The company claimed that since ‘arrangement and compromise’ was as per the Companies Act and approved by the court, no DDT was payable, says sources
The Income Tax department has attached Cognizant Technology Solutions’s bank accounts and deposits in excess of Rs 2,500 crore in Chennai and Mumbai for allegedly evading payment of the dividend distribution tax (DDT).
The I-T department action came after it had sent tax evasion notice of Rs 2,500 crore to the India unit of the US-based company.
A Cognizant spokesperson said, "Cognizant's business operations, our associates and our work with clients are not impacted by actions recently attempted by the I-T department." The company added that the High Court, while hearing the matter on Tuesday, instructed the I-T department to not take further action pending further hearings before the court.
According to the IT department, Cognizant Technology Solutions India (P) Ltd (CTS) purchased its own shares from shareholders in May 2016 under the scheme of ‘arrangement and compromise’. The shareholders are a Mauritius company and the US company holding 54% and 46% of shares in Indian entity respectively.
CTS did not deduct tax on remittance made to the Mauritius company and deducted 10% TDS on remittances to the US company. The company claimed that since ‘arrangement and compromise’ was as per the Companies Act and approved by the court, no DDT was payable, said sources.
The Income Tax Act mandates the companies to pay DDT on any distribution, on the reduction of capital, to the extent of accumulated profits defined as dividends, but the only exception to this is buyback under Section 77A of the Companies Act, and Cognizant was not covered. “The company was required to pay DDT of over ?2,500 crore in the financial year 2016-17 itself, but failed to pay,” it said.
The IT department also allegedthat it found that CTS had made illegal payments through an Indian company for setting up its offices and claimed as expenses in returns of income from FY 2013-14, 2014-15 and 2-15-16. “It is learnt that its holding company in the US has notified these payments to the US Department of Justice and the US Securities and Exchange Commission as payments made in violation of the US Foreign Corrupt Practices Act and other laws,” it said, adding it has decided to prosecute CTS for all the three years for claiming fraudulent expenses and is shortly filing complaints in the Economic Offences Court, Egmore.
A Cognizant spokesperson said, "The company believes that the positions taken by the Indian I-T 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.”
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
 "Cognizant")
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}