IT Tax demand was not justified: Cognizant tells Madras HC

Vastavam web: Cognizant Technology Solutions today submitted in the Madras High Court that the tax demand made by the Income Tax department was not justified and without jurisdiction. The court had in April granted interim stay on the Income Tax department’s proceedings against Cognizant, subject to the firm depositing 15 per cent of Rs 2,800 crore dividend distribution tax demanded by the department. The tech giant’s comments was made in connection with the department freezing its certain bank accounts in the country over a dispute on payment of dividend distribution tax (DDT) running into hundreds of crores.

The tax issue pertains to unpaid dues around share purchases done by its subsidiary, Cognizant Technology Solutions India, which had bought back shares from foreign owners — Cognizant Mauritius and the US-based parent Cognizant Technology Solutions (CTS). The firm is alleged to have remitted about Rs 19,415 crore to its non-resident shareholders in May 2016 without paying any dividend distribution tax (DDT). The Bill widened the scope of additional income tax payable on share buyback.

When the plea came up today before Justice T S Sivagnanam, counsel for the software firm, Gopal Subramanium contended that tax planning was not an offence and even Supreme Court has ruled so. Referring to the tax demand order passed by the assessing officer, Subramanium said, “The officer says that the Indian company is pampered with tax benefits in India and also enjoys capital gains tax exemption in Mauritius. Therefore, it must be made liable to pay additional tax which is unfounded. He submitted that besides this, the officer has come to the conclusion that the reasonable value per share can only be Rs 7,990, which is totally against the findings of the Transfer Pricing Officer (TPO).

The counsel wanted to know how the officer has declared that entire amount higher than Rs 7,990 shall be treated as residual income which attracts additional tax and further submitted how a single income is divided under two heads.