New Delhi: The income tax (I-T) department has frozen some bank accounts of Cognizant Technology Solutions India in Mumbai and Chennai to recover Rs 2,500 crore, which the Indian arm of the Nasdaq-listed tech giant owes as dividend distribution tax, the Times of India reported.
“DDT needs to be paid on any distribution, 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 Cognizant was not covered. Therefore, Cognizant was required to pay DDT to the extent of Rs 2,500 crore in the financial year 2016-17 itself, but has not paid so far,” the TOI report quoted a senior tax official as saying.
According to the I-T department, Cognizant purchased its own shares from shareholders in May 2016 under the scheme of arrangement and compromise between them and the company.
“The shareholders are a Mauritius entity and an American company, holding 54% and 46% of shares, respectively. Cognizant did not deduct tax on the remittances to the Mauritius company, but deducted 10% as tax on the remittances to the US company,” the TOI report quoted the official as saying.
Meanwhile, Cognizant believes that the steps taken by the I-T department are contrary to law and without any merit.
“Cognizant’s business operations, our associates and our work with clients are not impacted. The HC instructed the I-T department to not take further action pending further hearings. The company believes that the positions taken by the 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,” The TOI report quoted a Cognizant spokesperson as saying.
