HC Directs Cognizant to Pay 15% of Rs 2,800 Crore Tax Demand

Chennai: The Madras High Court on Tuesday granted interim stay on Income Tax department proceedings against Cognizant, subject to the firm depositing 15 per cent of Rs 2,800 crore dividend distribution tax demanded by the department.

The company has filed a plea in the court seeking stay of recovery proceedings as the I-T department had frozen some of its bank accounts.

The US-based IT firm has said it paid all applicable taxes related to its buy-back transaction in 2016 and the Income Tax department's position is "contrary to law and without merit."

The tech giant's comments follow the department freezing its certain bank accounts in the country over a dispute on payment of dividend distribution tax (DDT) running into hundreds of crores.

The tax issue pertains to unpaid dues around share purchases done by its subsidiary, Cognizant Technology Solutions India, which had bought back shares from foreign owners -- Cognizant Mauritius and the US-based parent Cognizant Technology Solutions (CTS).

Justice TS Sivagnanam, before whom the plea came up on Tuesday, said, "There shall be an order of interim stay of impugned proceedings subject to the condition that the petitioner pays 15 per cent of the tax demanded and furnishes a bank guarantee or security by way of fixed deposit for the remaining taxes demanded."

"For the proper compliance to the above condition, the attachment of (company) bank account with J.P Morgan Chase Bank, Mumbai shall stand lifted forthwith," the judge said.

However, the attachment in respect of other banks - SBI, Deutsche Bank, Corporation bank and

HDFC bank - shall continue "till the compliance of the direction", the judge said.

"Similarly the attachment of nine bank deposits shall also continue subject to the lien being created for remaining amount of taxes."

"The remittance of 15 per cent of the tax demanded shall be retained in a separate account and

shall abide by the order to be passed in writ petition," the judge said and posted the case for further hearing to April 18.

The allegation against Cognizant is that it has remitted about Rs 19,415 crore to its non-resident shareholders in May 2016 without paying any DDT.

The issue of non-payment was identified and a notice sent by the I-T department last November calling for details of the tax paid on these remittances.