Indian tax authorities ask UK’s Cairn Energy to hold on its stake in Cairn India

UK-based energy firm Cairn Energy Plc has been directed by the Income Tax Department of India, which is probing possible capital gains tax liability from a previous stake sale, to hold on to its 10.3 per cent holding in Cairn India Ltd.

The firm disclosed to London Stock Exchange that it has been contacted by the IT department to discuss income tax assessments for the year ended March 31, 2007.

“While discussions are ongoing, the Income Tax Department has instructed Cairn Energy PLC to hold its shares in Cairn India,” it said.

Cairn Energy spun off its oil and gas exploration business in the country and took its local arm Cairn India public in 2007.

The tax authorities’ investigation that began on January 15 to find out if capital gains tax was due from Cairn Energy’s transfer of shares of Indian assets.

Cairn Energy had earlier sold around 50 per cent stake of Cairn India to Vedanta in tranches, starting with 10 per cent holding in July 2011 for approximately $1.4 billion in cash. It later sold another 30 per cent stake to Vedanta for $4.1 billion and around 12 per cent in 2012 for around $1.3 billion.

At present, Cairn Energy owns 10.3 per cent equity stake, which is worth around $1 billion, in Cairn India.

With this Cairn Energy has become the latest firm to be embroiled in India's tax crackdown. Other firms that have been targeted by Indian tax authorities include Vodafone, Royal Dutch Shell, Nokia and IBM.

The disputed tax claims relate partly to the amendment to decades old tax law with retrospective effect which brought under the tax net all cross-border transactions involving Indian assets or businesses.

(Edited by Joby Puthuparampil Johnson)

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