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 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.
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.