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The tax department has slapped a fresh notice on UK’s Cairn Energy Plc seeking to take over the firm’s residual 9.8 per cent stake in its erstwhile Indian subsidiary to recover ₹10,395 crore in a retrospective tax demand.
The tax department had, in an unprecedented move, last month appropriated ₹1,500 crore of a tax refund due to Cairn Energy and another ₹666 crore of dividend income due to it for three years from its erstwhile subsidiary Cairn India (now Vedanta Ltd) to recover the ₹10,247 crore of tax plus interest.
It has again written to Cairn Energy on June 26 asking it to repay the balance tax due, failing which it will take over its 9.8 per cent shareholding in Cairn India, a source said requesting not to be named as the information is not yet public.
15 days’ notice
In the notice, the Income Tax Department gave the British firm 15 days to repay or face attachment of shares.
The department moved to recover the tax after Cairn Energy lost an appeal against the retrospective tax demand in tax tribunal ITAT. On March 31 it issued a notice seeking ₹10,247 crore tax by June 15. As the company failed to pay, it went ahead to take over the refund and dividend income.
The source said about ₹2,200 crore recovered so far does not even fully cover the interest due on the principal tax demand of ₹10,247 crore, which was levied over alleged capital gains the company had made in 2006 when it transfered India assets to a newly created firm, Cairn India, and listed in on stock exchanges.
The outstanding tax demand is ₹10,395 crore, he said, adding an interest at the rate of 1 per cent will keep adding up every month on the tax demand.
“Cairn Energy has time till July 11 to reply to the notice sent by tax recovery officer under Income Tax Certificate Proceedings rules. If the company does not reply, then the department is likely to issue warrant, which will be followed by a formal share attachment notice,” the source said.
Wait and watch mode
The tax department, the source said, may go a little slow on selling of the shares as it is waiting to see whether Cairn Energy approaches the Delhi High Court challenging the ITAT order, which upheld the ₹10,247 crore tax demand on the British firm.
The company has time till mid-July to appeal against the order in high court. The tax department has already filed a caveat in the Delhi High Court asking that before any judgement is passed on the case, the tax department should be heard.
As many as 18.41 crore equity shares of Cairn India are under the attachment of Income Tax department. Another 73.65 crore preferential shares are also attached.
These shares, when sold, could fetch the government around ₹5,990 crore at the current market price.
The source said that on the date of attachment of shares on June 16, Cairn India shares were valued at ₹241 apiece.
Cairn India shares closed at ₹285.40 on the BSE on Friday.
“The share price is rising and we have nothing to worry about. We will sell them only at the best price and nothing less than ₹241 a share,” the source said.
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