After ex-parent, Cairn India handed $3.2 bn withholding tax demand

Mumbai, March 13 (IANS) A day after mining group Vedanta Resources-controlled Cairn India said it has not received any notice about the retrospective $1.6 billion income tax demand on Britain-based Cairn Energy, it has got a $3.26 billion withholding tax demand for an eight-year-old transaction involving its former parent company.

"We would like to inform you that Cairn India Limited has received an order from the Income Tax Department today (Friday) for an alleged failure to deduct withholding tax on alleged capital gains arising during 2006-07 in the hands of Cairn UK Holdings Limited (CUHL), our erstwhile parent company, a subsidiary of Cairn Energy Plc," Cairn India said in a filing to the Bombay Stock Exchange.

"A demand of INR 20,495 Crore (comprising tax of approximately Rs.10,248 crore and interest of approximately Rs.10,247 crore) is alleged to be payable. Cairn India Ltd does not agree with this alleged demand and will pursue all possible options to protect its interest," the statement added.

"As was communicated yesterday (Thursday), from the media reports we understand that tax demand has also been made by the Income Tax department on Cairn UK Holdings Limited (CUHL) on this matter," Cairn India said.

Cairn India on Thursday clarified that CUHL was no longer part of its company.

Going contrary to Jaitley's promise that India will not levy any tax with retrospective effect, the Income Tax department on Wednesday imposed a $1.6 billion (Rs.10,247 crore) tax demand on Cairn Energy UK.

The demand relates to an alleged Rs.24,500 crore capital gains it made in 2006 when it transferred all its India assets to a new company, Cairn India, which got listed on the stock exchanges.

British Foreign Minister Philip Hammond, who is in India on an official visit, raised the Cairn tax issue with union Finance Minister Arun Jaitley during their meeting on Thursday.

The visiting minister told reporters here that Jaitley told him that the tax case involving Cairn has to be resolved through the courts as the process has already started.

"It did come up during my meeting with Jaitley. He explained that this particular tax demand is being sent out pursuant to a notice that was issued by the previous government," Hammond said.

Invoking the UK-India Investment Treaty, Cairn Energy said on Wednesday it will contest the Indian tax demand under the terms of the pact signed by both countries.

"Cairn continues to be restricted by the Indian Income Tax department from selling its 10 percent shareholding in CIL, currently valued at approximately $700 million. In addition, Cairn will seek restitution of losses resulting from the attachment of its CIL stake since 2014," it said.