Millennium Post

I-T dept sells Cairn Energy shares to recover retro tax

New Delhi: The Income Tax department has sold about 40 per cent of British oil firm Cairn Energy plc's shares in Vedanta to recover a part of Rs 10,247-crore demanded as retrospective tax.

Weeks before an international arbitration tribunal begins final hearing in Cairn's challenge to the retrospective tax, ?the Indian I-T department last month sold about 2 per cent of the firm's shares in Vedanta in at least five tranches totalling USD 216 million, and may sell remaining stake as well, the British firm said in a statement.

The tax department had in January 2014 used a two-year-old retrospective tax law to raise a Rs 10,247-crore demand on alleged capital gains made by Cairn Energy on a decade-old internal reorganisation of India business.

This was followed by attaching the company's residual 9.8 per cent shares in its erstwhile subsidiary, Cairn India. Cairn India was subsequently merged with its new parent Vedanta, in which Cairn Energy held about 4.95 per cent stake.

These shares continued to be attached for four years but the tax department had earlier this year got them transferred to it.

Cairn said the tax department has continued to enforce its retrospective tax claim against the company whilst the arbitration initiated under the UK-India Bilateral Investment Treaty has been ongoing.

"To date, the tax department has seized dividends due to Cairn from its shareholding in Vedanta totalling USD 155 million and it has offset a tax rebate of USD 234 million due to Cairn as a result of overpayment of capital gains tax on a separate matter," it said.

The share were sold for around Rs 230 a piece. Vedanta was trading at Rs 223.50 on the BSE at 1400 hours on Monday.

The company, which gave India its biggest onland oil discovery, said it has now been notified that the tax department "has sold part of Cairn's shareholding in Vedanta, realising and seizing proceeds of USD 216 million."

Following this sale, Cairn's retained holding in Vedanta is now approximately 3 per cent. "It is possible that the income tax department may make further sales," it said.

The tax department had come close to selling the shares in March, but aborted the move at the last moment.

Cairn Energy has challenged the retrospective tax demand through an international arbitration, the final outcome of which is expected later this year.

"All of the written submissions by Cairn and the Government of India have now been made, and the final arbitration hearings are scheduled for two weeks commencing on August 20, 2018 in The Hague.

"These hearings will involve testimony by expert and fact witnesses and will address Cairn's claims under the treaty, India's defences and issues of jurisdiction," it said.

Cairn said it is, through the arbitration, seeking reparation of the monetary value required to restore the firm to the position it would have enjoyed in 2014 but for the Government of India's actions are in breach of the treaty.

"Accordingly, the status of Cairn's assets seized in India does not affect the merits of Cairn's claims, the amount of relief sought, or the enforceability of the arbitral award," it said.

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