<p>In a setback to India, an international arbitration panel has rejected its demand for a stay on an arbitration initiated by British oil explorer Cairn Energy against a Rs 10,247 crore retrospective tax notice.<br /><br />The panel, comprising three judges of international repute, has also turned down India’s application for bifurcation of the issue of whether tax is covered under India-UK bilateral investment protection treaty, sources privy to the development said.<br /><br />Income tax department had in January 2014 charged Cairn Energy of making capital gains on transfer of India assets to a newly created firm, Cairn India and listing it on stock exchanges. Instead of applying long-term capital gains tax, it levied a short-term capital gains tax and slapped a draft tax demand of Rs 10,247 crore.<br /><br />Also, it debarred Cairn Energy from disposing of its 9.8% remaining stake in Cairn India, which the British firm had in 2011 sold to Vedanta Group.<br /><br />In April 2014, the tax department slapped a Rs 20,495 crore demand on Cairn India, the UK firm’s erstwhile subsidiary for failing to deduct tax on the capital gains. Both firms denied any tax was due and initiated arbitrations — Cairn Energy under India-UK investment treaty and Vedanta under India-Singapore investment treaty.<br /><br />Sources said India sought a stay on proceedings in Cairn Energy’s arbitration for potentially five years, stating that it is “unfair” that they have to defend two cases at once.<br /><br />However, it was the government’s decision to join both the arbitration and hence it could not go back on anyone of them.</p>
<p>In a setback to India, an international arbitration panel has rejected its demand for a stay on an arbitration initiated by British oil explorer Cairn Energy against a Rs 10,247 crore retrospective tax notice.<br /><br />The panel, comprising three judges of international repute, has also turned down India’s application for bifurcation of the issue of whether tax is covered under India-UK bilateral investment protection treaty, sources privy to the development said.<br /><br />Income tax department had in January 2014 charged Cairn Energy of making capital gains on transfer of India assets to a newly created firm, Cairn India and listing it on stock exchanges. Instead of applying long-term capital gains tax, it levied a short-term capital gains tax and slapped a draft tax demand of Rs 10,247 crore.<br /><br />Also, it debarred Cairn Energy from disposing of its 9.8% remaining stake in Cairn India, which the British firm had in 2011 sold to Vedanta Group.<br /><br />In April 2014, the tax department slapped a Rs 20,495 crore demand on Cairn India, the UK firm’s erstwhile subsidiary for failing to deduct tax on the capital gains. Both firms denied any tax was due and initiated arbitrations — Cairn Energy under India-UK investment treaty and Vedanta under India-Singapore investment treaty.<br /><br />Sources said India sought a stay on proceedings in Cairn Energy’s arbitration for potentially five years, stating that it is “unfair” that they have to defend two cases at once.<br /><br />However, it was the government’s decision to join both the arbitration and hence it could not go back on anyone of them.</p>