Oil major Cairn India and its former British parent Cairn Energy Plc have moved the Delhi High Court challenging the validity of New Delhi’s controversial 2012 retrospective amendment to law that imposed tax liabilities on several high-profile offshore transactions of Indian assets including Cairn’s. The court will take up the writ petition for hearing on July 27.
Cairn’s legal challenge of the amendment follows the income tax (I-T) department last week attaching Cairn Energy Plc’s 10.3% stake in Cairn India — the Scottish oil giant’s only remaining asset in India after selling its Indian business to UK’s Vedanta Resources. (Vedanta retained Cairn India’s name post the $8.7-billion deal in 2007.)
The department is planning to sell these shares in the market to recover alleged tax dues arising from Cairn’s restructuring of Indian assets in 2006-07 after giving another opportunity to the firm to pay up, sources told FE.
Cairn India’s shares attached by the tax authority were worth $1 billion as on December 31, 2013, Cairn Energy had disclosed in an earlier statement responding to the tax demand. Sources said the alleged capital gains tax liability (yet to be calculated) could exceed the value of the attached shares, which was about R6,400 crore as on last Friday.
The department is now reassessing the income of Cairn Energy Plc and its subsidiary Cairn UK Holdings for 2006-07 in order to compute the exact tax liability. It believes Cairn India failed to deduct tax at source on its payment to Cairn UK Holdings.
An email sent to Cairn Energy Plc on Friday was not answered until the time of going to print.
The shares were attached after Cairn UK Holdings recently filed a ‘no income’ return in India in response to a show-cause notice issued by the I-T authorities relating to Cairn’s transfer of Indian assets to the then newly-formed Cairn India from certain offshore entities in Jersey in 2006-07. Authorities claim the transaction led to capital gains in the hands of Cairn UK Holdings, that is taxable in India.
Cairn’s move comes close on the heels of Netherlands-based Vodafone International Holdings BV issuing a fresh notice to India seeking international arbitration to resolve a Rs 20,000-crore tax demand it is facing on its purchase of Hutch-Essar seven years ago. The spate of litigation in various High Courts as well as in the Supreme Court – Sanofi Pasteur Holdings’ 2009 acquisition of Shantha Biotech –