Indian income tax department orders recovery of $104m due to Cairn Energy

The Indian income tax department (IITD) is set to confiscate $104m dividend due to Cairn Energy, as the oil and gas major lost an appeal filed before an international arbitration panel seeking protection from the department’s move to recover tax.

An order to that effect has been issued by IITD, requiring Vedanta India to pay the entire sum due to Cairn Energy to the Government of India.

However, the British energy company has stated that it will continue to pursue its case before the international panel in The Hague, the Netherlands.

The company claims that the action of the Indian taxmen is in violation of the UK-India Bilateral Investment Treaty.

In addition to resolution of the tax dispute, it is seeking damages of around $1bn.

The current move of the IITD is in connection with a retrospective tax dispute pertaining to Cairn Energy selling 40% stake in erstwhile Cairn India to Vedanta India.

In 2006, as part of intra-group restructuring, Cairn UK Holdings transferred the shares of Cairn India Holdings to Cairn India in order to facilitate the initial public offering of Cairn India.

The IITD had then issued a tax demand notice related to the capital gains accrued to the group company during 2006-07.

Cairn Energy still holds 9.8% stake in Cairn India.

Earlier this year, the Income tax appellate tribunal rejected Cairn’s plea challenging the tax demand, following which the IITD served a notice ordering the company tax to the tune of Rs102.47bn ($1.5bn).