Madras HC asks I-T dept to defreeze Cognizant account, directs firm to pay 15 pct of demand

By: | Published: April 4, 2018 4:40 AM

The Madras High Court on Tuesday directed the income tax (I-T) department to lift the attachment of an account of IT major Cognizant Technologies with JPMorgan, while asking the firm to pay 15% of the Rs 2,800-crore tax demand raised by the department, in the next two days.

congnizant, madras high court, dividend distribution taxThe department had frozen the bank accounts of Cognizant in excess of Rs 2,800 crore in Mumbai and Chennai over a dispute on the payment of dividend distribution tax (DDT).

The Madras High Court on Tuesday directed the income tax (I-T) department to lift the attachment of an account of IT major Cognizant Technologies with JPMorgan, while asking the firm to pay 15% of the Rs 2,800-crore tax demand raised by the department, in the next two days.

Justice TS Sivagnanam passed the interim direction on the plea moved by Cognizant objecting to the tax demand and the freezing of its bank accounts by the I-T department last week.

The department had frozen the bank accounts of Cognizant in excess of Rs 2,800 crore in Mumbai and Chennai over a dispute on the payment of dividend distribution tax (DDT).

PS Raman, the counsel of Cognizant, argued that since all the 68 bank accounts have been attached, the company was not able to pay its vendors in the last eight days. He further argued that as per a latest affidavit by the department, it has issued a show-cause notice on the same day it attached the bank accounts, which was questionable. The company had sought the court’s direction to release the accounts by retaining some fixed deposits, subject to the final order of the court on its main petition challenging the I-T department’s claim.

“There shall be an order of interim stay of impugned proceeding subject to the condition that the petitioner pays 15% of the tax demanded and furnishes a bank guarantee or security by way of fixed deposit for the remaining taxes demanded,” Justice Sivagnanam said.

While directing for proper compliance of the conditions, the attachment of bank account of JPMorgan Chase Bank, Mumbai, shall stand lifted, the judge said.

However, the attachment in respect of other banks SBI, Deutsche Bank and Corporation Bank and HDFC bank shall continue till the compliance of the direction. Similarly, the attachment of nine bank deposits to the tune of `2,265 crore shall also continue ubject to the lien being created for remaining amount of taxes.

The judge said that Cognizant should provide securities to the balance tax demand within a week, after which the I-T department would defreeze all other accounts, except those taken as security.

The issue pertains to Rs 2,800-crore

tax demand made towards dividend distribution tax (DDT) for remitting Rs 19,415 crore to its non-resident shareholders in the United States and Mauritius towards buyback of 94,00,543 of its equity shares in May 2016.

The I-T department had raised this claim following Cognizant’s share buyback programme in 2016. A notice of the tax authorities said, “CTS had paid only the face value of `10 from the share capital and entire balance was paid from the accumulated profits which was dividend on which DDT of more than Rs 2,800 crore was not paid.”

The I-T department had also charged that Cognizant that it had distributed dividends to its parent company in 2016-17 and should have been subjected to DDT at the rate of 20% of the total dividends paid by the company.

Cognizant which is listed on Nasdaq has more than 70% of its employees present in India with holding companies registered in Mauritius and headquarters US.

The I-T department said: “CTS did not deduct tax on the remittances to Mauritius company and deducted 10% TDS on the remittance to USA company.”

Cognizant had in December 2017 announced a $300-million accelerated share repurchase programme as part of its plan to buyback $1.2 billion of share in 2018. The company had earlier returned approximately $1.8 billion under its capital return plan. Cognizant has committed to return $3.4 billion to shareholders through buyback and dividend following the letter written by activist hedge fund Elliott.

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