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Tax dispute case: Madras High Court gives conditional respite to Cognizant Technology as it stays freezing of its bank accounts

Team SoOLEGAL 4 Apr 2018 4:50pm

Tax dispute case: Madras High Court gives conditional respite to Cognizant Technology as it stays freezing of its bank accounts

Chennai: The Madras High Court granted stay to Cognizant Technology Solutions against Income Tax Department demand of around Rs 2,800 crore .However while granting this stay, the court told the company  to  place 15 per cent of the income tax demand  in a suspense account.  As a result of this order, Cognizant will deposit $75 million (Rs 490 crore approx), representing 15 per cent of the disputed tax amount, in a suspense account by the ITD, with the remainder marked under lien. The next date of hearing in the matter is on April 18.

The dispute is over unpaid taxes on the dividend it paid to its overseas parent.

"Our operations remain unaffected," said Karen McLoughlin, Chief Financial Officer, Cognizant and added:  "This dispute is with respect to a lawful, fully reviewed and disclosed transaction, and we are pleased with today's decision that restores appropriate due process. Cognizant is committed to complying with the law in all jurisdictions in which we operate, and we will continue our defense against the assertions of the Indian Income Tax Department in this and other tax disputes."

Giving the background to the case, the company says, "The underlying dispute involves the Indian Income Tax Department's recent assertion that it is owed additional taxes in connection with a 2016 $2.8 billion share buyback transaction undertaken by Cognizant's principal operating subsidiary in India.  In that transaction, undertaken pursuant to a plan approved by the Madras High Court, Cognizant paid approximately $135 million (Rs 900 crore approx) in Indian income taxes, which it believes are all applicable taxes owed according to Indian law."

Reacting to the judgement Additional Solicitor General G Raja Gopalan, appearing on the behalf of the tax department said, “It basically circles around their argument that the arrangement approved by the high court excludes any applicability of dividend distribution tax, while our argument is that is a clandestine arrangement done without knowledge of the tax department.”




Tagged: Madras High Court   Income Tax Department   Cognizant Technology Solutions  
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