Pay Rs 10,000 crore, Tax Tribunal tells Cairn UK

Pay Rs 10,000 crore, Tax Tribunal tells Cairn UK

Setting the stage for a prolonged legal battle, the Income Tax Appellate Tribunal (ITAT) has ordered UK’s Cairn Energy Plc to pay Rs 10,000 crore capital gains tax on transfer of ownership from Cairn UK Holdings to Cairn India.

The order comes at a time when an arbitration between the company and the Indian government is already going on in Singapore.

The Income Tax department had raised a tax demand after Cairn UK transferred shares of Cairn India Holdings to Cairn India in 2006-07, calling the transaction part of an internal group structuring.

The Income-Tax department said the transfer of shares had resulted in capital gains, as this was preceded by Cairn India’s initial public offer.

The income-tax department raised the tax demand, claiming that there was an indirect transfer of shares in a foreign company, which derived its value from the Indian entity. Indirect transfer of share regulations — brought in after Vodafone won a transfer pricing tax dispute with the government — provides for taxing overseas transactions

shares of Indian companies, provided the shares constitute more than 50% of the foreign fund’s total assets (exceeding Rs 10 crore).  Read More..
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