Tribunal upholds ₹10,247 crore retro tax on Cairn, but no interest
The Income Tax Appellate Tribunal (ITAT) on Friday upheld a ₹10,247 crore capital gains tax demand slapped on an arm of British explorer Cairn Energy Plc in connection with offshore transactions involving Indian assets in 2006.
The Delhi bench of the tribunal rejected the explorer’s subsidiary Cairn UK Holdings Ltd.’s plea that the sale of shares representing assets in India to the newly formed Cairn India Ltd. (CIL) was merely an internal reorganisation with no income implications in India.
The ruling is not expected to have any immediate impact on the long-pending dispute between Cairn and the Indian tax department. Cairn has already dragged the Indian government to international arbitration under the India-uk bilateral investment promotion treaty.
The tax tribunal pointed out that the transaction has helped in substantially increasing the real income of the assessee.
It, however, ruled that Cairn is not liable to pay interest on the tax amount due as it could not have anticipated the tax liability that arose due to retrospective amendments.
In response to emailed queries, Cairn UK Holdings Ltd said international arbitration proceedings are progressing in respect of the group’s claim. After Cairn Energy Plc’s sale of a majority stake in the Indian arm to London-listed Vedanta Resources Plc in 2011, it retained close to a 10% residual stake in the company. The stake was attached by the tax department in May 2014.
“Cairn is seeking restitution for losses resulting from the attachment of its shares in CIL and failure to treat the Company and its investments fairly and equitably,” said a company statement.
The United Progressive Alli ance government brought in ret rospective amendments to tax laws in 2012 to ensure transac tions where the share transac tion happens overseas but the underlying assets are in India are subject to taxation in India.