The tax demand relates to an alleged Rs 24,500 crore worth capital gains it made in 2006 while transferring all its India assets to a new company, Cairn India, and got it listed on the stock exchanges.

The company said the order came at a time when the BJP government has been publicly talking about the negative impact of retrospective taxation on "international reputation and investor sentiment towards India".

In a statement, Cairn said it has received "a draft assessment order from the Indian Income Tax Department."

"The draft order addressed to Cairn's subsidiary, Cairn UK Holdings Limited, is in respect of fiscal year 2006-07 to the amount of USD 1.6 billion plus any applicable interest and penalties," it said.
Cairn said it has instructed its counsel to file a Notice of Dispute under the UK-India Investment Treaty in order to protect its legal position and shareholder interests.
Its CEO Simon Thomson said, "Cairn has consistently confirmed that it has been fully compliant with all relevant legislation and paid all applicable taxes in India and we are confident of our position under the UK-India Investment Treaty.
"Against a backdrop of regular engagement with the Government of India since January 2014 it is very disappointing to have received a draft assessment order at this time. Since the election of the BJP, senior Government Ministers have consistently commented on the negative impact the issue of retrospective taxation has had on international reputation and investor sentiment towards India."

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