I-T Lays Claim to Cairn Div­i­dends as Part of Retro Tax Pay­ment

Wants pay­ments to UK co to be partly off­set against .₹ 10,247-cr dues; Vedanta says will use es­crow funds

The Economic Times - - Front Page - Our Bureau

The in­come tax depart­ment has de­manded all div­i­dends due to Cairn En­ergy Plc from Cairn In­dia (re­named Vedanta Ltd) against part of the .₹ 10,247-crore tax levied on the com­pany in the wake of the controversial ret­ro­spec­tive tax amend­ment. The com­pany was re­quired to pay the amount by June 15, fail­ing which the depart­ment had said it would start re­cov­ery pro­ceed­ings.

Vedanta said late on Mon­day that money held in es­crow for this pur­pose will be paid to the tax depart­ment.

“Vedanta Ltd has ad­vised the banks hold­ing ap­prox­i­mately .₹ 666 crore in the div­i­dend ac­count to be trans­ferred to the IT au­thor­i­ties,” the com­pany said in its re­lease. “It may be re­called that the div­i­dends due to Cairn En­ergy Plc for the last three years were ly­ing in an un­paid div­i­dend ac­count as ini­tially they were sub­ject to an at­tach­ment or­der un­der Sec­tion 281B by the tax depart­ment and were not avail­able for use by Cairn (now Vedanta Ltd).” Cairn En­ergy had failed last week to con­vince an in­ter­na­tional ar­bi­tra­tion tri­bunal hear­ing the dis­pute to re­strain the In­dian au­thor­i­ties from any co­er­cive ac­tion to re­cover the dues. The in­come tax depart­ment had is­sued a fresh tax de­mand to Cairn In­dia on March 31.

This was af­ter Cairn En­ergy lost an ap­peal in the in­come tax ap­pel­late tri­bunal (ITAT) against the levy. In ad­di­tion, the depart­ment has also ad­justed .₹ 1,500 crore in tax re­funds due to the com­pany against the li­a­bil­ity. Cairn En­ergy had is­sued a state­ment ear­lier in the day con­fir ming the de­mand.

“On16 June, 2017, the In­dian in­come tax depart­ment is­sued an or­der to VIL (Vedanta) di­rect­ing it to pay any sums that were due to Cairn to the gov­ern­ment of In­dia,” it said. “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.”

Vedanta had been de­posit­ing div­i­dends due to Cairn En­ergy in es­crow ac­count for past three years.

The tax depart­ment can also at­tach and sell 10% resid­ual stake Cairn En­ergy has in Vedanta, which is worth about .₹ 9,000 crore. If re­quired, a for­mal re­quest would need to be sent by the as­sess­ing of­fice un­der the In­come Tax (Cer­tifi­cate Pro­ceed­ings) Rules, 1962, to at­tach the shares and sell them.

The in­come tax depart­ment de­clined to com­ment.

Cairn En­ergy has sought ar­bi­tra­tion un­der In­dia-UK bi­lat­eral in­vest­ment pro­tec­tion treaty. The three-mem­ber ar­bi­tra­tion tri­bunal is based in The Hague and fi­nal hear­ings are sched­uled for Jan­uary 2018. Cairn En­ergy had ear­lier this month ap­proached the panel to seek an in­junc­tion against any move by tax au­thor­i­ties to re­cover dues.

In­dia has main­tained that tax dis­putes are not cov­ered by bi­lat­eral in­vest­ment pro­tec­tion treaties that it has with other coun­tries.

In its state­ment, Cairn En­ergy said it had given re­peated as­sur­ances that the div­i­dend amount was not un­der freeze. “On 9 June 2017, the tri­bunal is­sued a for­mal or­der memo­ri­al­is­ing the nu­mer­ous con­fir­ma­tions from the GoI that the div­i­dends were no longer re­stricted and au­tho­ris­ing that or­der to be pro­vided to CIL (now named Vedanta Lim­ited (VIL) fol­low­ing the merger of CIL and VIL),” it said.

“Cairn is seek­ing full resti­tu­tion for 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,” the state­ment added.

RET­RO­SPEC­TIVE CASE

The in­come tax depart­ment had slapped the tax de­mand on Cairn En­ergy say­ing the com­pany made cap­i­tal gains of .₹ 24,503.50 crore in 2006 when it trans­ferred all its In­dia as­sets to a new com­pany, Cairn In­dia. The com­pany was sub­se­quently listed on the stock ex­changes. In 2011, Cairn En­ergy sold a ma­jor­ity stake in its In­dian unit to min­ing group Vedanta for $8.67 bil­lion. The de­mand was made ret­ro­spec­tively af­ter the gov­ern­ment amended the in­come tax law in 2012 to tax in­di­rect trans­fer of shares in­volv­ing largely In­dian as­sets. The amend­ment was moved af­ter the Supreme Court ruled against the tax depart­ment in the Voda­fone case. The tax depart­ment had in Oc­to­ber 2010 im­posed a tax li­a­bil­ity in­clud­ing in­ter­est of .₹ 11,218 crore on Voda­fone In­ter­na­tional Hold­ings BV (VIHBV) for its $11 bil­lion ac­qui­si­tion of Hong Kong-based Hutchi­son Wham­poa's 67% stake in In­dia mo­bile phone busi­ness in 2007. The amend­ment meant that many past trans­ac­tions, in­clud­ing the one in­volv­ing Cairn In­dia, would be li­able to be taxed. The Cairn En­ergy de­mand was is­sued in 2014. In March this year, the Delhi ITAT bench held that the trans­ac­tion was tax­able. Cairn En­ergy has re­jected the de­mand say­ing it was based on a ret­ro­spec­tive law and in­voked ar­bi­tra­tion. The gov­ern­ment has of­fered to waive in­ter­est and penal­ties in re­spect of all ret­ro­spec­tive tax cases if the prin­ci­pal is paid.

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