The Income Tax department has attached Cognizant Technology Solutions’ bank accounts and deposits in excess of ₹2,500 crore in Chennai and Mumbai in connection with Dividend Distribution Tax (DDT) payable by the company.

The $15 billion, US-based technology company has over two lakh employees working in India.

The case is related to Cognizant Technology Solutions India (P) Ltd purchasing its own shares from shareholders in May 2016 under scheme of ‘arrangement and compromise’. The shareholders are a Mauritius company and the US company holding 54 per cent and 46 per cent of shares in Indian entity respectively.

While Cognizant did not deduct tax on remittance made to the Mauritius company it deducted 10 per cent TDS on remittances to the US company. It claimed that since ‘arrangement and compromise’ was as per the Companies Act, no DDT was payable, said sources.

However, the IT department said the company requires to pay DDT on any distribution, on reduction of capital, to the extent of accumulated profits defined as dividends.

The only exception to this is buyback under Section 77A of the Companies Act, and Cognizant was not covered. The company was required to pay DDT of over ₹2,500 crore in financial year 2016-17 itself but failed to pay.

The department held that any scheme of ‘arrangement and compromise’ there should be a dispute between the parties concerned. In the case of Cognizant, all shares were held by the same management and the decision-making was also in the same hands. Where was the dispute for ‘arrangement or compromise’? the sources asked.

Cognizant’s spokesperson said “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.”

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