India’s Supreme Court issues notices against Cairn UK

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India’s Supreme Court issues notices against Cairn UK

cairn-images.jpg

India’s Supreme Court today issued notices on a special leave petition filed by Cairn UK against an adverse decision from the Authority for Advance Rulings (AAR).

The decision relates to the non-applicability of a concessional tax rate of 10% on long term capital gains.

In October 2009, Cairn UK sold shares of Cairn India Limited (CIL) to Petronas Corporation Intl. Limited (PCIL) for $241 million. The CIL shares were listed on a recognised stock exchange in India but the transaction was completed via an off market share sale.

Cairn UK sought an advance ruling from AAR on taxability of the transaction. Cairn argued that the capital gains were chargeable at a 10% rate in view of the benefit provided by the proviso to section 112 (1) of the Income Tax Act, 1961.

The AAR rejected Cairn UK’s claim and held that Cairn UK, a non-resident, was not entitled to beneficial tax rate of 10%.

Previously, the AAR allowed the concessional rate in various rulings such as Timken France, Fujitsu Services Limited, Mcleod Russel, Burmah Castrol, Four Star Oil and Compagnie Financiere Hamonm.

The tax department’s appeal against the AAR ruling in Compagnie Financiere Hamonm is already pending before the Supreme Court. The court will jointly hear both these appeals later this week.

Cairn UK is being represented by former solicitor general of India, Harish Salve.

This story was originally published on www.taxsutra.com.

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