I-T Dept freezes Cognizant's bank accounts

Income-Tax department has frozen a few bank accounts held by Nasdaq-listed Cognizant Technology Solutions for allegedly evading dividend distribution tax.

The company said in a statement that the Madras High Court on Tuesday instructed the I-T department to not take further action pending further hearings before the court.

"Cognizant's business operations, our associates and our work with clients are not impacted by actions recently attempted by the Income Tax department. The company believes that the positions taken by the Indian Income Tax department are contrary to law and without merit," the statement said.

It added that  the company has paid all applicable taxes due on the transaction at the 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.

Sources in the I-T department said it was found that Cognizant was diverting accumulated profits from its Indian company to its Mauritius subsidiary without paying tax. The money was diverted through an overvalued share buyback by the Indian subsidiary in 2013 and a scheme of arrangement by the US firm in 2016, the officials said.

"Cognizant purchased its own shares from its shareholders in May 2016 under the scheme of arrangement and compromise between the shareholders and the company in accordance with Companies Act. The shareholders were its subsidiary from Mauritius and the US, which held 54% and 46% of shares, respectively. Cognizant did not deduct tax on remittances to Mauritius firm, but deducted 10% TDS on the remittances to the US-based firm," an I-T official said.