Millennium Post

I-T Dept sends UK’s Cairn Energy $4.4-bn tax notice

The Income Tax Department has slapped on UK’s Cairn Energy plc a tax demand notice of over Rs 29,000 crore, including Rs 18,800 crore in back dated interest. It is the second firm to have received retrospective tax notice this year after Vodafone Group. Cairn, against whom the I-T Department had on January 22, 2014 issued a draft assessment order of Rs 10,247 crore on alleged capital gains it made in a 2006 reorganisation of its India business, was last month issued a final assessment order.

“The assessment order is in the amount of Rs 10,247 crore (approximately $1.6 billion) plus interest back dated to 2007 totalling Rs 18,800 crore (approximately $2.8 billion),” Cairn Energy said announcing its earnings for 2015. The tax demand notice came at a time when the government had insisted that it will not raise any fresh tax demand using retrospective tax legislation. The notice was however issued before Finance Minister Arun Jaitley in his Budget for 2016-17 made a one-time offer to waive interest and penalty if the companies paid the principal amount to settle the retrospective tax disputes. Sources said as per Income Tax rules, an assessment order issued has to be closed within two years and the notice issued now is to close that assessment. 

Interestingly, the assessment order back dates interest to 2007, years before the 2012 legislation was enacted to tax such transactions. “Cairn strongly contests the basis of this attempt to retrospectively tax the group for an internal restructuring,” the company said adding it has initiated international arbitration to settle the tax dispute.

The company is claiming full compensation for the $1 billion value of which its shareholders have been deprived following the tax notice and freezing of its 9.8 per cent shares in Cairn India. “The total assets of the Cairn subsidiary against which the tax authorities are seeking to pursue a tax claim are $477 million (including principally the group’s near 10 per cent shareholding in Cairn India Ltd) and any recovery by the Indian authorities would be limited to such assets,” it said. 
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