The tax department had in 2014 used a two-year-old retrospective tax law to raise a Rs 10,247 crore demand on alleged capital gains made by Cairn Energy on a decade-old internal reorganisation of its India business. Photo: Bloomberg
The tax department had in 2014 used a two-year-old retrospective tax law to raise a Rs 10,247 crore demand on alleged capital gains made by Cairn Energy on a decade-old internal reorganisation of its India business. Photo: Bloomberg

I-T department sells more Cairn Energy shares to recover retro tax

Cairn reported a loss of $500.5 million during the January-June period of 2018-19 as a result of de-recognition and loss of financial assets in India

New Delhi: The Income Tax Department has sold more Cairn Energy Plc’s shares in mining major Vedanta Ltd to recover a part of the 10,247 crore retrospective tax demand, the British firm said on Tuesday.

The tax department, which had in May and June sold a little under 2% of Cairn’s holding in Vedanta for around $231 million, sold a further 1% last month when an international arbitration tribunal was holding the final hearing in The Hague against the imposition of a retrospective tax.

Cairn reported a loss of $500.5 million during the January-June period of the current financial year as a result of de-recognition and loss of financial assets in India.

“At January 1, 2018, Cairn held 4.9% of listed equity shares in Vedanta Ltd (VL). During late May and early June 2018, the Indian Income Tax Department instructed the sale of 1.7% of Cairn’s shareholding, seizing the resultant proceeds. This resulted in a loss on de-recognition of $230.8 million during the six month period to June 30, 2018. Further sales of 1.1% were instructed in August and September 2018, reducing Cairn’s shareholding in the listed equity shares to 2.1%," Cairn Energy said in the statement.

It said the Income Tax Department had continued to enforce its retrospective tax claim against Cairn, while the arbitration, initiated under the UK-India Bilateral Investment Treaty, was ongoing. “To date, the Income Tax Department seized dividends due to Cairn from its shareholding in Vedanta Ltd totalling approximately $62 million and offset a tax rebate of $234 million due to Cairn as a result of overpayment of capital gains tax on a separate matter," the statement added.

During January-June, “the Income Tax Department seized proceeds from about 2% sale of Cairn’s shareholding in Vedanta Ltd, realising $231 million. Subsequent to the first half, a further 1% shares were sold," it said.

The Income Tax Department began selling shares on May 14. The international arbitration tribunal, which began the final hearing in Cairn’s challenge to retrospective tax demand on August 20, has concluded it and said “it will make appropriate arrangements to progress with the drafting of the award as expeditiously as possible," the statement said. “Based on detailed legal advice, Cairn is confident that it will be successful in this arbitration," it said.

Cairn, which gave the country’s its biggest onland oil discovery in Rajasthan, was seeking restoration of monetary value it enjoyed in 2014 before the government levied retrospective tax demand and attached its shares. “The arbitral tribunal is expected to issue a binding and internationally enforceable award, the drafting and issuance of such an award typically takes several months. In this case, taking into account the delays already suffered by Cairn, the tribunal has stated it will endeavour to issue its award as expeditiously as possible," the statement said.

The tax department had in January 2014 used a two-year-old retrospective tax law to raise a 10,247 crore demand on alleged capital gains made by Cairn Energy on a decade-old internal reorganisation of its India business. This was followed by attaching the company’s residual 9.8% shares in its erstwhile subsidiary, Cairn India. Cairn India was subsequently merged with its new parent Vedanta, in which Cairn Energy held about 4.95% stake. These shares continued to be attached for four years but the tax department had earlier this year got them transferred to it.

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