The Telegraph
Friday , April 4 , 2014
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Cairn Energy suffers fresh tax trauma

Tough time

New Delhi, April 3: Cairn Energy has been slapped with two more tax notices, which the Scottish explorer plans to counter vehemently.

Cairn already faces a potential tax demand on an alleged Rs 24,500-crore capital gain it made when in 2006-07 it transferred all its India assets to a new company, Cairn India.

It said none of the transactions undertaken by it during that fiscal were chargeable to tax in India.

Its wholly owned subsidiary Cairn UK Holdings Ltd (CUHL) “filed a nil return for the year in question on the grounds that none of the transactions undertaken by it during that fiscal year is chargeable to tax in India”, the company said in a statement.

Cairn has received two further notices from the Indian income tax department.

“The first, dated March 29, 2014, is a request made to Cairn Energy to file a tax return for the fiscal ended 31 March 2007. Cairn intends to file a nil return for this notice.

“The second, dated March 31, 2014, claims that CUHL should have withheld tax on dividends paid to its parent company, Cairn Energy,” it said. Stating that no tax demand has been raised, Cairn said it “intends to respond to the notice refuting this claim”.

“Throughout its history of operating in India Cairn has been compliant with the tax legislation in force in each year. Cairn has stated that it intends to take whatever steps are necessary to protect the company's interests,” the statement said.

The I-T department has restrained Cairn from selling its residual 10.3 per cent stake, worth over $1 billion, in Cairn India till the tax dispute is resolved. Cairn Energy had in 2011 sold a majority stake in its Indian unit to mining group Vedanta for $8.67 billion. It still holds 10.3 per cent in Cairn India.

The I-T department had in a January 22 order held that the Edinburgh-based firm made capital gains of Rs 24,503.50 crore when it transferred its entire India business from subsidiaries incorporated in places such as Jersey, a tax haven, to Cairn India in 2006.