The dispute stems from the much-debated retrospective taxation issue. Fifteen years ago, in 2006-2007, Cairn UK had, as part of an internal rearrangement process, transferred shares of Cairn India Holdings to Cairn India. IT authorities then decided that since Cairn UK had made capital gains, it ought to pay capital gains tax up to Rs 24,500 crore.
The company interpreted Indian laws on capital gains differently and refused to pay. Several rounds of litigation at the ITAT and the High Court followed.
While Cairn Energy sold the majority of its India business, Cairn India, to mining giant Vedanta in 2011, IT authorities barred it from selling about 10 percent, citing pending taxation issues. The payment of dividend by Cairn India to Cairn Energy was also frozen.
When the claimant approached the PCA, it said the issue was not just related to tax, but was an investment-related dispute, and was therefore under the jurisdiction of the international arbitration court.
PCA held that “Tax demand against the claimants (Cairn Energy Plc and Cairn UK Holdings Limited) in respect of AY 2007-08 is inconsistent with the treaty and the claimants are relieved from any obligation to pay it and orders the respondent (Indian government) to neutralise the continuing effect of the demand by permanently withdrawing the demand.”
Source: The Indian Express