Weeks before an international arbitration tribunal rules on
retrospective tax levied by India, the Income Tax Department has sold
almost all of Cairn Energy Plc's attached shares to recover a part of
the Rs 10,247 crore retrospective tax demand, regulatory filings showed.
While
the Indian government had used a 2012 legislation to tax certain past
income of at least half a
dozen foreign companies such as Vodafone plc,
Cairn Energy of the UK remains the only company against whom the demand
has been enforced and it remains to be seen if an arbitration award
against it will be honoured.
Cairn Energy held 4.95 per cent stake
in mining major Vedanta Ltd which the Income Tax Department had
attached after issuing a Rs 10,247 crore tax demand in 2014 on alleged
capital gains the British firm made on a decade-old reorganisation of
its India business.
The Income Tax Department in May and June sold about 2 per cent stake held by Cairn in Vedanta.
Vedanta
in its March quarter filing of shareholding pattern to stock exchanges
showed 18.41 crore (4.95 per cent) shares being held by Tax Recovery
Officer (International taxation)-I. This in the June quarter filing
dropped to 11.96 crore shares (3.22 per cent). ?
In its filing for
the September quarter, Vedanta did not list the Income Tax Department
as holding any shares (greater than 1 per cent).
As per statutory requirement, a company is obliged to list all entities holding more than 1 per cent stake.
The
shareholding pattern at the end of September did not list Income Tax
Department as holder of shares in that section, implying that either all
of the shares have been sold or that such shareholding has fallen below
1 per cent.
Reached for comments, a Cairn Energy spokesperson
said: "The international arbitration case under the India UK Bilateral
Investment Treaty is in its final stages."
"In March 2015, Cairn
filed a Notice of Dispute under the Treaty in order to protect its legal
position and seek restitution of the value effectively seized by the
Income Tax Department in and since January 2014.
"Cairn's
principal claims are that the assurance of fair and equitable treatment
and protections against expropriation afforded by the Treaty have been
breached by the actions of the tax department, which is seeking to apply
retrospective taxes to historical transactions already closely
scrutinised and approved by the Government of India," the spokesperson
said.
Cairn said it wants that "the effects of the tax assessment
should be nullified and Cairn should receive recompense from India for
the loss of value resulting from the 2014 attachment of shares and the
withholding of unrelated tax refunds, which together total approximately
USD 1.4 billion."
An international arbitration tribunal has
concluded final hearing in The Hague against the imposition of
retrospective tax and is expected to give an award in December or
January.
Besides selling shares, the tax department has seized
dividends due to Cairn from its shareholding in Vedanta totalling USD
162 million and offset a tax rebate of USD 234 million due to Cairn as a
result of overpayment of capital gains tax on a separate matter. ?
The
Income Tax Department began selling shares on May 14 -- the day Finance
Minister Arun Jaitley underwent a kidney transplant surgery and the
charge of his portfolio was given to Piyush Goyal on a temporary basis.
Jaitley resumed charge on August 23.
Sources said while there was no share sale when Goyal was in charge, it resumed ?in August-end.
The
firm, which gave the country its biggest on-land oil discovery in
Rajasthan, is seeking restoration of monetary value it enjoyed in 2014
before the government levied retrospective tax demand and attached its
shares.
The arbitral tribunal awards are binding and internationally-enforceable and there exists no forum for them to be challenged.
The
tax department had in January 2014 used a two-year-old retrospective
tax law to raise a Rs 10,247-crore demand on alleged capital gains made
by Cairn Energy on a decade-old internal reorganisation of its India
business.
This was followed by attaching the company's residual
9.8 per cent shares in its erstwhile subsidiary, Cairn India. Cairn
India was subsequently merged with its new parent Vedanta, in which
Cairn Energy held about 4.95 per cent stake. ?
These shares continued to be attached for four years but the tax department had earlier this year got them transferred to it.
The
Central Board of Direct Taxes (CBDT) had in April, in response to a PTI
query, stated that "there is no legal advice against the sale of the
attached shares".