Cairn India slapped with tax notice on alleged capital gains

Cairn India, which is controlled by London-based billionaire Anil Agarwal, has been slapped with a tax demand of Rs 20,495 crore by the income tax (I-T) department for alleged capital gains made by its former parent Cairn Energy of UK in a share transfer deal in 2006-07.

The Cairn India scrip ended the day with a loss of 3.46 per cent at Rs 225.70 on the Bombay Stock Exchange. During the day, it dropped 3.82 per cent to Rs 224.85. On the National Stock Exchange, the stock settled at Rs 226, down 3.36 per cent from its previous close.

The tax notice comes days after Cairn Energy was slapped with a Rs 10,247-crore tax demand for an alleged Rs 24,500-crore worth capital gains it made in 2006 while transferring all its India assets to Cairn India and getting it listed on the stock exchanges.

Cairn India, the country's largest private sector crude oil producer, said in a statement to the stock exchanges that it does not agree with the demand and would pursue all possible options to "protect its interest". In the regulatory filing, Cairn India said that the demand comprises Rs 10,248 crore in tax and the another Rs 10,247 crore as interest.

Cairn India said that the I-T department raised the demand after its alleged failure to deduct withholding tax on capital gains made by its former parent during the financial year ended March 2007 as part of a reorganisation ahead of its market listing.

Cairn India, now controlled by London-listed Vedanta Resources, added that it has always been fully compliant with all Indian I-T laws. "Income tax assessments, including transfer pricing assessment, were duly completed for FY 2006-07 earlier," it said.

Cairn Energy had sold its majority stake in Cairn India to Vedanta in 2011. The British company's stake in Cairn India was reduced to about 10 per cent after the transaction.

The high-value tax demand on the two companies comes after the Narendra Modi government had sought to reduce tax-related litigation and move towards a tax-friendly regime to boost much-needed foreign investment.