Cairn Energy has challenged the I-T demand in an international arbitration and its decision will have to be awaited before the tax demand could be enforced. (Representational image)

New Delhi: In a setback to UK based Cairn Energy Plc, tax tribunal ITAT has held the company liable to pay retrospective tax of Rs 10,247 crore for capital gains.

Cairn Energy has challenged the I-T demand in an international arbitration and its decision will have to be awaited before the tax demand could be enforced. India has challenged the authority of the international tribunal and the maintainability of the arbitral proceedings as far as dispute with Cairn is concerned.

However, ITAT held that Cairn Energy cant be charged around Rs 18,800 crore interest as the demand was raised by I-T using retrospective tax legislation.

“In the present case the interest has been charged on the tax payable by the assessee which has arisen because of retrospective amendment made by The Finance Act, 2012. Therefore, it is correct on the part of the assessee to submit that it could not have visualise its liability for payment of advance in the year of transaction therefore, there cannot be any  interest payable by the assessee ....," said ITAT.

The I-T department had raised a total tax demand of Rs 29,047 crore on Cairn Energy, including Rs 18,800 crore in backdated interest.

A similar tax demand was also raised on Cairn India which was sold to Anil Agarwal’s Vedanta Group in 2011.

The tribunal in its order said that Cairn Energy was liable to pay the tax on share transfer it did through an internal reorganisation of its India business in 2006, prior to getting Cairn India listed.