Accounts frozen, but operations not impacted: CTS

DT Next, in January this year, had reported that the Nasdaq-listed software major had received a tax evasion notice pertaining to a transfer pricing audit for the same amount.

The company took legal recourse, and the matter was heard in the Madras High Court on Tuesday. A Cognizant spokesperson responded to the latest development, saying, “Cognizant’s business operations, our associates and our work with clients are not impacted by actions recently attempted by the Income-Tax Department. The High Court of Chennai this morning (27 March) heard the matter and instructed the I-T Department to not take further action pending further hearings before the court.” 

The spokesperson added, “The company believes that the positions taken by the Indian Income-Tax Department are contrary to law and without merit. Cognizant has paid all applicable taxes due on the transaction at issue. 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.” 

In May 2016, CTS had purchased its own shares from its shareholders under the scheme of “arrangement and compromise” between the shareholders and the company, in accordance with Sec 391 to 393 of the Companies Act. 

The shareholders are Mauritius Company and US company, holding 54 and 46 pc shares respectively, a source said. CTS did not deduct tax on the remittances to Mauritius company and deducted 10 pc TDS on the remittances to the US firm. 

CTS held that the scheme met the regulatory guidelines and approved by the Court and therefore, not liable to pay DDT to the Centre. However, the IT-Act requires DDT on any distribution, on reduction of capital to the extent of accumulated profits defined as dividends. The exception to this is the buy-back under Sec 77A of the Companies Act and CTS was not covered. So, CTS had to pay DDT of over Rs 2,500 cr in FY2016-17 but failed to pay.