Civil Appeal No. 1992 of 2020 @SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 1 NON-REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 1992 OF 2020 (Arising out of Special Leave Petition (Civil) No.23705 of 2019) COGNIZANT TECHNOLOGY SOLUTIONS INDIA PVT. LIMITED Appellant VERSUS DEPUTY COMMISSIONER OF INCOME TAX LARGE TAX PAYER UNIT 1 Respondent ORDER Uday Umesh Lalit, J. 1. Leave granted. 2. This appeal arises out of final judgment and order dated 06.09.20191 passed by High Court2 in Writ Appeal No.2063 of 2019. 3. appellant is engaged in business of development of computer software and related services. In Financial Year 2016-17, appellant approached High Court with Scheme of Arrangement and Signature Not Verified Digitally signed by INDU MARWAH Date: 2020.03.04 Compromise under Sections 391 to 393 of Companies Act, 1956 to 16:57:19 IST Reason: 1 Corrected vide further order dated 12.09.2019 2 High Court of Judicature at Madras Civil Appeal No. 1992 of 2020 @SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 2 buy-back its shares. High Court sanctioned Scheme on 18.04.2016 in Company Petition No.102 of 2016, pursuant to which appellant purchased 94,00,534 shares at price of Rs.20,297/- per share from its four shareholders and made total remittance of Rs.19,080 crores approximately. details in that behalf were:- Shareholder Shares Consideration Tax deducted at Source Purchased (Amount in Rs.) (Amount in Rs.) (No. of Shares) Cognizant Technology 37,00,747 7511,40,61,859 810,73,37,402 Solutions Corporation (CTS USA) MarketRx Inc 2,38,521 484,12,60,737 52,33,24,388 (USA) Cognizant (Mauritius) 53,01,778 10761,03,91,036 0 Limited (Mauritius) (Treaty benefit claimed) CSS Investments LLC, 1,59,478 323,69,24,966 34,95,01,528 Delaware (USA) Total 94,00,534 19080,26,38,598 898,01,63,318 According to appellant, this buy-back of shares was effected in May 2016. 4. Thereafter, appellant made statutory filing under Form 15 CA (under Rule 37BB of Income Tax Rules, 1962) after obtaining requisite certificate from Chartered Accountant in Form 15CB furnishing details of remittances made to non-residents. 5. On 21.11.2017 letter was received by appellant from Civil Appeal No. 1992 of 2020 @ SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 3 Deputy Commissioner of Income Tax, Large Taxpayer Unit-1, Chennai in connection with non-payment of tax on remittances made to non- residents, in Financial Years 2015-16 and 2016-17. letter stated:- On verification of 15CA data available with department, it is noticed that your company has made following remittances to non-residents during financial years 2015-16 and 2016-17. Date of Name of non-resident Amount Tax made on Remittance company receiving remitted (Rs.) remittance remittance (Rs.) 17.02.2016 Cognizant (Mauritius) 335,36,38,361 Nil Ltd. 19.05.2016 Cognizant (Mauritius) 10761,03,91,036 Nil Ltd. 19.05.2016 Cognizant Technology 7511,40,61,859 810,73,37,402 Solutions Corporation, USA 19.05.2016 Market Rx Luc, USA 484,12,60,737 52,33,24,388 19.05.2016 CSS investment LLC, 323,69,24,966 34,95,01,528 USA Total 19415,62,76,959 898,01,63,318 data available with department shows that you have not deducted/paid any tax on remittances made to M/s Cognizant (Mauritius) Ltd. on 17.02.2016 and 19.05.2016 whereas in case of remittances to concerns in USA, you have only deducted/paid tax @ 10% (plus surcharge & cess). In this regard, I request you to kindly furnish following information: a) dates and amounts of remittances to non-residents during FYs. 2015-16 & 2016-17, along with their Civil Appeal No. 1992 of 2020 @ SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 4 residential status. b) nature and purpose of said remittances. Copies of documents submitted to RBI for obtaining permission and remitting amounts. c) Whether above remittances are in accordance with any agreement, scheme etc.? If so, please furnish copies of same. d) Dates and amounts of taxes deducted/paid into govt. account, along with evidences, and sections under which said tax was deducted and/or claimed exempt, as case may be. e) rate(s) at which above tax is deducted/paid into govt. account, in each case; and reasons for deviation from statutory requirement of tax, if any, or non- deduction/non-payment, as case may be. 6. requisite details were furnished by appellant vide letters dated 01.12.2017 and 05.12.2017 whereafter meetings were held between officials of appellant and officers of Department. Later, communication was addressed by Department to appellant on 22.03.2018. After referring to remittances made by appellant to its four shareholders, it was stated:- 2. company has not remitted any tax u/s. 115-O of Act till date, even though tax @15% u/s. 115-O is to be remitted into central Govt. Account within 14 days from date of payment to shareholders. 