Cairn UK liable to Pay Capital Gain Tax in India: ITAT Delhi [Read Order]

In a significant order, the Delhi bench of the Income Tax Appellate Tribunal (ITAT) has ruled that, Cairn UK Holdings Limited is liable to pay Capital Gain Tax in India for indirect transfer of shares.

In the 166 page order, ITAT has confirmed the Income Tax department order of Rs 10,247 crore of capital gains tax on Cairn, UK.

The Tribunal rejected the contention of the assessee that, lower authorities have erred in holding that capital gains arising to the appellant on account of the sales of shares of Cairn India Holdings Ltd to cairn India Ltd is deemed to accrue or arise in India under section 9 (1) (i) of the act and is therefore, chargeable to tax in India.

The ITAT observed that, “the provisions of DTAA where it simply provides that particular income would be chargeable to tax in accordance with the provisions of domestic laws, such article in DTAA also cannot the limit the boundaries of domestic tax laws”.

While relying few judicial precedents, the Tribunal observed that, “it is very clear that when any tax liability imposed on the Assessees on account of retrospective amendment which cannot be foreseen at the time of filing of return of income, interest under section 234A and 234B of the Act cannot be levied on the Appellant”.

While quashing the levy of interest on Tax demand raised using retrospective tax law, The Tribunal also observed that, “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 visualize its liability for payment of advance in the year of transaction therefore, there cannot be any interest payable by the assessee u/s 234A and 234B of the Income Tax Act”.

“The income of non resident appellant has become chargeable to tax due to retrospective amendment in the act and further the payments made to assessee was also subject to withholding tax u/s 195 of the act and in view of the above judicial precedents cited, we are of the opinion that assessee cannot be burdened with interest u/s 234A and 234B of the Act on tax liability arising out of retrospective amendment w.e.f. 01.04.1962 in the provision of section 9(1) of the Income Tax Act”, the Tribunal also held.

Read the full text of the order below.