capital gains tax on UK’S Cairn Energy Plc. The tax tribunal has, however, provided relief to the company for levy of interest, saying that it was raised as a retrospective demand. ITAT, in an order dated March 9, 2017, held that Cairn Energy was liable to pay the taxonsharestransferdonebythe company through an internal reorganisation of its India business in 2006, prior to listing of Cairn India on stock exchanges.

In its plea before the ITAT, Cairn Energy had said that the assessing officer had “erred” in raising tax demand by invoking the retrospective amendment to Section 9 of the Act introduced in the Finance Act, 2012, which was not on the statute when the India-united Kingdom Tax Treaty was enforced.

The ITAT said the provisions of DTAA where it simply provides that particular income would be chargeable to tax in accordance with the provisions of domestic laws, such article in DTAA also cannot the limit the boundaries of domestic tax laws.

With regard to interest payment, it opined that assessee cannot be burdened with interest u/s 234A and 234B of the Act on tax liability arising out of retrospective amendment w.e.f. April 1, 1962, in the provision of section 9(1) of the Income Tax Act. “We have carefully considered the rival contentions. In the present case the interest has been charged on the tax payable by the assessee which has arisen because of retrospective amendment made by The Finance Act, 2012. “Therefore, it is correct on the part of the assessee to submit that it could not have visualise its liability for payment of advance in the year of transaction therefore, there cannot be any interest payable by the assessee u/s 234A and 234B of the Act,” the ITAT ruled. ITAT also rejected Cairn’s contention that they have not earned any real income and there has been no increase in the wealth of the assessee.

It observed that there was an increase in the wealth of Cairn owing to the IPO and value derived by book building process.

Experts said the move may not go down well with foreign investors. “Though in the instant case the underlying assets were solely located in India, Cairn’s liability arose mainly owing to the retrospective amendment in the provisions of section 9(1)(i) of the Act taxing the indirect transfer transactions. Though the government has clearly stated the end of retrospective tax regime and following a non adversarial tax approach, this tax demand is not likely to go down well with the foreigninvestors,”rakeshnangia, managing partner, Nangia & Co said. Taxmann’s Naveen Wadhwa said, “As the transaction comes within the ambit of amended Section 9, any relief is not likely to be provided by the High Court against this judgment.”