Cairn India said on Friday that it has received an order from the Income Tax Department seeking ₹20,495 crore for alleged failure to deduct withholding tax on purported capital gains arising in 2006-07 to its former parent, Cairn UK Holdings Ltd.

The demand includes tax of ₹10,248 crore and interest of ₹10,247 crore.

“Cairn India does not agree with this alleged demand and will pursue all possible options to protect its interest,” the company said in a filing to the BSE.

Friday’s demand from the Income Tax Department is a follow-up to the January 2014 show-cause notice issued by the Department to Cairn India.

Interest portion The amount of tax demand has gone up due to an increase in the interest portion. The Department has also sent the same tax demand to Cairn Energy Plc, the former promoter of the Indian unit.

The demand comes at a time when Finance Minister Arun Jaitley is in the UK and investors there have been raising questions on it.

Cairn Energy has already announced its intent to dispute the demand and take legal recourse.

The demand from the Department is for a transaction by Cairn UK Holdings Ltd transferring shares of Cairn India Holdings Ltd to Cairn India Ltd as part of an internal group re-organisation in 2006-07 to facilitate an initial public offering by Cairn India Ltd.

Cairn India is now a part of the Anil Agarwal promoted Vedanta Group.

In its filing with the BSE, the company stated: “Cairn has always been fully compliant with all Indian income-tax laws. Income-tax assessments, including transfer pricing assessment, were duly completed for the 2006-07 fiscal.”

Dispute notice On March 10, Cairn Energy said it has “instructed counsel to file a notice of dispute under the UK-India Investment treaty in order to protect its legal position”.

The statement added that Cairn Energy continues to be restricted from selling its 10 per cent shareholding in Cairn India Ltd, valued at $700 million.

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