British oil major Cairn Energy has added another $249 million (approx Rs 1,600 crore) to the compensation it is claiming from India after the authorities here set off a tax refund due to it to settle part of a retrospective tax demand, the company said on Tuesday
"A tax refund in respect of financial year 2011-12 in the amount of Rs 1,590 crore ($249 million) which became due to Cairn as a consequence of a successful appeal by the company to the Delhi High Court has also been directed to the Income Tax Department to be set against the 2006-07 (retrospective tax) liability and Cairn's claims under the international arbitration have been adjusted to include this," the oil explorer said in its half-yearly financial and operations statement.
Cairn had before an international arbitration tribunal in July last year sought $5.6 billion in compensation from the Indian government for raising a retrospective tax demand of Rs 10,247 crore on alleged capital gains Cairn made in a 2006 reorganisation of its India business.
Cairn said the Indian tax authorities had levied Rs 18,800 crore as interest on the principal tax demand. The interest demand was subsequently quashed by the Income Tax Appellate Tribunal.
"Following that, the Income Tax Department issued a revised demand including interest running from February 2016 i.e. 30 days after the date of the assessment order. That interest currently amounts to Rs. 1,440 crore (approximately $224 million)," the statement said.
To recover this, the Income Tax Department seized $104.7 million of dividend income due to it from Vedanta Ltd, where it holds about 5 per cent stake, Cairn said.
Cairn has filed a notice of dispute under the UK-India Investment Treaty to protect its legal position and shareholder interests.
The company said it commenced international arbitration proceedings against India for "expropriating Cairn's property without adequate and just compensation, denying fair and equitable treatment to Cairn in respect of its investments and restricting Cairn's right to freely transfer funds in connection with its investment."
"Following merger of Cairn India Ltd (CIL) and Vedanta Ltd (VL), Cairn holds 5 per cent of VL, valued at $824 million at 30 June 2017," the half-yearly statement said.
"Cairn remains unable to access its 5 per cent shareholding of VL pending resolution of the Indian tax dispute and dividends receivable of $105 million are fully impaired following an order directing payment from VL to the Indian Income Tax Department," it added.
In its Statement of Claim before the international arbitration tribunal, Cairn said it has stated that applying the retrospective amendment and seizing $1 billion worth of shares was in breach of the bilateral investment treaty's requirements of fair and equitable treatment and its protections against expropriation.
"Cairn has asked the arbitration panel either to order India to withdraw its unlawful tax demand and compensate Cairn for the harm suffered by the seizure of the shares, being not less than $1.1 billion (plus costs); or, if the tax demand remains in place, compensate Cairn for the quantum of the tax assessment and the harm suffered by the seizure of the shares.
These claims were subsequently updated to include the $249 million tax refund," the statement said.
"The total assets of Cairn have a current value of $863.1 million (comprising principally the group's shareholding in Vedanta Ltd) and any recovery by the Indian authorities would be limited to such assets," it added.
The Income-Tax Department has ordered coercive action against Cairn Energy to recover the retrospective tax after the company lost a challenge to the move before the arbitration panel in June.
"On June 16, 2017 the Indian Income-Tax Department (IITD) issued an order to Vedanta India Ltd (VIL) directing it to pay over any sums due to Cairn. Sums due to Cairn from VIL now total $104 million, including historical dividends of $53 million and a further dividend of $51 million after the merger of CIL and VIL," a Cairn statement said.
The Edinburgh-based Cairn Energy still holds 9.8 percent equity stake in Cairn India through its UK Holdings Ltd (CUHL), after it sold majority stake in it to the London-based Vedanta mining group for $8.67 billion in 2011 though it raised Rs.8,616 crore ($1.9 billion) through an initial public offering (IPO) in mid-2006.