3. assessee company was under impression that since its scheme of arrangement and compromise between shareholders and company, was in accordance with Civil Appeal No. 1992 of 2020 @SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 5 sec.391 to 393 of Companies Act, and approved by Court, provisions of section 115-QA, 115-O or 2(22) of Income Tax Act are not applicable to its case. During personal discussion between company and AO/JCIT/CIT (LTU), it was brought to notice of Company that: Provisions of sections 115-QA of IT Act, which were introduced w.e.f. 01.06.2013, defines buy- back , as one done in accordance with sec. 77A of Companies Act (valid upto 31.05.2016). W.e.f. 01.06.2016, any buy-back of own shares will attract 115-QA. Provisions of sec. 2(22)(d), clearly postulates that any distribution on reduction of capital, to extent of accumulated profits will amount to dividends. only exception to this is buy-back u/s. 77A of Companies Act. Provisions of sec. 2(22)(d) are: S. 2(22)(d): any distribution to its shareholders by company on reduction of its capital, to extent to which company possesses accumulated profits which arose after end of previous year ending next before 1st day of April, 1933, whether such accumulated profits have been capitalised or not: Even otherwise, provisions of sec. 2(22)(a) of Act, which stipulate that any distribution to shareholders is dividend, if it is contended that it was not case of reduction of capital. Provisions of sec.2(22)(a) are: S.2(22)(a): any distribution by company of accumulated profits whether capitalised or not, if such distribution entails release by company to its shareholders of all or any part of assets of company; Once, provisions of sec.2(22)(d) or 2(22)(a) are Civil Appeal No. 1992 of 2020 @ SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 6 applicable, distributor is required to pay tax u/s.115-O of Act. In present case, assessee s purchase of its own shares, which is not in accordance with sec. 77A of Companies Act, will amount to dividends within meaning of sec. 2(22)(d) or 2(22)(a) of Act, and consequently, liable for tax u/s. 115-O of Act in hands of assessee company. After considering factual aspects it was stated :- 11. This clearly shows that, to extent of face value (issued price), paid-up share capital will be utilized and balance will be paid from reserves, which are nothing but accumulated profits in present case. Here payment from paid-up shares capital is nothing but reduction of capital and latter (i.e. payment from reserves being accumulated profits) is distribution of profits. 12. When any company reduces share capital as per provisions of Companies Act, by way of reducing face value of shares or by way of paying off part of share capital, it amounts to extinguishment of rights of shareholder to extent of reduction of share capital. Therefore, it is regarded as transfer under section 2(47) of IT Act and would be chargeable to tax. Finally, it was concluded:- 18. Thus, payments made to shareholders, under purchase of shares through scheme of arrangements and compromise , is dividend within meaning of section 2(22)(d)/2(22)(a) of Act, requiring to remit taxes in to government account u/s. 115-O of Act. Further, since company has failed to remit taxes within stipulated period, company is deemed to be assessee in default , u/s. 115-Q of Act. Therefore Civil Appeal No. 1992 of 2020 @ SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 7 assessee company is required to remit taxes (calculated @ 15% of total payments of Rs.19415,62,77,269/- to shareholders, and surcharge etc as per Act) along with interest payable u/s. 115-P of Act, immediately, failing which department will proceed with collection and recovery of taxes, including coercive steps, as per provisions of Act. 7. Said communication dated 22.03.2018 was received by appellant on or about 26.03.2018 and soon thereafter bank accounts of appellant were attached by Department. 