Energy giant Vedanta Resources plc on Friday filed a notice of claim against the government’s move to impose Rs 20,497 crore in taxes and penalties on its subsidiary, Cairn India.
The income-tax department had made the tax claim as Cairn India allegedly failed to deduct tax on capital gains made by its former parent Cairn Energy during a business reorganisation seven years ago.
“If enforced, such a tax demand would have serious consequences for Cairn India, and therefore Vedanta’s investment in the former,” said Vedanta and Cairn India in filings to the London Stock Exchange and Bombay Stock Exchange, respectively.
Cairn Energy had in 2006-07 transferred its India assets, including the giant Rajasthan oil fields, to a new company Cairn India, and got it listed on stock exchanges. It sold major shareholding in Cairn India to Vedanta in 2011.
Vedanta said the notice of claim was served under the UK-India Bilateral Investment Treaty (BIT), which provides that the Indian Government is obliged to accord fair treatment to investors, and provide full protection to their investments.Cairn argued that the imposition of capital gains tax on the transfer of its India assets to Cairn India was not only in contrast to relevant legal standards, but unjust because it was an internal transaction and no shares or assets were sold to a third party to make capital gains.
The Edinburgh-based company held that leading international counsel had advised them that the retrospective tax legislation passed was a violation of protections accorded under the BIT, and constituted a serious impairment of the treaty rights of Vedanta.
“Vedanta and Cairn India will continue to take all necessary steps to protect their interest and the interest of their shareholders,” it added.
It also said that the company was aware of a parallel tax demand on Cairn UK Holdings by the Indian government, for which Vedanta has sought arbitration and is seeking compensation under the BIT.
(With PTI inputs)