Cairn UK Did Not Pay Tax On Rs 24,503.50 Crores Of Capital Gains: Income Tax Department
Jan 27, 2014, The Income Tax Department has assessed that Cairn Energy Plc of UK did not pay tax on Rs 24,503.50 crores of capital gains made on transferring India assets to a new company. The department, in a seven-page order dated January 22, said the gains came after the Edinburgh-based firm transferred its entire India business from subsidiaries incorporated in Jersey, a tax haven, to newly incorporated Cairn India for Rs 26,681.87 crores in 2006. This payment that the UK firm received was against its entire investment of Rs 2,178.36 crores (251.22 million pounds) in the India business. "Since Cairn India Ltd has paid an amount of Rs 26,681.87 crores to Cairn UK Holdings Ltd for acquiring 251.224 million shares of Cairn India Holdings Ltd, there is a prima facie short-term capital gain of Rs 24,503.50 crores," the order said. It has so far not raised a tax demand on Cairn Energy. The I-T Department, however, ordered Cairn India not to allow the transfer of Cairn Energy's stake in the company. It also ordered that the shares cannot be pledged or mortgaged. After transferring the assets, the Scottish explorer listed Cairn India on the stock exchanges through an initial public offering (IPO) in 2006 that raised Rs 8,616 crores. In 2011, Cairn Energy sold its majority stake in Cairn India to mining group Vedanta for USD 8.67 billion. It still holds a 10.3 per cent stake in Cairn India. "the principal officer of Cairn India Ltd is directed not to do/permit any transfer of these shares to anybody," it said. "So far as the receivables by Cairn UK Holdings Ltd in the books of Cairn India Ltd are concerned the Principal Officer of Cairn India Ltd is directed not to remit/pay any amount to Cairn UK Holdings Ltd." Cairn Energy was widely seen as a likely participant in the Indian firm's share buyback, which opened on January 23. The I-T Department started an investigation on January 15 to establish if capital gains tax was due from Cairn Energy's transfer of shares of Indian assets to Cairn India in 2006. "Cairn (Energy) has been contacted by the Income Tax Department of India to discuss income-tax assessments for the year ending March 31, 2007. Cairn is cooperating to provide the necessary documentation and information as requested," the Edinburgh-based company had said in a statement on January 24. "the Income Tax Department has instructed Cairn Energy Plc to hold its shares in Cairn India," it had added. The I-T Department had 'surveyed' Cairn India's Gurgaon office on January 15. It is investigating the matter under Section 9 of the Income-Tax Act, which deals with income deemed to accrue or arise in India. Cairn India plans to buy 17.09 crores shares, or 8.9 per cent of the equity, from the open market at not more than Rs 335 apiece, aggregating up to Rs 5,725 crores.