8. It must be stated here that while meetings between officials of appellant and officers of Department were going on, application was preferred by appellant on 20.03.2018 before Authority for Advance Ruling (AAR) under Section 245Q of Act 3 seeking ruling on issue whether appellant was liable to pay tax on buy-back of its shares under Section 115QA or Section 115-O or any other provision of Act. 9. appellant challenged communication dated 22.03.2018 by filing Writ Petition No.7354 of 2018 in High Court submitting inter alia that while issue was pending before AAR under Section 245Q of Act, in view of bar provided under Section 245RR of Act, matter could not have been considered. It was also submitted that 3 Income Tax Act, 1961 Civil Appeal No. 1992 of 2020 @ SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 8 appellant was never put to notice whether it would be liable under Section 115-O of Act. It was further submitted that all while Department was only soliciting information which appellant had readily furnished and at no stage appellant was put to notice that its liability would be determined in any manner. 10. Writ Petition came up before Single Judge of High Court on 03.04.2018 when following interim directions were issued:- 11. In my considered view impugned proceedings has crystallized in form of demand for payment of tax, and if petitioner has to be granted interim protection till writ petition is finally heard, same has to be conditional and cannot be unconditional. Assuming without admitting petitioner had to avail appellate remedy under Act and prays for appropriate interim orders before appellate authority, then appellate authority is entitled to grant order of stay, which is invariably conditional on account of guidelines issued by Central Board of Direct Taxes (CBDT) with view to maintain uniformity in matter of grant of interim orders. As per latest guidelines prescribed by CBDT, it has recommended that 20% of demand, which has been made shall be directed to be remitted by assessee for grant of stay of remaining demand. Though this cannot be universal rule, invariable in most cases, authorities have adopted 20% formula. However, in certain cases, this Court has interfered with such orders and reduced amounts payable by assessee and in certain other cases, where no stay has been granted by authority and assessee has approached Court for grant of interim stay, Court has imposed condition by directing payment of more than 20% of demand. Therefore, facts of each case have to be considered while granting interim order bearing in mind interest of assessee as well as Civil Appeal No. 1992 of 2020 @ SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 9 safeguarding interest of Revenue. 12. Thus, considering facts and circumstances of case, there will be order of interim stay of impugned proceedings subject to condition that petitioner pays 15% of tax demanded and furnishes Bank Guarantee or security by way of Fixed Deposits for remaining taxes (only), to be paid. For purpose of complying with above condition, attachment of Bank account in JP Morgan Chase Bank N.A., J.P. Morgan Tower, 8 th Floor, Off C.S.T Road, Kalina, Santacruz East, Mumbai 400 098 shall stand lifted forthwith. However, attachment in respect of other Bank accounts viz., (a) State Bank of India, CAG Branch, Chennai. (b) Deutsche Bank, Ground Floor, Door No.4 & 4A, Western Tower, Sunny Side, Shafi Mohammed Road, Thousand Lights, Chennai 600 006. (c) Corporation Bank, Corporate Banking Branch, 38 & 39 Whites Road, Chennai-600 014. (d) City Bank N.A., No.163, Anna Salai, Chennai-600 002. (e) HDFC Bank, No.115, Dr. Radhakrishnan Salai, 9th Floor, Mylapore, Chennai-600 004, shall continue till compliance of above direction. Similarly, attachment of nine Bank deposits viz., (1) HDFC Limited, (ii) HDFC Limited, (iii) HDFC Limited, (iv) HDFC Limited, (v) HDFC Limited, (vi) HDFC Limited, (vii) Bajaj Finance Limited, (viii) Bajaj Finance Limited, (ix) Bajaj Finance Limited shall also continue subject to lien being created for remaining amount of taxes. remittance of 15% of tax demanded shall be retained in separate account and shall abide by orders to be passed in writ petition. Civil Appeal No. 1992 of 2020 @ SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 10 11. Single Judge by his decision dated 25.06.2019 dismissed Writ Petition as not being maintainable and relegated appellant to avail remedy before Appellate Authority under Act. However, during course of his decision, Single Judge concluded that there