Cairn Energy of the UK is seeking compensation from India's government for loss in value due to an "unfair and arbitrary" Rs 10,247-crore tax demand, raised using a retrospective tax law.
Using the UK-India Investment Treaty, the Edinburgh-based firm filed a formal dispute notice against the tax demand raised on an internal business reorganisation seven years ago and sought arbitration with the government to quickly resolve the dispute, impinging on its investment plans.
Cairn said the imposition of capital gains tax on transfer of its India assets in 2006 to a new company, Cairn India, was not only contrary to relevant legal standards but unjust because it was an internal transaction and no shares or assets were sold to any third party for capital gains.
The internal reorganisation was fully disclosed to relevant agencies and ministries including the income tax (I-T) department in 2006-07, the company said adding, it would not have undertaken the reorganisation if it had any indication that its purely internal transaction would be subject to capital gains tax.
Prior to the previous United Progressive Alliance (UPA) government which brought a new law in 2012 to tax share transfer retrospectively, foreign firms which filed returns in their respective jurisdictions were not required to file tax returns in India.
Cairn Energy, being based abroad, did not file returns, too.
The tax demand breaches several of India's obligations under the treaty, including creating favourable conditions and ensuring fair and equitable treatment and protection and security to Cairn's investments by introducing unfair and arbitrary tax obligations, it said.