The court, in a 582-page ruling on December 21, ordered the return of the value of the shares that the Income Tax Department sold as well as the dividend it seized and the tax refunds it withheld to recover the tax claim that it was collected after the 2012 amendment to the Income Tax Law that gave authorities powers to collect taxes on previous agreements.
It declared that the 2006 reorganization of Cairn Energy’s business in India prior to listing on the local stock exchanges was not “illegal tax evasion” and ordered the tax authorities to withdraw the tax claim.
In the order, the court, which consisted of a member appointed by the Indian government, said that the 2014 election manifesto of the Bharatiya Janata Party (BJP) criticized the previous government for unleashing ‘fiscal terrorism’ and ‘uncertainty’, that ‘negatively impact[ed] the investment climate ‘. ”
In his first budget speech in July 2014, the new Finance Minister Arun Jaitley proposed that a ‘High Level Committee’ overseen by the CBDT be put in place to examine new cases that had emerged after the 2012 Amendments. .
After saying that, ”
On November 7, 2014, Jaitley, according to the order, insisted that his government had made a “political decision that, as far as this government is concerned […] although there is a sovereign power of retrospective taxation, we are not going to exercise that power ”.
On January 13, 2015, Jaitley was quoted as saying that the 2012 Amendment had “scared off investors from India” and that “the government had no intention of using the retrospective tax provision.”
“This view was confirmed by Prime Minister Narendra Modi on February 14, 2016. The prime minister was quoted in the Financial Times as saying that the government” will not resort to retrospective taxation; we are making our tax regime transparent, stable and predictable, ”the court said.
In 2015, the Income Tax Department imposed a 10,247 crore tax lawsuit on Cairn for the alleged capital gains it made in the 2006 business reorganization. Cairn denied the scheme, avoided any prevailing taxes on that date and challenged the claim through arbitration.
During the arbitration proceedings, the government sold Cairn’s close to 5% stake in Vedanta Ltd, seized dividends totaling Rs 1,140 million owed to it on those stakes, and offset a tax refund of Rs 1,590 against the demand.
The court ordered the government to return the value of the shares it had sold, the dividends seized, and the tax refunds withheld to recover the tax claim along with interest. In addition, he was requested to reimburse the cost of the arbitration. All this amounted to USD 1.25 billion plus interest.
The government, in response to the arbitration award, had stated that it will study the order and “consider all options and make a decision on the further course of action, including legal recourse before the appropriate forums.”
This is the second loss the government has suffered in three months due to retrospective tax collection. In September, the UK Vodafone Group won an international arbitration against the claim for Rs 22,100 crore in tax.
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