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HC junks cognizant plea challenging Rs 2,912 crore tax claim

Chennai: IT services exporter Cognizant’s plea challenging a Rs 2,912 crore tax claim by the income tax department has been dismissed by the Madras High Court.

The court dismissed a batch of petitions filed by the software services company and directed it to seek redress from appellate courts under relevant I-T laws.

The Chennai wing of the I-T department issued notices in November 2017 for dividend distribution tax dues on a share buyback where the company remitted Rs 19,415 crore to its nonresident shareholders in 2016.

Cognizant had taken the tax department to court over the claim.

“Liberty is given to the petitioner [Cognizant] to prefer an appeal within a period of four weeks from today.

If such an appeal is filed within the stipulated time, the Appellate Authority shall dispose of the same on merits, after providing sufficient opportunity of hearing to the petitioner,” Justice Kalyanasundaram K wrote in the order on Tuesday.

Cognizant, however, said it would challenge the I-T department’s actions by appealing to a division bench of the high court.

“It continues to be Cognizant’s position that the recovery proceedings ini- tiated by the income tax department are improper and that no additional taxes are owed. Cognizant’s operations remain unaffected by this litigation, which has been going on for more than a year,” a company spokesperson said.

The cases relate to Cognizant’s Indian subsidiary buying back shares held by non-Indian Cognizant entities. In the May 2016 share repurchase programme, CTS India bought back $2.8 billion worth of shares, for which it paid $135 million by way of taxes in India, which was all it needed to pay according to applicable laws, according to Cognizant’s 2018 annual report.

The tax department argued that Cognizant had deposited Rs 898 crore of withholding tax — tax at source for payments outside the country — but had failed to pay the remaining tax, as per the judgment copy.

In April 2018, the tax department attached Cognizant’s cash to the extent of its outstanding tax dues. Cognizant had the asset-freeze order lifted through an interim stay on the tax department’s recovery action, paying Rs 500 crore, about 15% of the tax demand.

The court order on Tuesday also said the Appellate Authority will take into account the money submitted by Cognizant and directed the department to maintain status quo on other fixed deposits.

In its annual report, Cognizant informed shareholders that if “it is ultimately determined that we are liable for the full amount of additional taxes the ITD (Indian tax department) alleges we owe, there could be a material adverse effect on our results of operations, cash flows and financial condition.”

Source: Economic Times