The Income tax (I-T) department has ordered coercive action against Cairn Energy Plc of the UK, including taking away more than Rs 2,000 crore dividend and tax refund, to recover part of the Rs 10,247-crore retrospective tax. This follows British oil firm losing in an international arbitration tribunal its challenge against India’s I-T department taking coercive action to recover the tax dues.
Source said the department has already adjusted Rs 1,500 crore of tax refund that was due to Cairn Energy Plc, against the principal amount. On June 16, the income tax department sent a notice to the company’s erstwhile subsidiary, Cairn India Ltd (now Vedanta India Ltd), saying whatever is due to the British firm in the form of dividend should be transferred to the government.
“…on 16 June 2017 the Indian income tax department issued an order to VIL (Vedanta India Ltd) directing it to pay any sums that were due to Cairn to the Government of India. Sums due to Cairn from VIL now total $104 mn, including historical dividends of $53 mn and a further dividend of $51 mn after the merger of CIL and VIL,” Cairn Energy Plc stated on Monday.
In a statement issued on Monday, VIL also said that the dividend due to the company will be transferred to the exchequer soon. “Income tax authorities (ITA) have directed Vedanta Limited vide its order dated June 16, 2017 to pay over any sums due or will become due in future to Cairn Plc. Accordingly, on Monday, Vedanta Limited has advised the banks holding about Rs 666 crore in the dividend account, to be transferred to the IT authorities. It may be recalled that the dividends due to Cairn Energy Plc for the last three years were lying in an unpaid dividend account as initially they were subject to an attachment order u/s 281B by the tax department and were not available for use by Cairn,” said VIL in its statement.
The department will now move to take 9.8 per cent residual stake that Cairn Energy retains in Cairn India even after selling the erstwhile subsidiary to Vedanta. The tribunal refused to entertain Cairn Energy’s pleas for restraining the I-T department from taking any coercive action and ordering Cairn India to release dividend due to it, the sources said.
The assessing officer is in the process of drawing a certificate under the Income Tax (Certificate Proceedings) Rules, 1962 for recovery of tax, as per which the tax recovery officer will go ahead to attach the shares and sell them. However, the sale might not happen immediately as the tax department will wait for the best price, and the shares can be sold to LIC or Vedanta, the sources said.
Cairn Energy Plc said the company would continue with the international arbitration proceedings against the retrospective tax demand. “Notwithstanding this action by the GoI, international arbitration proceedings are progressing in respect of the Group’s claim under the UK-India Bilateral Investment Treaty (the Treaty). Cairn is seeking full restitution for Treaty breaches resulting from the expropriation of its investments in India in 2014, the attempts to enforce retrospective tax measures and the failure to treat the Company and its investments fairly and equitably,” Cairn Energy said.
The I-T department had on March 31 issued a notice to Cairn Energy seeking Rs 10,247 crore tax and set June 15 as the deadline for payment. This notice followed Cairn Energy losing an appeal in the Income Tax Appellate Tribunal (ITAT) against the levy.
ITAT had in March upheld levy of retrospective tax on 2006 transfer of shares by the UK firm to a newly created Indian unit Cairn India, for a certain consideration. Cairn Energy Plc said that has a high level of confidence in its case under the Treaty.
“Cairn has a high-level of confidence in its case under the Treaty and, in addition to resolution of the retrospective tax dispute, its claim seeks damages equal to the value of the Group’s residual shareholding in CIL
at the time it was attached (about $1 billion). The seat of the arbitration is The Hague in the Netherlands and final hearings for the tribunal are scheduled for January 2018,” it said.