The Income Tax (I-T) department has frozen some bank accounts of Cognizant Technology Solutions India P Ltd over alleged tax evasion to the tune of Rs. 2,500cr.
The India unit of the NASDAQ-listed firm owes this as dividend distribution tax (DDT), which is levied at 20% of the total dividends paid by the company, I-T said.
Cognizant claimed its business operations aren't impacted.
The case relates to a 2016 share buyback scheme
The case relates to Cognizant's purchase of its own shares from shareholders in May'16 under the 'arrangement-and-compromise' scheme.
It bought back 54% shares from a US company and another 46% from a Mauritius company.
It didn't deduct tax on remittance made to the Mauritius company, but deducted 10% TDS on remittances to the other.
No DDT was payable under the Companies Act, it claimed.
What does I-T have to say about it?
But I-T disagrees. "As per the Income Tax Act, DDT needs to be paid on any distribution, reduction of capital, to the extent of accumulated profits defined as dividends," an official said.
"The only exception to this is the buy-back under section 77A of the Companies Act, and Cognizant was not covered."
"Cognizant was required to pay DDT of Rs. 2,500cr in 2016-17 itself."
'Where was the dispute in Cognizant's 'arrangement-and-compromise' scheme?'
Moreover, in any 'arrangement-and-compromise' scheme, there has to be dispute between the parties. In this case, the same management held all shares and controlled all decisions, so where was the dispute, I-T sources asked.
I-T's demand is contrary to law and without merit: Firm
Responding to the development, Cognizant insisted it has paid "all applicable taxes due on the transaction at issue."
The I-T's stand is "contrary to law and without merit," the firm said.
"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," it said.