Cairn writ in Delhi High Court
CAIRN India has informed the National Stock Exchange and BSE on 6th April that they have filed a writ petition in the Delhi High Court praying for quashing/setting aside the order passed by the Tax Authorities under Section 201 of the Income Tax Act, 1961.
It was informed that Cairn India had received an order from the Income Tax Department for an alleged failure to deduct withholding tax on alleged capital gains arising during 2006-07 in the hands of Cairn UK Holdings Ltd (CUHL), their erstwhile parent company, a subsidiary of Cairn Energy Plc. This was in respect of the transaction of CUHL transferring the shares of Cairn India Holdings Ltd (CIHL) to Cairn India Ltd as part of internal group reorganisation in 2006-07 to facilitate the IPO of Cairn India Ltd.
In the meanwhile the London Stock Exchange was informed by Vedanta Resources Plc ("Vedanta") that its subsidiary Cairn India Limited has received an assessment order from the Indian Income Tax Department regarding a decision by the Government of India ("GOI") in 2012 to amend the Indian Income Tax Act 1961 to impose retrospective tax on various prior transactions.
Vedanta adds,
In this respect, Vedanta's Board of Directors has instructed counsel to file a Notice of Claim against the GOI under the UK-India bilateral investment treaty (the "BIT") in order to protect its legal position and shareholder interests.
The Notice relates to the retrospective tax legislation passed by the GOI and a related tax demand made against Cairn India, an Indian company in which Vedanta has an approximate 59.9% interest. The tax demand is for an alleged failure to deduct withholding tax on alleged capital gains arising during 2006-07 in the hands of Cairn UK Holdings Limited, Cairn India's erstwhile parent company, a subsidiary of Cairn Energy Plc. The sums demanded from Cairn India total INR 204,947,284,528 (equivalent to approximately USD 3.293 billion) comprising INR 102,473,642,264 of "tax", and the same amount again as "interest".
If enforced, such tax demand would 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 Income Tax Department on Cairn UK Holdings Limited.
The Notice was served under, and is the first step required prior to the commencement of international arbitration pursuant to, the BIT. The BIT provides that the GOI is obliged, amongst other things, to accord fair and equitable treatment to investors and to provide full protection and security to investments. Vedanta and Cairn India have been advised by leading international counsel that the retrospective tax legislation passed is a violation of protections accorded to investors under the BIT and constitutes a serious impairment of the treaty rights of Vedanta.
Cairn's writ petition is likely to come up before the Delhi High Court today.