Software services provider Cognizant today said it has paid all applicable taxes and the Income Tax Department’s move to freeze its bank accounts and deposits is “without merit”.
“The positions taken by the tax department are contrary to law and without merit,” a Cognizant spokesperson said in an emailed statement. The company maintained its business operations will not be impacted by actions attempted by the department.
The department attached its subsidiary Cognizant Technology Solutions India (P) Ltd.’s bank accounts and deposits of more than Rs 2,500 crore in Chennai and Mumbai for allegedly evading dividend distribution tax, newspaper Business Line reported on March 27. The issue pertains to unpaid dues around shares repurchased by the Indian subsidiary from its foreign owners—Cognizant Mauritius and the U.S.-based parent Cognizant Technology Solutions.
Cognizant did not deduct tax on remittance made to the Mauritius company, but it deducted 10 percent TDS on remittances to the U.S. company, Business Line reported quoting unnamed sources. The company claimed that since ‘arrangement and compromise’ was as per the Companies Act, no tax was payable, the report said. As per the IT department, the company is required to pay tax on any distribution, on reduction of capital, to the extent of accumulated profits defined as dividends, the report said.
The Madras High Court, which heard the matter today, instructed the income tax department not to take further action pending further hearings, Cognizant said in its statement. “We will continue to vigorously defend itself and pursue all available legal remedies,” the statement added.