The Madras High Court on Tuesday granted interim relief to Cognizant Technology Solutions (CTS) facing a ₹2,912.25 crore tax dispute with the Income Tax department on condition that it should deposit 15% of the disputed amount in a suspense account with the department and provide sufficient security for the rest of the amount.
Justice T.S. Sivagnanam ordered that the recovery proceedings initiated by the department by freezing all the bank accounts of the company shall be kept in abeyance if the company complies with the condition. He also directed the department to defreeze one of the accounts first to enable the company to deposit of ₹436 crore at the earliest.
The order was passed on a writ petition filed by the software major challenging the recovery proceedings initiated for alleged non payment of Dividend Distribution Tax (DDT) at the rate of 15% while remitting ₹19,415 crore to its non-resident shareholders in the US and Mauritius towards buyback of 94,00,543 of its equity shares in May 2016.
During the course of arguments, senior counsel P.S. Raman, representing CTS, contended that the software major, which employs as many as 1.7 lakh people, was now not in a position to pay even a tea shop because all its 68 bank accounts across the country had been frozen by the Deputy Commissioner of Income Tax (Large Taxpayers Unit-I), Chennai.
Claiming that the company would be able operate only if the attachments were lifted, he urged the court to grant interim relief until it files a detailed reply to a counter-affidavit filed by the Deputy Commissioner. In the meantime, he said the company would be willing to deposit a round figure of ₹400 crore without prejudice to its rights.
However, Additional Solicitor General G. Rajagopalan insisted that the company should be ordered to pay 15% (which worked out to ₹436 crore) of the disputed amount, besides providing security for the rest of ₹2,476 crore.
Accepting his request, the judge ordered that the money should be remitted as expeditiously as possible.
‘Capital gains tax paid’
According to CTS, it had remitted capital gains tax of ₹898.01 crore to the I-T department by way of deduction of tax at source for having remitted ₹19,415 crore to its non-resident shareholders, through a scheme approved by the High Court in 2016 for buyback of shares, and therefore, it was not liable to pay any more tax.
Disputing the stand, the Income Tax department contended that the company had framed a scheme for buyback because the number of shares was more than the limit allowed under Section 77A of the Companies Act of 1956. If the shares had been bought under Section 77A, then the company should have paid tax at the rate of 20%.
Since they had been sold through a scheme, CTS was liable to pay DDT at the rate of 15% of the entire transaction, the department asserted.
