I-T DEPT ATTACHES ACCOUNTS, DEPOSITS OF COGNIZANT

The income-tax department has attached bank accounts and deposits of IT services major Cognizant in Chennai and Mumbai in excess of ~25 billion in connection with an alleged evasion of the dividend distribution tax (DDT) and other charges.

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

The matter came up for hearing in the Madras High Court on Tuesday.

“Cognizant’s business operations, our associates and our work with clients are not affected by actions recently attempted by the income-tax department,” a Cognizant spokesperson said.

The high court, while hearing the matter on Tuesday, instructed the tax department not to take further action pending hearing in court.

“The company believes the positions taken by the Indian 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 were connected to transactions made by the Indian entity while buying shares of the company from the Mauritius and US firms of Cognizant. These companies held 54 and 46 per cent shares, respectively, in Cognizant Technology Solutions India.

According to the I-T department, the 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 ~25 billion in 2016-17 itself but failed to pay,” the department said.

The tax department had earlier sought clarification from the company on buyback of shares in May 2013, since before the new income-tax provisions became operative in June 2013, buyback of shares also attracted tax. Again in June 2016, when the government amended the Act to include any buyback within the tax ambit, Cognizant allegedly resorted to another type of buyback in May 2016, as a Scheme of Arrangement and Compromise.

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

The company has claimed that since the Scheme of Arrangement and Compromise between shareholders and the company was in accordance with the Companies Act and was approved by the Court, it was not required to pay the DDT to the government.

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

Besides, the department also alleged irregularities in payments the company made through an Indian firm for setting up its offices in India and related claims.