Cairn-Vedanta merger only after tax liability is settled: govt

New Delhi: In a setback to Anil Agarwal, the government on Monday said it will not allow him to merge subsidiary Cairn India with his flagship firm Vedanta Ltd unless the Rs.10,247 crore tax issue is settled. “Cairn-Vedanta merger cannot be allowed unless the tax liability is settled,” a top government official said here.

Agarwal’s Vedanta Group had in 2011 acquired Cairn India from its British promoters, Cairn Energy Plc, and last year proposed to merge the cash-rich firm with BSE-listed Vedanta Ltd.

However, a tax demand on both Cairn Energy Plc and Cairn India under a retrospective legislation is now hindering the merger.

“Cairn will have to first to settle the tax liability,” the official told reporters here.

The income tax department using retrospective tax legislation had slapped a Rs.10,247 crore tax notice on Cairn Energy in January 2014.

In February this year, the department issued a final assessment order seeking over Rs.29,000 crore in tax from Cairn Energy including Rs.18,800 crore in interest.

To ensure compliance, it had in April 2014 also slapped Cairn India with a tax demand of Rs.20,495 crore, half of it being interest, for failing to deduct withholding tax on alleged capital gains made by its erstwhile parent company, Cairn Energy in 2006-07 when it reorganised India business.

Cairn Energy still holds 9.8% stake in Cairn India but these shares have been frozen. “Cairn Energy can’t sell shareholding in Cairn India as assets are attached,” the official said.

Agarwal’s Cairn India moved Delhi High Court against the tax demand in April last year; the next date of hearing is April 18.