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Cognizants Bank Accounts Defreezed On This Condition

Wednesday, April 11th, 2018

The Madras high court has ordered Cognizant Technology Solutions, which is embroiled in a Rs 2,800-crore tax dispute with the I-T department, to pay 15% (Rs 420 crore) of the demanded amount in two days. To facilitate the payment, the court ordered unfreezing of the company's bank account with JP Morgan in Mumbai, but its accounts with other banks will remain frozen.

The HC bench said, "There shall be an order of an interim stay on the income tax proceedings, subject to the condition that Cognizant pays 15% of the tax demanded, and furnishes a bank guarantee or security by way of fixed deposit for the remaining tax demanded. For proper compliance to the condition, the attachment of bank account with JP Morgan Chase Bank, Mumbai, shall stand lifted forthwith. However, the attachment in respect of other banks SBI, Deutsche, Corporation and HDFC Bank shall continue till the compliance of the direction. Similarly, the attachment of nine bank deposits to the tune of Rs 2,650 crore shall continue subject to the lien being created for remaining amount of taxes."

Justice T S Sivagnanam passed the interim direction on Tuesday on a plea moved by Cognizant assailing the tax demand and the freezing of its 68 bank accounts. Justice Sivagnanam said remittance of 15% of the tax demanded shall be retained in a separate account and abide by the order to be passed in the plea, and posted it to April 18 for further hearing.

The I-T department had made the Rs 2,800-crore demand on Cognizant towards dividend distribution tax (DDT) for remitting Rs 19,415 crore to its non-resident shareholders in the US and Mauritius towards buyback of 94,00,543 of equity shares in May 2016.

 

The department claimed the principal reason for the buyback of shares was to defeat the buyback distribution tax (BBDT) that will be applicable even in case of reduction of shares, which will be in force from June 1, 2016. Additional solicitor-general G Rajagopalan said, "Therefore, Cognizant hurriedly repatriated its earnings to the tune of Rs 20,000 crore (accumulated profits) from India to its investors situated abroad by way of a scheme approved by the high court."

The department said the order was obtained by misleading the high court, saying the scheme did not attract any I-T liability, while fully aware that the repatriation was liable to DDT under the Income Tax Act.

Appearing for Cognizant, senior counsel P S Raman contended that since the department had frozen all its bank accounts for the past eight days, the company with 1.7 lakh employees across the country could not make a payment of a single rupee to vendors and service providers. "We have even deducted Rs 800 crore as TDS for Rs 19,415 crore paid for the buyback and remitted it to the department," Raman said.

 


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