Tribunal Asks UK's Cairn Energy To Pay Rs 10,247 Crore In Tax

Cairn Energy has been told by an income tax tribunal that it must pay about Rs 10,000 crore as tax related to capital gains made by the UK-based oil explorer capital as part of an internal shareholding restructuring in its India unit. But income tax officials have said that no interest will have to be paid.  Capital gains tax is charged on the profit earned from a sale or investment.  

Cairn India is the country's largest private sector crude oil producer. In 2011, Cairn Energy sold its majority stake in the firm to Vedanta. The British company's stake in Cairn India was reduced to about 10 percent after the transaction.

Cairn India also received a tax notice with the department saying that it failed to withhold capital gains made by its then parent Cairn Energy. Both Cairn India and Cairn Energy Plc were told they owed billions in taxes for the transaction and have disputed the claim.

Cairn Energy challenged the retroactive tax in an international court of arbitration, where the case is pending, and with the Income Tax Appellate Tribunal in India. 

The high-value tax demand on the two companies is at odds with Prime Minister Narendra Modi's initiative to reduce tax-related litigation and move towards a tax-friendly regime to boost much-needed foreign investment.

Cairn Energy and Cairn India join a slew of multinational firms including Vodafone Group Plc who are fighting large cases of taxes imposed retroactively.