The Delhi High Court on Friday gave oil major Cairn India three weeks to respond to a Rs 6,250-crore tax demand over share transfer from its then UK parent Cairn Energy to the Indian arm in 2006-07.

The relief was given after Cairn India, now majority owned by Vedanta Resources, moved the court saying it was not given adequate time to respond to the department’s March 14 showcause notice.

The company was originally given only two days to respond to questions raised on the international transaction. The court has granted Cairn India the liberty to approach it in case adverse orders are passed by the deputy director of income tax (DDIT) in the matter.

Cairn India spokesperson later told FE that the company has received a showcause notice recently for ?an alleged failure to deduct withholding tax on alleged capital gains arising in the hands of Cairn UK Holdings Limited, our erstwhile parent company in 2006-07.? Cairn said the court has granted three weeks’ time to evaluate the showcause notice and respond appropriately.

?Cairn India has always been fully compliant with all Indian Income tax laws. Income tax assessments, including transfer pricing assessment has been completed for FY 2006-07. Cairn India is one of the highest contributors to the exchequer by way of taxes and royalties. The company’s gross contribution to the exchequer is in excess of Rs 24,000 crore for the current year,” the spokesperson said.

Since the beginning of this year, Cairn India has been under the lens of the department on whether any capital gains tax is liable in respect of the transfer of shares from Cairn Energy to Cairn India in financial year 2006-07. The company was asked why no capital gains tax should be raised in the hands of its foreign parent.

The taxman has claimed that the total share transfer transaction, as per the balance sheet of Cairn UK, is valued at Rs 26,880 crore, whereas the profits for the same have been calculated to be Rs 25,000 crore. Accordingly, a demand of capital gains tax at the rate of 30% on the profit of Rs 25,000 crore is being made out by the department.

Cairn Energy, which had in 2011 sold majority stake in its Indian unit to mining group Vedanta for $8.67 billion, still holds 10.3% stake in Cairn India which at today?s trading price is worth about $1 billion.

During the proceedings, senior standing counsel Sanjeev Sabharwal, appearing on behalf of the department, told the court that the foreign company had not even filed a return for the assessment year, even when a substantial liability has been raised against the non-resident company.

Cairn’s counsel, on the other hand, argued that the transactions had taken place in 2006 and no action was taken by the department for the last couple of years. He added that the transfer pricing liability of the company is still to be proved and that necessary disclosures were made by the companies before any money was remitted to the foreign firm.

?The pricing was approved, prior permission of different institutions was taken and money was channelized through the appropriate entities. How can any obligation be fixed on me on the basis of a retrospective amendment that was introduced in 2012,? Cairn’s counsel said, adding that the Indian tax authorities did not have the jurisdiction to raise a demand against the non-resident company.

After considering arguments from both the sides, the court observed that issues concerning jurisdiction of the taxman to proceed with the show cause notice and determination of potential liability under section 201 of the Income Tax Act are ?premature? and that these very issues can be agitated before the concerned tax authority.