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  • Cairn faces Rs 10,000- crore tax pain

    Publish Date : 10 Apr 2017

    In a blow to energy giant Cairn, the income tax (I-T) department has asked the Edinburgh-based company to pay dues of Rs 10,247 crore by June 15. It has also raised an interest demand of around Rs 1,400 crore, asking Cairn why a penalty should not be imposed. This is within a month of an order from a tax tribunal that had upheld the capital gains tax demand of the I-T department, under the controversial retrospective amendment to the law. If Cairn doesn’t pay by June 15, said a government official, “recovery proceedings will be initiated. No coercive measures have been taken so far. We do not want to vitiate the investment climate but Cairn has not been cooperating at all”. For non-payment of dues based on the department’s assessment notice of January 2016, it has raised an interest demand at one per cent of the tax amount or Rs 100 crore a month, amounting to Rs 1,400 crore for the 14 months till April.

    Then & now

    The tax demand is in respect of Cairn UK transferring the shares of Cairn India Holdings to Cairn India, as part of an internal group reorganisation in 2006-07. This gave rise to different interpretations on whether the UK-based company made capital gains, preceding an Initial Public Offer (IPO) of shares by Cairn India. The department has also filed a caveat with the high court here against any stay demand by the energy giant on the order mentioned earlier of the Income Tax Appellate Tribunal (ITAT). “If they seek a stay, the court should not give any decision without asking us,” said another official.

    Cairn did not comment on the latest tax notice. The UK oil major is also likely to face a penalty (likely to be around 300 per cent) by the I-T department; a reminder notice asks it why this should not be imposed. The department has six months since the ITAT order, which is September, to slap the penalty. “It will likely be 300 per cent (of the principal demand), as the company is not cooperating or complying with the law,” said an official cited earlier.The department says in its January 2014 notice, Cairn was asked to file its return, as the law had been changed. Hence, it is now liable for the penalty. “You cannot take the plea that you did not know the law,” the official added.

    I-T tribunal

    Although ITAT had given an Rs 18,800 crore interest amount relief to Cairn, the department has raised interest demand under another section of the I-T law. “Interest on the outstanding demand has been imposed under section 220(2) of the I-T Act. If you do not pay the demand, there is a one per cent interest every month. The assessment notice was sent on January 25 last year,” said the official. ITAT had given relief on the interest to Cairn on the reasoning that the advance tax was a retrospective levy and, hence, it could not have been anticipated by the assessee. The tribunal also held that a foreign company paying Tax Deducted at Source is not liable to pay advance tax, by Section 234B of the I-T Act. This view has also been held by the Supreme Court. However, the department has filed a review petition in the SC, in another and similar case of interest liability.

    Related

    Cairn has been contesting the basis of the tax assessment order in international arbitration. The latter proceedings are on in respect of Cairn’s claim under a UK-India Bilateral Treaty, with the main Statement of Claim and India’s Statement of Defence both given. Cairn has sought compensation from the Indian government of USD 5.6 billion, saying ti had suffered harm due to the alleged breach of the treaty by India. Under a Dispute Resolution Scheme last year, the government had offered a one-time tax settlement scheme from June 1 to December 31, later extended to January 31. This was subject to companies agreeing to withdraw any pending case. Under the offer, the government had offered to waive the penalty and interest amount for those agreeing to the settlement. Cairn did not use the settlement window.

    At the time of the IPO, ownership of the India assets was transferred from Cairn UK Holdings to a new company, Cairn India. In 2006, Cairn India acquired the entire share capital of Cairn India Holdings from Cairn UK Holdings. In exchange, 69 per cent of the shares in Cairn India were issued to Cairn UK Holdings. Hence, Cairn Energy, through Cairn UK Holdings, held 69 per cent in Cairn India.

    Later, in 2011, Cairn Energy sold Cairn India to mining billionaire Anil Agarwal’s Vedanta group, barring a minor stake of 9.8 per cent. It wanted to sell the residual stake as well but was barred by the I-T department from doing so. The government also froze payment of dividend by Cairn India to Cairn Energy; it recently agreed to lift that freeze. Cairn has got confirmation via the international arbitration that dividends of $51 million due from Cairn India Ltd (CIL) are no longer restricted and Cairn has requested the immediate release of the sum from CIL, a source said.  - www.business-standard.com[10-04-2017]

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