NEW DELHI: In a setback to Cognizant Technology Solutions, the Income Tax Appellate Tribunal has ordered it to pay dividend distribution tax (DDT) on Rs 19,080-crore share buyback in the assessment year 2017-18.
During the assessment year 2017-18, Cognizant bought 94,00,534 equity shares from its shareholders in the US and Mauritius at Rs 20,297 per share, totalling Rs 19,080 crore. The Chennai ITAT in an order dated 13 September held that this repurchase, carried out through a scheme sanctioned by the court under sections 391-393 of the Companies Act, 1956, amounted to the distribution of accumulated profits, and therefore is deemed a dividend under the Income Tax Act.
The ITAT rejected the Assessee’s argument that the court-approved scheme provided immunity from taxation, citing the Gujarat High Court and Supreme Court rulings as irrelevant. The ITAT also noted that while the court’s approval was binding, it did not grant immunity from tax obligations. The ITAT upheld the decision of the Commissioner of Income Tax (Appeals) to consider the transactions as dividends.