Mumbai: The income-tax department has moved to seize $104 million (about Rs670 crore) that Anil Agarwal-led Vedanta Ltd owes to Cairn Energy Plc, seeking to recover part of a Rs10,247 crore retrospective tax demanded from the UK company.
Cairn Energy restructured its India unit—Cairn India Ltd—in 2006, before taking the company public. In 2011, Cairn Energy sold a majority stake in Cairn India to Vedanta group for $8.67 billion, but still holds a 9.8% stake. The government says Cairn Energy made capital gains of Rs24,503.5 crore in the 2006 recast and has demanded Cairn pay retrospective tax of Rs10,247 crore.
Since the tax matter is pending, Vedanta has kept dividends for the past three years in a separate account. The tax department wants to seize this amount, and has won a case in the tax tribunal. Even as Cairn Energy pursues international arbitration in the case, the taxman has asked Vedanta to hand over the cash.
Vedanta Cairn Oil and Gas said in an email, “Income Tax authorities have directed Vedanta Ltd vide its order dated June 16, 2017 to pay over any sums due or will become due in future to Cairn Energy Plc. Accordingly, today, Vedanta Ltd has advised banks holding approx. Rs 666 crore in the dividend account, to be transferred to the IT authorities.”
Sums due to Cairn Energy are $104 million, including historical dividends of $53 million, and a further dividend of $51 million after the merger of Cairn India and Vedanta.
In March, the Income Tax Appellate Tribunal had upheld the retrospective tax on Cairn Energy. On 8 June, Cairn Energy approached an international arbitration panel seeking an injunction against the tax department’s proceedings.
“Cairn is seeking full restitution for (UK-India Bilateral Investment) Treaty breaches resulting from the expropriation of its investments in India in 2014, the attempts to enforce retrospective tax measures and the failure to treat the Company and its investments fairly and equitably,” Cairn Energy said in a statement, according to a PTI report.
The firm said it has a high level of confidence in its case under the treaty and, in addition to resolution of the retrospective tax dispute, its claim seeks damages equal to the value of the group’s residual shareholding in Cairn India at the time it was attached.
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David Round, an analyst at BMO Capital Markets, said in a report on Monday, “Cairn announced in March that it had received confirmation from the international arbitration that historical dividends of $51 million were no longer restricted and requested the immediate release of the sum.”
“Tax clarity expected in early January. International arbitration proceedings are progressing in respect of Cairn’s ~$1 billion claim under the UK India Bilateral Treaty. Final hearings are scheduled for January 2018,” Round added in his report.