Hit hard by the retrospective tax, Cairn Energy Plc of UK has offered to pay 15 per cent of the Rs 10,247 crore principal amount in return for government lifting freeze on the 9.8 per cent shares it holds in its erstwhile subsidiary, Cairn India.
Cairn has written to the Finance Ministry saying it wants to avail of latest offer by Central Board of Direct Taxes (CBDT) of staying outstanding disputed demand on payment of 15 per cent till such time that the case is disposed of, sources privy to the development said.
The Income Tax Department had in January 2014 slapped a draft assessment order of Rs 10,247 crore tax on alleged capital gains Cairn made on 2006 reorganisation of its India business.
Pending that, it froze 9.8 per cent shareholding it was left with in Cairn India, its erstwhile subsidiary which it sold to Vedanta Group in 2011.
In February this year, the Income Tax Department issued a final a tax demand notice of over Rs 29,000 crore, including Rs 18,800 crore in back-dated interest. Sources said Cairn Energy wants to pay Rs 1,537 crore (15 per cent of principal amount of Rs 10,247 crore) during the pendency of the arbitration it has initiated against the demand.
In return, it wants the stay on Cairn India shares to be lifted. It hold 18.41 crore shares of Cairn India which at today’s closing price of Rs 135.25 are worth Rs 2485.69 crore. Cairn may be looking at disposing of these shares to fund its business plans.
The CBDT had on February 28 issued fresh guidelines on the process of grant of stay on a disputed tax demand. Under this, “the assessing officer shall grant stay of demand till disposal of first appeal on payment of 15 per cent of the disputed demand.”
The company is however not keen on Finance Minister Arun Jaitley’s offer in his Budget for 2016-17 to waive interest and penalty if the companies paid the principal amount to settle the retrospective tax disputes.
It believes there is no tax due on the 2006-07 internal business reorganisation that led to transfer of shares of Indian assets that were held in a subsidiary to newly incorporated Cairn India.
It listed Cairn India Ltd on the stock exchanges through an initial public offering (IPO) thereafter. Through the IPO, it raised Rs 8,616 crore and then in 2011 went on to sell a majority stake in Cairn India to mining giant Vedanta Group for $8.67 billion.
Cairn has initiated arbitration contesting the tax demand and says enforcement of any tax liability deemed due by the Income Tax Department can only be limited to its shareholding in Cairn India.