By Alex MacDonald
LONDON--Cairn India Ltd. (532792.BY) plans to defend itself
against an order from the Indian Income Tax Department to pay
204.95 billion rupees ($3.3 billion) in taxes and interest, noting
that the charge is "quite irrational on many accounts," the
company's Chief Financial Officer said Friday.
Indian tax authorities charged the company last week for failing
to pay witholding taxes on gains made by its former parent Cairn
Energy PLC (CNE.LN) in a share transfer transaction about eight
years ago. Cairn Energy transferred shares internally as part of a
group restructuring that laid the ground work for the public
listing of Cairn India's shares in 2007.
Sudhir Mathur said there was no taxable event in the share
transfer since the economic interest never changed hands: "The
economic owner remained the same prior to and after" the event. Mr.
Mathur was speaking at an investor day presentation held by Cairn
India's parent company, Vedanta Resources PLC, which owns a
majority stake in the India-focused oil and gas explorer.
Mr. Mathur said Cairn India is working with its lawyers to
provide a response to the tax authorities by the April 10 deadline.
He said that there are several possible legal options that Cairn
India could pursue.
Vedanta Resources' Chief Financial Officer DD Jalan also said at
the same investor day that "there is no rationale for this tax to
be levied on Cairn India." He added that even if there was cause
for levying such a tax, it would have been the responsibility of
Cairn Energy, the parent company at the time.
Indian tax authorities have also charged Cairn Energy with a
$1.6 billion charge for the same reason.
Vedanta has no plans to book a provision for the tax charge, Mr.
Jalan said, although he noted that the tax charge may show up as a
contingent liability on Cairn India's books.
-Write to Alex MacDonald at alex.macdonald@wsj.com
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