The Delhi High Court on Monday sought the government’s response on Cairn India’s plea against the Rs 20,495-crore tax demand, including interest, imposed on it for allegedly failing to pay taxes on gains made by its former parent firm in a share transfer transaction eight years ago.
A bench headed by Justice B D Ahmed asked the income tax department to filed its reply by August 4.
Senior counsel Harish Salve, appearing for Cairn, argued that they were consulting the government on the tax demand to resolve the issue.
“The Central government has announced about settlement of retrospective tax cases during 2016 Budget,” he said, adding that the company is “considering the government’s settlement proposal… as of now there is no outcome”.
The government in this year’s budget had offered one-time settlement of cases emanating from retrospective amendment of tax laws, by asking companies to pay the basic tax demand and get a waiver for interest and penalty.
The tax demand is in respect of the transaction of Cairn UK Holdings Ltd (CUHL) transferring the shares of Cairn India Holdings Ltd (CIHL) to Cairn India as part of an internal group reorganisation in 2006-07, to facilitate the initial public offering of Cairn India.
The tax demand is for alleged failure to deduct withholding tax on alleged capital gains arising during 2006-07 in the hands of CUHL, the erstwhile parent of Cairn India, a subsidiary of Cairn Energy Plc. The `20,494-crore ($3.293-billion) tax demand from Cairn India comprises `10,247 crore of tax and an additional identical amount as interest.
The government had in January 2014 frozen shares and outstanding dividend to the extent of `4,200 crore of Cairn India, a part of the Anil Aggarwal-controlled Vedanta group.
Cairn has argued that the proceedings were initiated after a lapse of over six years from the end of the 2006-07 financial year.
It said the courts have held that such proceedings should be initiated within a reasonable period of four years. It also said it had in 2006 carried out an internal group reorganisation through 100% share swaps, to facilitate initial public offer of CIL, and there would be no capital gains in such a process.
However, the government had refuted the allegations, saying as per their assessment, CUHL has already made capital gains of `24,000 crore. They have been served with a notice and they have admitted to these capital gains.