British oil major Cairn Energy said on Tuesday that Indian tax authorities have slapped a tax demand notice of over Rs.29,000 crore, including Rs.18,800 crore in back interest, on it.
"The assessment order is in the amount of Rs.10,247 crore (approximately $1.6 billion) plus interest back dated to 2007 totalling Rs.18,800 crore (approximately $2.8 billion)," Cairn Energy said while announcing its earnings for 2015.
The income tax department last month issued a final assessment order of Rs.10,247 crore on alleged capital gains made by Cairn Energy in a 2006 reorganisation of its India business.
"Cairn strongly contests the basis of this attempt to retrospectively tax the group for an internal restructuring," the company said adding it has initiated international arbitration to settle the tax dispute.
"The total assets of the Cairn subsidiary against which the tax authorities are seeking to pursue a tax claim are $477 million (including principally the group’s near 10 percent shareholding in Cairn India Ltd) and any recovery by the Indian authorities would be limited to such assets," it said.
The notice was issued before Finance Minister Arun Jaitley presented the Budget 2016-17 last month, where he made a one-time offer to waive interest and penalty if the companies paid the principal amount to settle their retrospective tax disputes.
Cairn is seeking damages for losses resulting from the tax department’s attachment of its stake in Cairn India.
Cairn Energy, which in 2011 sold majority stake in Cairn India to mining major Vedanta Resources, has said it had to scale back on investments as it was barred by the income tax department from selling its residual 9.8 percent stake.
The demand relates to alleged Rs.24,500 crore capital gains it made in 2006 when it transferred all its India assets to new company, Cairn India, which got listed on the stock exchanges.
"Correspondence received from the income tax department indicates that the assessment stems from amendments introduced in the 2012 Finance Act which seek to tax prior year transactions under retrospective legislation," Cairn had said in a statement on receipt of the tax demand.
Cairn Energy is the second company to have received a retrospective tax demand this year after another British firm, the Vodafone Group.