The Madras High Court while hearing the case between Cognizant Technology Solutions versus I-T department has orders the petitioner to pay 15% of the tax demanded i.e. 420 crores and furnishes a Bank Guarantee or security by way of Fixed Deposits to defreeze the bank account.
The petitioner Cognizant Technology Solutions engaged in the business of providing IT services, including digital, technology, consulting, and operations services. It was alleged that Income Tax while releasing the order discussed that CTS purchased its shares through shareholders by making arrangements and compromise between them and the company.
Senior counsel P.S Raman and Advocate Srinath Sridevan for the Petitioner contended that any action for collection of demand without determination and due process and opportunity would be ultra vires Article 14 of the Constitution of India. Further, it is submitted that there was no show cause notice issued to the petitioner, only a chance was given to them to justify their stand. It is submitted that the petitioner has filed an application before the Advance Ruling Authority on 20.03.2018 and as soon as the application is entertained by the said authority, it creates an automatic bar for proceedings to be initiated in the light of Section 245RR of the Act. It is submitted that the impugned order though dated 22.03.2018, was despatched only on 23.03.2018 and served on the petitioner on 26.03.2018 and the application before the Advance Ruling Authority having been filed on 20.03.2018, the respondent cannot violate the rigour of Section 245RR of the Act. It is submitted that the petitioner’s shareholders have paid a sum of Rs.898,01,63,318/- by way of withholding taxes on capital gains.
The Income Tax department raised demand on Dividend Distribution Tax (DDT) on Cognizance for remitting 19,415 crores to its non-resident shareholders in the US and Mauritius towards buyback of 94,00,543 of equity shares in May 2016.
The Income Tax Department has frozen Cognizant Technology Solution India Pvt Ltd.’s bank accounts and deposits due to over tax irregularities to the tune of 2800 crores. Now the petitioner approached High Court with a plea assailing the tax demand and the freezing of its 68 bank accounts.
The counsel reminded that action of the respondent Department is excessive and on account of freezing of the Bank accounts, the petitioner has not been able to make payments to any of its suppliers, contractors, service providers for one week.
On contrary to this G.Rajagopalan, learned Additional Solicitor General for the Revenue submitted that there is no violation of the principle of natural justice and also added that sufficient opportunity has been granted to the Cognizant Technology Solution.
The further department stated that petitioner introduced a scheme with the support of C.P.No.102 which enables speed repatriated its earning from India to its investors situated abroad and also mislead the company court that such scheme doesn’t attract tax liability, while fully aware that the repatriation was liable to DDT under the Income Tax Act.
Justice T.S Sivagnam passed the interim direction stating that 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 Court also observed that “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 with 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”.
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