The tax department had previously seized Rs 666 crore of dividends due to Cairn from its 4.95 percent residual holding in Vedanta Ltd. It has also refused to pay tax refund of Rs 1,594 crore due to Cairn as a result of overpayment of capital gains tax to recover the dues.

Vedanta, owned by billionaire Anil Agarwal, had declared Rs 21.2 per share dividend for shareholders and a 7.5 percent payment on preference shares. For Cairn, the total receivable came to about Rs 440 crore.

Vedanta transferred the Cairn payout to a separate account, as per the income tax department’s order, this was then taken over by the department.

The action comes ahead of the final hearing in the arbitration initiated by Cairn to oppose the retrospective tax demand which was raised on a 2006 internal re-organisation of the firm's India unit, called Cairn India.

Cairn India was acquired by Vedanta in 2011 but the British firm continued to hold 9.8 percent in the energy firm. Cairn India was last year merged into Vedanta Ltd. On merger, Cairn Energy’s holding in Vedanta came to 4.95 percent.

When contacted, a spokesperson of the Central Board of Direct Taxes confirmed taking over the dividend, saying its assessment order dated March 9, 2015 raised a tax demand of Rs 1,0247 crore.

“This order was confirmed by the Dispute Resolution Panel on Dec. 31, 2015. However, no demand was paid by the taxpayer at that stage,” the spokesperson said. Cairn filed an appeal before Income Tax Appellate Tribunal, which on March 9 last year upheld the assessment order.