In the matter involving Cognizant Technology, the Supreme Court has instructed the Madras High Court to consider the appeal and dispose of it preferably within a span of 6 weeks, starting from the judgment date of January 8, 2024. Also, directed the company to pay an amount of Rs. 2,956 Crores to the government.
The bench consisting of Justice Pamidighantam Sri Narasimha and Justice Aravind Kumar expressed their reluctance to intervene in the High Court’s order but proposed certain modifications.
The Supreme Court mandated the disbursement of the Rs. 2,956 Crores, comprising the Rs. 1,500 Crores specified as cash (per the HC’s directive) and Rs. 1,456 Crores in the form of Fixed Deposit Receipts (FDRs), to be cashed by the Union. The company is obligated to make an extra payment of Rs. 1,456.
The tax controversy stems from an Income Tax notice concerning a Rs. 19,000 crore buyback dividend distribution by the Petitioner M/s Cognizant Technology Solutions India Private Limited. At each phase of the dispute, the company received unfavourable responses, extending from the Income Tax Appellate Tribunal (ITAT) to the High Court.
The Chennai bench of ITAT observed that the buyback of shares was not genuine, thus, upheld the order against the company of Rs. 19,000 crore. Further, the company appealed before the Madras High Court. The High Court stayed the demand of Rs. 9403.09 crore out of Rs. 19,000 crore.
Judges R. Mahadevan and Mohammed Shaffiq, presiding over the proceedings in the Madras High Court, instructed Cognizant Technology to transfer Rs. 1,500 crores either in cash or through a bank letter and furnish property security for the outstanding tax liability, including interest and penalty, to the respondent within a four-week timeframe. Following the payment and the submission of property title deeds, the department will lift the encumbrance on the remaining fixed deposits in banks.
Considering the appellant’s financial constraints, the High Court granted a temporary suspension of the tax demand, contingent upon the payment of Rs. 1,500 crores within four weeks. Non-compliance would automatically revoke the stay, enabling the department to pursue legal avenues for tax recovery.
The Supreme Court in this case decided that “ We are not inclined to interfere with the order passed by the High Court except for the following modifications. The amount of Rs. 2,956 Crores comprising of Rs 1,500 Crores offered by way of cash and Rs. 1,456 Crores towards Fixed Deposit Receipts (FDRs) can be encashed by the Union. We also record the undertaking of the learned ASG, who on instructions submitted that amount will be refunded within four weeks along with interest accrued in the event petitioner’s appeals are allowed by the High Court. The requirement of security with respect to the penalty is dispensed with. In view of the high stakes involved in the matter, we request the High Court to take up the appeal and dispose it of same as expeditiously as possible, preferably within a period of six weeks from today.”
Thus, the Special Leave Petition was disposed of.
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