The Tax Department will sell at an "appropriate time" the shares owned by British firm Cairn Energy plc which were attached following a Rs 10,247-crore tax demand, a senior tax official said. The tax department had in January 2014 used a two-year-old retrospective tax law to raise a Rs 10,247-crore demand on alleged capital gains made by Cairn Energy on a decade-old internal reorganisation of India business.

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This was followed by attaching the company's residual 9.8 per cent shares in its erstwhile subsidiary, Cairn India. Cairn India was subsequently merged with its new parent Vedanta Ltd, in which Cairn Energy now holds about 4.95 per cent stake. These shares continued to be attached for four years but the tax department had earlier this year got them transferred to it. "We will sell the shares at an appropriate time," the official of the tax department said.

The tax department had come close to selling the shares in March but aborted the move at the last moment. Cairn Energy has challenged the retrospective tax demand through an international arbitration, the final outcome of which is expected later this year. The official said the tax department will not wait for arbitration panel hearing to sell the shares. The Central Board of Direct Taxes (CBDT) had last month in response to a PTI query stated that "there is no legal advice against the sale of the attached shares". Besides attaching shares, the Income Tax Department has seized a total of Rs 1,106 crore of dividend income due to Cairn Energy Plc to recover a part of the Rs 10,247-crore tax demand.

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The tax department, which had previously seized Rs 666 crore of dividends due to Cairn from its 4.95 per cent residual holding in Vedanta Ltd, in March seized another Rs 440 crore. It has also refused to pay tax refund of Rs 1,594 crore due to Cairn as a result of overpayment of capital gains tax to recover the dues.

The Tax department says that during the financial year 2006-07, Cairn India Ltd, now known as Vedanta Ltd, had purchased about 251 million shares of Cairn India Holdings Ltd (CIHL), a company registered in Jersey, from Cairn Energy subsidiary Cairn UK Holdings Ltd (CUHL) for Rs 26,681 crore.
"Since the shares of CIHL which were acquired by CIL from CUHL derive their value solely from the assets located in India which consists of 27 companies engaged in India in oil and gas exploration, therefore in accordance with section 9(1)(i) of the Income-Tax Act, the capital gains arising in the hands of CUHL from transfer of these assets are chargeable to tax in India," the CBDT says.

It, through a final assessment order dated March 9, 2015, raised a tax demand of Rs 10,247 crore. Cairn India was in 2011 acquired by Vedanta but the British firm continued to hold 9.8 per cent shareholding. Cairn India was last year merged into Vedanta Ltd. On merger, Cairn Energy's holding in Vedanta came to 4.95 per cent.