British oil and gas exploration company Cairn Energy has won an international arbitration case against the Indian government over a tax dispute, Reuters reported on Wednesday.
The international arbitration tribunal in The Hague ruled in a late-night verdict on Tuesday that India’s demand of Rs 10,247 crore in past taxes was not valid, PTI reported. The retrospective tax demand is on alleged short-term capital gains that Cairn had made when it transferred ownership from Cairn UK Holdings to Cairn India in 2006.
The international tribunal ruled that India’s demand was in breach of an India-UK bilateral investment protection pact, and told New Delhi to pay Rs 8,000 crore as damages to the oil company, according to Business Standard.
In a statement on Wednesday, the finance ministry said that the government will consider all options, including legal remedies before taking further action on the matter. “The government will be studying the award and all its aspects carefully in consultation with its counsels,” the statement said.
Cairn had filed the international arbitration proceedings in 2015. In January 2014, the Income Tax department had imposed a draft tax assessment of Rs 10,247 crore on Cairn Energy on alleged capital gains it made when it transferred its India assets to a new subsidiary – Cairn India – in 2006 and listed the firm. The Income Tax department had alleged that Cairn had then made a capital gain of Rs 24,503 crore while restructuring its corporate group.
The British company sold its majority stake in Cairn India to Vedanta Resources in 2011, but it still held 9.8% stake that was later attached by the I-T department. A final assessment order was slapped on them in 2016, which included Rs 18,800 crore of interest, in addition to a Rs 10,247-crore principal tax amount. However, Cairn Energy claimed that the I-T department’s investigation had stalled the sale of its outstanding holding in the Indian venture and cost the company around $700 million (Rs 70 crore).
This is the second such setback for India as it lost an arbitration case against telecommunications major Vodafone under the India-Netherlands Bilateral Investment Treaty in September. The international arbitration tribunal in The Hague ruled that the Indian government’s imposition of a tax liability of Rs 20,000 crore on Vodafone is in breach of the investment treaty. The tribunal in its ruling said that the Indian government must pay over Rs 40 crore to Vodafone as partial compensation for its legal costs. It had said the government cannot seek any dues from the telecom major.