Cairn India on Monday filed a writ petition in the Delhi High Court against a Rs 20,494-crore tax demand from the government. The company, part of the Anil Aggarwal-controlled Vedanta group, has sought quashing of the order and a direction to tax authorities to take no “coercive steps for recovery of demand”.
“Cairn India Ltd has informed Bombay Stock Exchange (BSE) that the Company has on April 06, 2015, filed a Writ Petition with the Delhi High Court praying for quashing or setting aside the order passed by the Tax Authorities under Section 201 of the Income Tax Act, 1961,” Cairn India said in a filing to the BSE today.
The company has argued that the tax proceedings should be quashed as these were initiated after a lapse of more than six years from the end of 2006-07. The Delhi High Court and other courts have held that proceedings should be initiated within a reasonable period of four years.
Cairn India has maintained that it cannot be penalised because it could not have withheld tax anticipating a retrospective amendment. “There was no taxable gain and, accordingly, no liability to withhold tax on the date of payment. Further, there cannot be any liability to withhold tax on consideration discharged by way of share swap,” said a company executive.
Primary liability to pay tax, if any, is of Cairn UK Holdings Ltd (CUHL), and it has initiated arbitration proceedings against the Government of India under the UK India Bilateral Investment Treaty (BIT). Further, the order was a draft, and proceedings had not been concluded, he said, adding it was maintained no interest could be charged, as addition/disallowance that gave rise to the tax demand was solely on the basis of a retrospective amendment to the law.
The UK-based global metals & mining giant had last month said its counsel was told to file a notice of claim against the Government of India under BIT from Indian tax authorities.
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 Rs 20,494-crore ($3.293-billion) tax demand from Cairn India comprises Rs 10,247 crore of tax and an additional identical amount as interest.
“If enforced, such a tax demand will have serious consequences for Cairn India and, therefore, Vedanta's investment in Cairn India. Vedanta understands that a parallel tax demand has also been made by the Indian I-T department on CUHL,” Vedanta had said in its communication to the London Stock Exchange. Vedanta holds a 59.9 per cent stake in Cairn India.
The filing of the case is the first step before commencement of an international arbitration under the treaty. “BIT provides that the government is obliged, among other things, to accord fair and equitable treatment to investors and to provide full protection and security to investments,” Vedanta said.
Vedanta and Cairn India had been advised by leading international counsel that the retrospective tax legislation was a violation of protections accorded to investors under BIT and constituted a serious impairment of the treaty rights of Vedanta, the mining giant said.
Cairn had approached the Delhi High Court last year against a show-cause notice served over the 2006-07 reorganisation of Indian assets but subsequently withdrew its plea. Finance Minister Arun Jaitley had in his budget speech last year announced setting up a committee to review cases of retrospective taxation to cut down avoidable litigation.
The tax demand is in respect of the transaction of 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 company had on March 13 said it had always been fully compliant with all Indian I-T laws and assessments, including the transfer pricing assessment for 2006-07.
Earlier, Cairn Energy had responded to the tax demand served on it by filing a notice of dispute against the Indian I-T department under the UK-India Investment Treaty.
After the dispute notice, the two sides would enter a period of negotiation, seeking a resolution. Cairn Plc has also reportedly sought compensation from the government for the steep fall in the value of its shares in Cairn India, which it is not allowed to sell until it settles the retrospective tax
Source:- Business standard
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“Cairn India Ltd has informed Bombay Stock Exchange (BSE) that the Company has on April 06, 2015, filed a Writ Petition with the Delhi High Court praying for quashing or setting aside the order passed by the Tax Authorities under Section 201 of the Income Tax Act, 1961,” Cairn India said in a filing to the BSE today.
The company has argued that the tax proceedings should be quashed as these were initiated after a lapse of more than six years from the end of 2006-07. The Delhi High Court and other courts have held that proceedings should be initiated within a reasonable period of four years.
Cairn India has maintained that it cannot be penalised because it could not have withheld tax anticipating a retrospective amendment. “There was no taxable gain and, accordingly, no liability to withhold tax on the date of payment. Further, there cannot be any liability to withhold tax on consideration discharged by way of share swap,” said a company executive.
Primary liability to pay tax, if any, is of Cairn UK Holdings Ltd (CUHL), and it has initiated arbitration proceedings against the Government of India under the UK India Bilateral Investment Treaty (BIT). Further, the order was a draft, and proceedings had not been concluded, he said, adding it was maintained no interest could be charged, as addition/disallowance that gave rise to the tax demand was solely on the basis of a retrospective amendment to the law.
The UK-based global metals & mining giant had last month said its counsel was told to file a notice of claim against the Government of India under BIT from Indian tax authorities.
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 Rs 20,494-crore ($3.293-billion) tax demand from Cairn India comprises Rs 10,247 crore of tax and an additional identical amount as interest.
“If enforced, such a tax demand will have serious consequences for Cairn India and, therefore, Vedanta's investment in Cairn India. Vedanta understands that a parallel tax demand has also been made by the Indian I-T department on CUHL,” Vedanta had said in its communication to the London Stock Exchange. Vedanta holds a 59.9 per cent stake in Cairn India.
The filing of the case is the first step before commencement of an international arbitration under the treaty. “BIT provides that the government is obliged, among other things, to accord fair and equitable treatment to investors and to provide full protection and security to investments,” Vedanta said.
Vedanta and Cairn India had been advised by leading international counsel that the retrospective tax legislation was a violation of protections accorded to investors under BIT and constituted a serious impairment of the treaty rights of Vedanta, the mining giant said.
Cairn had approached the Delhi High Court last year against a show-cause notice served over the 2006-07 reorganisation of Indian assets but subsequently withdrew its plea. Finance Minister Arun Jaitley had in his budget speech last year announced setting up a committee to review cases of retrospective taxation to cut down avoidable litigation.
The tax demand is in respect of the transaction of 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 company had on March 13 said it had always been fully compliant with all Indian I-T laws and assessments, including the transfer pricing assessment for 2006-07.
Earlier, Cairn Energy had responded to the tax demand served on it by filing a notice of dispute against the Indian I-T department under the UK-India Investment Treaty.
After the dispute notice, the two sides would enter a period of negotiation, seeking a resolution. Cairn Plc has also reportedly sought compensation from the government for the steep fall in the value of its shares in Cairn India, which it is not allowed to sell until it settles the retrospective tax
Source:- Business standard
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