The Income Tax department has frozen the bank accounts and deposits of Information Technology firm Cognizant in Chennai and Mumbai for allegedly evading dividend distribution tax, The Hindu reported on Tuesday. The department took the action last week after the company reportedly failed to pay more than Rs 2,500 crore in tax in the 2016-’17 financial year.
Cognizant reportedly paid dividends to its parent company in 2016-’17, which was not subject to the dividend distribution tax, the Economic Times reported. The tax is levied at 20% of the total dividends paid by the company. In its defence, the company claimed that its scheme of “arrangement and compromise” with shareholders was in accordance with necessary sections of the Companies Act of 2013 and approved by the court, and thus it did not need to pay the tax to the government.
“The [Madras] High Court heard the matter and instructed the...department to not take further action pending further hearing before the court,” an unidentified Cognizant spokesperson told The Hindu. “The company believes that the positions taken by the...department are contrary to law and without merit.” The spokesperson claimed that the company had paid “all applicable taxes due on the transaction at issue”.