Cognizant told to pay £42 mn tax

Wednesday 11th April 2018 06:08 EDT

Madras High Court has ordered Cognizant Technology Solutions to pay 15 per cent of the demanded amount in its £280 million tax dispute with the IT Department. In a bid to facilitate the payment, the court ordered unfreezing of the company bank account with JP Morgan in Mumbai. Its accounts with other banks will, however, remain frozen. The HC bench said, “There shall be an order of an interim stay on the income tax proceedings, subject to the condition that Cognizant pays 15 per cent of the tax demanded, and furnishes a bank guarantee or security by way of fixed deposit for the remaining tax demanded.”

It added, “For proper compliance to the condition, the attachment of bank account with JP Morgan Chase Bank, Mumbai, shall stand lifted forthwith. However, the attachment in respect of other banks such as SBI, Deutsche, Corporation, and HDFC Bank shall continue till the compliance of the direction. Similarly, the attachment of nine bank deposits to the tune of £265 million shall continue subject to the lien being created for remaining amount of taxes.” The interim direction was passed by Justice TS Sivaganam on a plea moved by Cognizant assailing the tax demand and the freezing of its 68 bank accounts. Justice Sivaganam said remittance of 15 per cent of the tax demanded shall be retained in a separate account and abide by the order to be passed in the plea, and posted it to April 18 for further hearing.

The IT Department had made the £280 million demand on Cognizant towards dividend distribution tax (DDT) for remitting £1.94 billion to its non-resident shareholders in the US and Mauritius towards buyback of 94,00,543 of equity shares in May 2016. The department claimed that the principal reason for the buyback of shares was to defeat the buyback distribution tax (BBDT) that will be applicable even in case of reduction of shares, which will be in force from June 1, 2016. Additional solicitor-general G Rajagopalan said, “Therefore, Cognizant hurriedly repatriated its earnings to the tune of £2 billion from India to its investors situated abroad by way of a scheme approved by the high court.”

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