Cairn India, a subsidiary of Vedanta Resources Plc, has received an assessment order from the Indian Income Tax Department regarding a decision by the Government of India (GOI) in 2012 to amend the Indian Income Tax Act 1961 to impose retrospective tax on various prior transactions. In this respect, Vedanta's Board of Directors has instructed counsel to file a Notice of Claim against the GOI under the UK-India bilateral investment treaty (the BIT) in order to protect its legal position and shareholder interests.

The notice relates to the retrospective tax legislation passed by the GOI and a related tax demand made against Cairn India, an Indian company in which Vedanta has an approximate 59.9% interest.

The tax demand is for an alleged failure to deduct withholding tax on alleged capital gains arising during 2006-07 in the hands of Cairn UK Holdings Limited, Cairn India's erstwhile parent company, a subsidiary of Cairn Energy Plc. The sums demanded from Cairn India total Rs 204.94 billion (equivalent to approximately USD 3.293 billion) comprising Rs 102,473,642,264 of tax, and the same amount again as interest.

If enforced, such tax demand would have serious consequences for Cairn India and therefore Vedanta's investment in Cairn India. Vedanta understands that a parallel tax demand has also been made by the Indian Income Tax Department on Cairn UK Holdings.

Shares of the company declined Rs 4.4, or 2.04%, to trade at Rs 211.15. The total volume of shares traded was 123,075 at the BSE (11.51 a.m., Monday).