There is no question of dropping the tax demand against Cairn Energy, Central Board of Direct Taxes Chairperson Anita Kapur said on Friday. The tax claim has led the company seeking damages from the government.

“Why should we drop the claim? We can’t drop the demand against an entity just because they don’t agree with our tax law,” Ms. Kapur told The Hindu at PHD Chamber conference on international taxation. “We must move forward to reach a fair an equitable solution,” she added.

The British oil explorer on Tuesday said that it would seek damages from the government for the loss in value — of almost $500 million — of its holdings due to a Rs.10,247 crore tax demand raised on its eight-year-old internal business recognition.

Cairn received the tax notice from the Income Tax Department for failing to deduct withholding tax on capital gains by its erstwhile promoter, Cairn UK Holdings, a subsidiary of Cairn Energy.

The company has sought the arbitration route, having filed a notice of dispute under the UK-India Investment Treaty, and has appointed an arbitrator.

Cairn Energy had said it continues to be restricted from accessing the value of approximately its 10 per cent residual shareholding in CIL with a market value of $526 million as on June 30, 2015. The residual shareholding was valued at $1 billion on December 31, 2013, which was immediately prior to the imposed restriction.”

Fair, equitable solution
Revenue Secretary Shaktikanta Das underscored that the government does not favour the arbitration route. “There is a strong divergence of opinion between developed and developing countries when it comes to arbitration. Developing countries, including India, feel tax is a sovereign function of a government and so disputes should be settled through Mutual Agreement Procedures (MAPs) instead of going for arbitration.”

If India can sign a MAP deal with the U.S., then there is no reason similar deals cannot be achieved with others .