Indian tax authorities have made a fresh demand of Rs.10,200 crore in taxes from Cairn Energy Plc in the old case of retrospective tax on alleged capital gains made in 2006 but dropped the demand for heavy interest, the company has said in a notice to shareholders.
Cairn Energy has all along contested the government demand of tax on a transaction, which it considers mere reorganisation of assets before listing its local unit Cairn India on the exchange.
An arbitration in underway to decide on the validity of the tax demand. “The final assessment order was appealed to the Income Tax Appellate Tribunal, Delhi (“ITAT”) which ruled on March 9, 2017 that tax in the amount of Rs.10,200 crore remained payable but that Cairn Energy could not be required to pay interest under the relevant sections of the Indian Income Tax Act, 1961 on the basis that the legislation introduced in 2012 was a retrospective amendment and Cairn could not have anticipated that payment of tax would be required,” the company said.
The Income Tax Department had earlier raised a tax demand of Rs.10,247 crore and another Rs.18,800 crore as interest for 10 years. “Following the ruling of the ITAT, an amended tax demand, received on March 31, 2017 noted that late payment interest would now be charged from February 2016, i.e. from 30 days following the date of the original 2016 final assessment order,” the company said.
The decision of the ITAT is potentially subject to appeal, the company added. In 2011, Cairn Energy sold its stake in Cairn India to Vedanta but retained just about 10 per cent. In 2014, Cairn Energy received an order from tax authorities restricting it from selling its residual 10 per cent shares in locally-listed Cairn India, valued at $1billion then, pending a review of an internal group reorganisation carried out in 2006, the company said. Jonathan Huberdeau Authentic JerseyShare This