The Madras High Court (HC) has dismissed Cognizant Technology Solutions India’s (CTSIPL) petition challenging the recovery proceedings initiated by the income tax department for non-payment of Rs 2,800 crore in dividend distribution tax (DDT).
The court has dismissed another petition by Cognizant (Mauritius) and Cognizant Technology Solutions Corporation (US), against the department.
Justice K Kalyanasundaram dismissed the petitions in separate orders and directed the firm to approach the respective authorities for remedy.
"Since this writ petition is dismissed, directing the petitioner to avail the appeal remedy; the Appellate Authority shall take into account the amount deposited in pursuance of the order referred supra, while entertaining the appeal," he said in the order. The company has deposited Rs 495 crore last year in connection with the dispute.
The petition by CTSIPL was against the department's order on March 22, 2018, directing it to remit tax at 15 per cent of the total payment of Rs 19,415.62 crore plus interest.
The department had also alleged remittance to non-resident shareholders in May 2016, without payment of DDT. The issue of non-payment was identified and a notice issued in November 2017, it added.
A Cognizant spokesperson said: “Cognizant will now appeal the High Court order in the Division bench. It continues to be Cognizant’s position that the recovery proceedings initiated by the Income Tax Department are improper and that no additional taxes are owed.”
Issues were raised with respect to a transaction in 2013, through which the Indian arm bought back its own shares from foreign entities under Section 77A of the Companies Act. Thereafter, in 2016 under the Scheme of Arrangement and Compromise, it planned to purchase its own shares under Sections 391 to 393 of the Companies Act. It was granted approval in 2016 to buy back a maximum of 9.4 million equity shares for Rs 19,080 crore. The company said the amount was paid to shareholders in May 2016.
A total of Rs 898 crore was paid as capital gains to the department.
In June 2018, Justice T S Sivagnanam of the Madras HC was recused from hearing the matter. The court had, in April last year, ordered a stay on the demand notice, asking the firm to deposit 15 per cent of the disputed amount into a suspense account with the department.
The company was accused of evading DDT on transactions made while buying shares from its Mauritius and US arms. These held 54 and 46 per cent shares, respectively, in CTSIPL, with the shares being sold at inflated valuations, the department alleged.
The company, in its argument, said it had executed the transactions in accordance with the law.
The valuation for the buyback in 2013 — calculated using the discounted free cash flow (DCF) method — was Rs 23,915 a share. The board resolved that the shares could be bought by CTSIPL for Rs 23,915 a share under Section 77A of the Companies Act. The department determined the value at Rs 7,990 per share.
I-T Department sources said they would now file a caveat seeking the company to pay the amount due.
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