Madras High Court judge withdraws from Cognizant-Income Tax dept case

The I-T department has raised a claim of Rs 28 bn from Cognizant, including surcharges and cess will be Rs 32 bn, alleging a violation of tax regulations during share transactions in 2013 and 2016

Justice T S Sivagnanam of the Madras High Court, who has been hearing the tax dispute between IT major Cognizant and the Income Tax (I-T) department, has recused from hearing the matter. The reason for the decision has not been revealed, according to legal sources.

The I-T department has raised a claim of Rs 28 billion from Cognizant, including surcharges and cess will be Rs 32 billion, alleging a violation of tax regulations during share transactions in 2013 and 2016.

Sivagnanam has held multiple hearings for both the parties in the past. The matter was last heard on June 22, when the additional solicitor general argued for the I-T department and it was again on heard on Tuesday.

According to the judge, the matter had been sent to chief justice's consideration as he recused himself from the hearing. The single judge, in April, granted an interim stay to the I-T department's proceedings against Cognizant, subject to the condition that the company pays 15 per cent of the tax demanded and furnishes a bank guarantee or security by way of fixed deposit for the remaining taxes demanded. 

Cognizant, following this, said it was depositing $75 million (Rs 4.9 billion) representing the 15 per cent of the disputed tax demand, to be kept by the I-T department in a suspense account.

The interim order was in the backdrop of the I-T department attaching various bank accounts of the company, seeking payment of the tax demand. The dispute involves the I-T department's assertion the company owed additional taxes in connection with a $2.8 billion share buyback transaction undertaken by Cognizant's principal operating subsidiary in India in 2016 to acquire shares from the overseas shareholders. The department has also alleged that Cognizant had evaded dividend distribution tax on some transactions the Indian entity has made while buying shares of the company from the Mauritius and US companies of Cognizant.