HC extends status quo on Cognizant tax dispute matter

The Madras High Court Thursday ordered that the status quo granted by a single-judge bench in connection with IT major Cognizant Technology Solutions India's Rs 2,912-crore dividend distribution tax dispute with the Income Tax department will continue. A division bench comprising Justice M M Sundresh and Justice M Nirmal Kumar gave the interim order when an appeal by the company against the June 25 order of single judge on the matter came up for hearing.

"Since we are inclined to take up the appeal itself within the shortest possible date, we direct the Income Tax authority to maintain status quo till then," the court said and posted the matter for further hearing on August 9. The tax issue pertains to unpaid dues around share purchases done by Cognizant Technology Solutions India, which had bought back shares from foreign owners — Cognizant Mauritius and the US-based parent Cognizant Technology Solutions (CTS).

Cognizant Mauritius and the US-based IT firm had also challenged the recovery proceedings. The issue pertains to payment of tax at the rate of 15 percent while remitting Rs 19,415 core to its non-resident shareholders in the US and Mauritius towards buyback of 94,00,543 of its equity shares in May 2016.

The Income Tax Assessment Authority had initiated recovery proceedings on the ground that the shares were overvalued which were challenged by the company in a batch of petitions. In his June 25 order, Justice K Kalyanasundaram had dismissed the petitions and ordered status quo for two weeks to enable the company to avail the appeal remedy with the appellate authority.

Complying with an earlier court order, the company had deposited 15 percent of the disputed amount in a suspense account and provided sufficient security for the rest of the tax amount claimed. The appellate authority shall take into account the amount deposited while entertaining the appeal if any, and with regard to the FDs, the I-T department shall maintain status-quo for two weeks, the Judge had said in his order.

Admitting the appeal, the bench Thursday said the status quo shall continue till the next date of hearing on August 9.