Rediff.com  » Business » ITD freezes Cognizant's bank accounts on a Rs 2,500-crore dispute

ITD freezes Cognizant's bank accounts on a Rs 2,500-crore dispute

By Gireesh Babu
March 28, 2018 17:01 IST
Get Rediff News in your Inbox:

The allegations of DDT evasion is connected to some transactions the Indian entity has made while buying shares of the company from the Mauritius and US companies of Cognizant.

The Income Tax Department has attached bank accounts and deposits of IT services major Cognizant in Chennai and Mumbai, in excess of Rs 2,500 crore (Rs 25 billion) in connection to an alleged evasion of Dividend Distribution Tax (DDT) and other charges.

 

The department is planning to prosecute the company for alleged fraudulent expense claims by the company for three years, with the Economic Offences Court in Chennai, according to documents from the department.

Cognizant has moved against the Department's action and the matter was heard in the Madras high court on Tuesday.

A Cognizant spokesperson in response to a query said, "Cognizant's business operations, our associates and our work with clients are not impacted by actions recently attempted by the Income Tax Department."

The company added that the high court, while hearing the matter on Tuesday, instructed the Income Tax Department to not take further action pending further hearings before the court.

"The company believes that the positions taken by the Indian Income Tax Department are contrary to law and without merit.

"Cognizant has paid all applicable taxes due on the transaction at issue.

"The company will continue to vigorously defend itself and will pursue all available legal remedies.

"Cognizant is committed to complying with the law in all jurisdictions where it operates," it added.

The allegations of DDT evasion is connected to some transactions the Indian entity has made while buying shares of the company from the Mauritius and US companies of Cognizant.

These companies held 54 and 46 per cent shares respectively in Congizant Technology Solutions India Pvt Ltd.

As per the Department, DDT has to be paid on any distribution, or reduction of capital, to the extent of accumulated profits defined as dividends.

"The only exception to this is the buyback under section 77A of the Companies Act and CTS (Cognizant) was not covered.

"Therefore CTS was required to pay DDT of more than Rs 25 billion in the FY 2016-17 itself but failed to pay," it says.

The Tax Department has earlier sought clarification from the company on transaction of shares in May 2013, as buy back of shares, before the new income tax provisions became operative from June 2013, under which the buy back of shares also attracted tax.

Again, in June, 2016, when the government amended the Act to convert any buy-back into its ambit, the Cognizant allegedly resorted to another type of buy-back in May, 2016, as a Scheme of Arrangement and Compromise.

Cognizant did not deduct tax on the remittances to Mauritius company and deducted 10 per cent TDS on the remittances to US Company.

The company has claimed that since its scheme of arrangement and compromise between the shareholders and the company, was in accordance with the relevant sections of the Companies Act, and approved by the Court, no Dividend Distribution Tax (DDT) was payable by it to the Government of India.

As per the Department, DDT has to be paid on any distribution, or reduction of capital, to the extent of accumulated profits defined as dividends.

"The only exception to this is the buyback under section 77A of the Companies Act and CTS (Cognizant) was not covered. Therefore CTS was required to pay DDT of more than Rs 25 billion in the FY 2016-17 itself but failed to pay," it says.

The company has not declared any dividends since financial year 2003-04 even though it had substantial amounts of profits earned regularly and any payment to the shareholders was distribution of profits, irrespective the schemes, it added.

Besides, the Income Tax Department has alleged irregularities in payments the company made through an Indian company for setting up of its offices in India and related claims.

Cognizant denies changes

Cognizant, on Wednesday, said it paid all applicable taxes related to its buyback transaction in 2016 and the Indian Income Tax Department's (ITD) position is "contrary to law and without merit".

The US-based tech giant said it will "continue to vigorously defend itself and will pursue all available legal remedies".

In an e-mailed statement, a Cognizant spokesperson said the company's business operations and its work with clients were "not impacted by actions recently attempted by the Income Tax Department".

"The company believes that the positions taken by the Indian Income Tax Department are contrary to law and without merit. Cognizant has paid all applicable taxes due on the transaction at issue," a statement said.

Cognizant is headquartered in the US but a majority of its total employees (2.6 lakh people) are based in India.

Source: PTI

Photograph: Chris Helgren/Reuters

Get Rediff News in your Inbox:
Gireesh Babu in Chennai
Source: source
SHARE THIS STORY