"Cairn continues to engage with the Indian Income Tax Department and will also pursue the matter with the Indian government formed after the result of the general elections is announced on May 16, 2014," the company said in a statement.
Facing a potential tax demand on alleged capital gains of Rs 24,500 crore it made seven years back, London-listed Cairn Energy Plc today said it will in three months assess impairments on the value of its shareholding in Cairn India .
Income Tax authorities in January contacted Cairn over an alleged Rs 24,500-crore capital gains it made when in 2006-07 it transfered all its India assets to a new company -- Cairn India. While the firm maintains that none of the transactions undertaken by it during that fiscal were chargeable to tax in India, the Income Tax Department restrained from disposing of its about 10 percent remaining equity in Cairn India.
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"Cairn continues to engage with the Indian Income Tax Department and will also pursue the matter with the Indian government formed after the result of the general elections is announced on May 16, 2014," the company said in a statement. The company had in April this year received two more notices asking it to file tax return for 2006-07 as well as a show-cause for not withholding tax on dividends paid by Cairn UK Holdings Ltd to its parent company Cairn Energy plc.
"Cairn has filed a nil return for the 2006-07 year," the statement said. The Income Tax Department has cited legislation introduced in 2012, with retrospective effect, as the reason for these current enquiries. "While these are being dealt with, Cairn has been denied access to the value of its shareholding in Cairn India Ltd, either through disposal or future dividend income which will be assessed for impairment at the next reporting date," it said.
Cairn will report its next set of financial results by mid-August. The I-T Department has restrained Cairn from selling its residual about 10 percent stake, worth over USD 1 billion, in Cairn India till the tax dispute is resolved. Cairn Energy had in 2011 sold majority stake in its Indian unit, Cairn India, to mining group Vedanta for USD 8.67 billion. It still holds about 10 per cent stake in Cairn India.
The I-T Department had in a January 22 order held that the Edinburgh-based firm made capital gains of Rs 24,503.50 crore when it transferred its entire India business from subsidiaries incorporated in places like Jersey, a tax haven, to the newly incorporated Cairn India in 2006.
While the I-T Department has so far not raised a tax demand on Cairn Energy, it has ordered Cairn India not to allow the transfer of UK firm's residual stake. It also ordered that the shares cannot be pledged or mortgaged. Cairn Energy was widely seen as a likely participant in the Indian firm's share buyback, which opened on January 23. Cairn India plans to buy 17.09 crore shares, or 8.9 percent of the equity, from the open market at not more than Rs 335 apiece, aggregating up to Rs 5,725 crore.
Cairn India stock price
On May 15, 2014, Cairn India closed at Rs 335.65, down Rs 3.65, or 1.08 percent. The 52-week high of the share was Rs 371.65 and the 52-week low was Rs 273.40.
The company's trailing 12-month (TTM) EPS was at Rs 39.01 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 8.6. The latest book value of the company is Rs 178.01 per share. At current value, the price-to-book value of the company is 1.89.
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