British Foreign Minister Philip Hammond, who arrived in India yesterday on a two-day visit, met Finance Minister Arun Jaitley earlier in the day and raised the Cairn tax issue with him.
Jaitley reiterated government's assurance that it will not issue any new notices for retrospective tax demands, he told reporters.
The visiting minister also advocated scrapping of retrospective tax demands to make India an attractive investment destination.
Hammond said, however, Jaitley told him that the tax case involving Cairn has to be resolved through the courts as the process has already started.
"It (Cairn tax case) did come up during my meeting with Jaitley... For India to attract investments, it is not enough to say we are open to business as Prime Minister Narendra Modi has done.
"The country also has to set out clear signals that the business climate and business environment is predictable, stable and attractive for international investments," the British minister said, adding that Jaitley "explained that this particular tax demand is being sent out pursuant to a notice that was issued by previous government."
Asked if he was satisfied with the assurance or scrapping of the tax demand against Cairn Energy would be a good deal, Hammond said, "Ultimately, scrapping any retrospective tax legislation would be a good way to reassure the investors.
"Anything that could be done to make legislative position more certain, clear and free of retrospectivity will make India more attractive investment destination."
But he noted that Jaitley has made it clear that the present case has to be resolved through courts.
Earlier this week, Income Tax Department slapped a Rs 10,247 crore ( $1.6 billion) tax demand on Cairn Energy Plc, for an alleged Rs 24,500 crore (Rs 245 billion) 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.
Cairn joins a slew of multinational firms including Vodafone Group Plc and Royal Dutch Shell Plc that have been slapped with retrospective tax demands by Indian authorities.
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