Cognizant appeals against order upholding ₹2,806-cr I-T demand

The Madras High Court today allowed a writ appeal, in part, filed by Cognizant Technology Solutions against a Single Bench order in June, in a case involving a demand by the Income Tax department to the tune of ₹2,806 crore relating to buyback of shares from its shareholders.

Cognizant’s scheme of purchase was approved by the Madras High Court in April 2016. It bought back the shares and accordingly, it was treated as capital gains and a sum of ₹898.01 crore was withheld as TDS as per the return filed by it.

However, the Deputy Commissioner of Income Tax, Large Tax Payer Unit, issued an impugned order in March 2018 holding that the transactions made in pursuant of the buyback arrangement effected requires to be taxed on the premise that it would constitute dividend and not capital gain. As a consequence, Cognizant’s bank accounts were frozen.

Writ petition

Challenging the order, Cognizant filed a writ petition raising various grounds. In pursuant to the conditional interim order granted, the appellant paid a sum of ₹495 crore out of the payable demand of ₹2,806 crore. Thereafter, the writ petition was dismissed with liberty to the appellant to file an appeal.

Aggrieved over the same, the present writ appeal was filed by Cognizant before a Division bench consisting of Justices MM Sundresh and M Nirmal Kumar.

“As granted by the learned single Judge, we are inclined to grant a period of four weeks to file an appeal before the Appellate Authority. No costs. As and when such an appeal is filed, the same will have to be disposed of within a period of eight weeks thereafter.

Consequently, connected miscellaneous petition is closed. We did not find any error in the order of the single Judge with respect to the deposit made during the pendency of the interim order as erroneous.

It is only an interim arrangement directed to be made pending the appeal. In such a view of the matter, while upholding the direction of the learned single Judge with respect to the deposit and the liberty granted to file an appeal are accordingly upheld, the Bench said in its order.

Cognizant’s spokesperson declined to comment saying, “We haven’t received a copy of the order yet.”