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Introduction
Around eight years ago ,Edinburgh-basedCairn Energycreated a new companyCairn Indiaand
transferred all of its India assets to it.
Cairn India was incorporated in 2006 as a subsidiary of UK based Cairn Energy PLC.
It mainly focusses on acquired Oil & Gas Exploration business.
After transferring the assets, the company listed Cairn India on the stock exchanges through an
Initial Public Offer (IPO) in 2007.
According to Cairn, the transfer of assets was part of a reorganization exercise aimed at
enabling theIPOin 2007.
In 2011, Cairn Energy sold majority stake in its Indian arm to mining giant Vedanta for $8.67
billion and still holds 10 per cent stake in Cairn India.
Capital Gains
The Retroactive Amendment, and the imposition of capital gains tax, is not only contrary to relevant legal
standards, its application to Cairn is particularly unjust because the transactions at issue were internal to the
Cairn Group;
no shares or assets were sold to any third party nor were any capital gains earned," it said in the
communication to the government.
Had Cairn received any indication or had any reasonable cause to believe that its purely internal
transaction would be subject to capital gains tax in India, it would not have undertaken the
internal reorganisation," it said
Cont
Indirect transfer is a transaction wherein the foreign companys shares being sold derives, directly or
indirectly, its value substantially from assets located in India.
In this case, Cairn Energy transferred its foreign subsidiary to Cairn India and the foreign subsidiary
derived its value from assets located in India. As per the provisions of section 9(1)(i) (as amended by
Finance Act 2012),
a capital asset being any share in a company incorporated outside India shall be deemed to have been
situated in India, if the share derives, directly or indirectly, its value substantially from the assets located
in India.
So the transfer of foreign subsidiaries qualified as indirect transfer is liable to tax in India as per the
amended provisions of section 9(1)(i) of the Act.
Conclusion