I-T Dept sells $216-mn worth of Cairn’s Vedanta stake for tax recovery

The income tax department has so far sold roughly 40 per cent of Cairn Energy plc's shareholding in Vedanta to recover a part of the Rs10,247 crore retrospective tax it had raised against the British firm.

The I-T Department has so far recovered $605 million (or Rs4,158 crore) through share sale, dividend appropriation and offset of tax rebate from Cairn Energy Plc.

Following the sale, Cairn holds about 3 per cent in Vedanta Ltd, which the company said the tax department could sell as well. Cairn Energy said the company would write down the value of its investment in Vedanta Ltd equal to the value of the shares being sold by the tax authorities.

While an international arbitration tribunal is to begin final hearing in Cairn's challenge to the tax imposed retrospectively, the I-T department realised $216 million from selling some of the firm's residual holding in Vedanta.

"As previously announced, the Indian Income Tax Department (IITD) has continued to enforce its retrospective tax claim against Cairn whilst the treaty arbitration has been ongoing.

"To date the IITD has seized dividends due to Cairn from its shareholding in Vedanta Limited totalling $155 million and it has offset a tax rebate of $234 million due to Cairn as a result of overpayment of capital gains tax on a separate matter," Cairn Energy said in a statement.

The firm said it has now been notified by the I-T department that it has sold part of its shareholding in Vedanta Ltd, realising and seizing proceeds of $216 million.

The income tax department had seized nearly 10 per cent of Cairn's shareholding in its erstwhile subsidiary Cairn India after issuing a Rs10,247 crore tax demand notice in January 2014. After Cairn India got merged with Vedanta, the shareholding came down to 5 per cent.

The latest move by the authorities comes ahead of arbitration hearings from 20 August with Cairn over the retrospective tax claim, raised after a reorganisation of Cairn India.

Cairn said it has incorporated measures taken by the tax department in its arbitration filing and is seeking from the department the monetary value required to restore it to the position it would have enjoyed in 2014. The status of Cairn’s seized assets does not affect the merits of Cairn’s claims, the amount of relief sought, or the enforceability of the arbitral award.