Cognizant gets breather in tax dispute case; Madras High Court stays freezing of bank accounts

Cognizant Technology Solutions has got a breather with the Madras High Court directing the company on Tuesday, April 3, to place 15 per cent of the income tax demand of around Rs 2,800 crore in a suspense account. In a release early in the morning (India time) on Wednesday, April 4, the company said that the court granted Cognizant's application for a stay of the actions of the Indian Income Tax Department (ITD) and a lifting of the department's attachment of Cognizant's bank accounts. As part of the stay order, Cognizant will deposit $75 million (Rs 4.9 billion), representing 15 per cent of the disputed tax amount, in a suspense account by the ITD, with the remainder marked under lien. The court further granted the request of Cognizant to address the ITD's collection actions and scheduled a hearing later in April 2018. Business Today learns, it is scheduled for April 18.

"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 9 billion) in Indian income taxes, which it believes are all applicable taxes owed according to Indian law."