Cairn liable to pay Rs 10,000 capital gains tax over 2006 transfer of shares: Tax tribunal rules


Cairn liable to pay Rs 10,000 capital gains tax over 2006 transfer of shares: Tax tribunal rules

The Income Tax Appellate Tribunal has upheld the levy of Rs 10,247 crore capital gains tax on UK’s Cairn Energy Plc in a case dating back to 2006, when the energy giant transferred its India holdings to Cairn India Ltd from Cairn UK Holdings.

However, the tribunal has declined the Income-Tax Department’s levy of interest on the tax, as the demand was raised using retrospective tax legislation.

ITAT, in an order dated March 9, 2017, held that Cairn Energy was liable to pay the tax on share transfer it did through an internal reorganisation of its India business in 2006, prior to getting Cairn India listed on stock exchanges.

Cairn India had acquired the Indian unit’s shares from Cairn UK Holdings in return for 69% equity holding to the UK firm in itself, effectively giving Cairn Energy Plc with 69% control over the Indian entity.

The Income Tax department had said the value of these shares are derived solely from the assets located in India. On the other hand, Cairn UK said that the transaction was a part of re-grouping of the company and therefore, should not be subject to taxation in India.

The tribunal also said that Cairn India should have withheld tax on capital gains made by its parent company. It was parallely sent a demand notice by the Income Tax department for not doing so.

Cairn Energy had approached ITAT after it was slapped with an tax assessment order of Rs 10,247 crore in January 2014. Later, it also initiated international arbitration against the tax demand, which is still pending.

READ  India struggles to stay cool amidst global warming: Report

The I-T department had raised a total tax demand of Rs 29,047 crore on Cairn Energy, including Rs 18,800 crore in backdated interest. A similar tax demand was also raised on Cairn India, the Indian subsidiary of Cairn Energy which the British firm sold to Anil Agarwal’s Vedanta Group in 2011.

In its plea before the ITAT, Cairn Energy had said that the assessing officer had “erred” in raising tax demand by invoking the retrospective amendment to Section 9 of the Act introduced in the Finance Act, 2012, which was not on the statute when the India-United Kingdom Tax Treaty entered into force. Read more

Credits: financialexpress.com

Leave a Reply

Your email address will not be published.