The Madras High Court on Tuesday directed the Income Tax Department to de-freeze Cognizant's bank account with JP Morgan, Mumbai, in the Rs 28 billion tax dispute. The Court also directed Cognizant to deposit 15 per cent of the tax demanded, in a separate account to lift the attachment of some of the other accounts.
Earlier, on March 22, 2018 the Department had issued an order seeking Cognizant to pay 15 per cent tax on a Rs 194.15 billion paid by the company under a scheme to its shareholders overseas. It has also attached the bank accounts of the company, immediately, alleges the company.
P S Raman, who appeared for the company, in the Madras High Court today argued that since all the 68 bank accounts have been attached, the company was not able to pay its vendors for the last eight days.
He argued that as per the latest affidavit by the department, it has issued a show cause notice on the same day it attached the bank accounts, which is questionable.
The company has sought the court's direction to release the accounts by retaining some fixed deposits, subject to the final order of the court on its main petition challenging the IT Department's claim.
Justice T S Sivagnanam, hearing the argument directed the company to pay 15 per cent of the claimed tax amount of around Rs 28 billion.
"....there shall be an order of interim stay of impugned proceeding subject to the condition that the petitioner pays 15 percent of the tax demanded and furnishes a bank guarantee or security by way of fixed deposit for the remaining taxes demanded," he said.
While directing for proper compliance to this condition, the attachment of bank account J.
P Morgan Chase Bank, Mumbai shall stand lifted, ordered the Judge.
However, the attachment in respect of other banks SBI, Deutsche Bank and Corporation Bank and HDFC bank shall continue till the compliance of the direction. Similarly, the attachment of nine bank deposits to the tune of Rs 22.65 billion shall also continue subject to the lien being created for remaining amount of taxes.
"The remittance of 15 percent of the tax demanded shall be retained in a separate account and shall abide by the order to be passed in writ petition," said in the Order.
The I-T Department has been alleging that Cognizant had evaded Dividend Distribution Tax (DDT) on some transactions the Indian entity has made while buying shares of the company from the Mauritius and US companies of Cognizant. These companies held 54 and 46 per cent shares respectively in Cognizant Technology Solutions India Pvt Ltd.
As per the Department, DDT has to be paid on any distribution, or 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 CTS (Cognizant) was not covered. Therefore CTS was required to pay DDT of more than Rs 28 billion in the FY 2016-17 itself but failed to pay," it says.
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