NEW DELHI, Aug 18: Strongly contesting a Rs 10,247- crore tax demand raised on its eight-year old internal business recognition, British oil explorer Cairn Energy today said it will seek damages from the government for the loss in value of its holdings suffered because of the notice.
The firm said it has initiated arbitration for resolution of the tax demand linked to 2006 reorganisation of Cairn India, its one-time Indian subsidiary with oilfields in Rajasthan.
Cairn Energy, which in 2011 sold majority stake in Cairn India to mining major Vedanta Resources, had to scale back investments as it was barred by the Income Tax Department from selling its residual 9.8 per cent stake.
“Cairn contests the basis of the draft assessment and the Notice of Dispute is supported by detailed legal advice on the strength of the legal protections available to it under international law. In addition, Cairn will seek restitution of losses resulting from the attachment of its CIL stake since 2014,” it said in half year earnings statement.
The Edinburgh-based firm said it “continues to be restricted from accessing the value of approximately its 10 per cent residual shareholding in CIL with a market value of USD 526 million as on June 30, 2015. The residual shareholding was valued at USD 1 billion on December 31, 2013, which was immediately prior to the imposed restriction.”
Cairn said it had on March 10, 2015 received a draft assessment order from the Income Tax Department in relation to the Cairn Group restructuring that was undertaken in 2006 prior to the CIL IPO, to the amount of Rs 10,247 crore plus any applicable interest and penalties.
“Cairn has appealed against the draft assessment in India, and furthermore has filed a Notice of Dispute under The UK-India Investment Treaty in order to protect its legal position and shareholder interests.
Cairn has appointed an arbitrator and awaits the Government of India to name its appointment to the international panel,” the statement said.
The firm added its residual shareholding in Cairn India Ltd (CIL), with a market value of USD 526 million remains classified as a non-current available-for-sale financial asset.
“The continuing restriction on sale does not directly impact the classification or measurement of the asset,” it said. “During the period, the value of Cairn’s investment has continued its recent decline and a further USD 177 million of value has eroded.”
Following receipt of a Draft Assessment Order, Cairn filed a Notice of Dispute under the UK-India Investment Treaty in order to protect its legal and economic interests. It has named former Bulgarian minister and lawyer Stanimir A Alexandrov as its arbitrator. (PTI)
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