was no need for issuance of any notice before making demand under Section 115-O of Act and notice issued on 21.11.2017 calling for details whereafter meetings were convened, was quite adequate. He rejected submission that there would be bar in terms of Section 245RR of Act. Single Judge did not find any merit in contention that shares purchased pursuant to order of Company Court could not be treated as dividend. While relegating appellant to avail remedy before Appellate Authority it was observed:- 33. Appellate Authority shall take into account amount deposited in pursuance of order referred supra, while entertaining appeal. With regard to Fixed Deposits, respondent shall maintain status-quo as on date for period of two weeks. 12. appellant, being aggrieved, challenged aforesaid view by filing Writ Appeal No.2063 of 2019. While discussing issues that came up for consideration, Division Bench observed that Single Judge Civil Appeal No. 1992 of 2020 @ SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 11 after having found Writ Petition to be not maintainable, ought not to have gone into merits. As regards nature of communication dated 22.03.2018 and maintainability of appeal challenging same, it was observed:- 11. learned Senior Counsel appearing for appellant would submit that it is not known as to whether impugned order dated 22.03.2018 is show cause notice or final order. Though there appears to be some element of contradiction in counter affidavit filed, said order appears to be final one. Now it is also contention of learned Additional Solicitor General that it is only final order. We are also of view that further action taken would also indicate that order under challenge was final one. If it is only show cause notice, then there is no need to challenge it and instead consequential freezing alone requires to be questioned. further question as to whether order under challenge violates principles of natural justice or requisite procedure contemplated under Act is matter for consideration before Appellate Authority. learned Single Judge has rightly observed that appeal can be entertained and decided on merit as appellant has already deposited sum of Rs.495 crores. 13. view taken by Division Bench of High Court is presently under appeal. On 04.10.2019, affidavit of undertaking, filed on behalf of appellant was taken on record in which it was submitted:- In event this Hon ble Court is gracious to pass order that fixed deposits over which lien has been created, pursuant to Interim Order passed by Learned Single Judge (continued by Division Bench), is Civil Appeal No. 1992 of 2020 @ SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 12 vacated as interim measure to enable Petitioner Company to run its business and operations, Petitioner undertakes that in event this Hon ble Court is satisfied that any security must be offered by Petitioner ex debito justitiae at time of disposal of Special Leave Petition, Petitioner will unqualifiedly, without demur, furnish such security/fixed deposits to satisfaction of Registrar of Hon ble Court as this Hon ble Court may be so pleased to direct. However, by order dated 14.10.2019, this Court observed:- It is matter of record that pursuant to order dated 03.04.2018 passed by Single Judge of High Court of Judicature at Madras in Writ Petition No.7354 of 2018, sum of Rs.2806,40,15,294/- stands deposited and invested in form of fixed deposit receipts. It was then directed:- Pending further consideration, amount which is presently lying in deposit shall be maintained in same form. 14. We heard Mr. Gopal Subramanium, learned Senior Advocate for appellant and Mr. Zoheb Hossain, learned advocate for Department. 15. It was submitted by Mr. Subramanium, learned Senior Advocate that instant transaction would not come within scope of Section 115-O of Act. It was submitted that appellant was never put to notice about proposed determination in terms of Section 115-O of Act; that communication dated 22.03.2018 could not be said to have Civil Appeal No. 1992 of 2020 @ SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 13 determined liability of appellant under Section 115-O of Act and consequently appellant could not have been relegated to appellate remedy as directed. It was submitted that communication dated 22.03.2018 could, at best be treated as intimation of action proposed to be taken resort to by Department. These submissions were countered by Mr. Zoheb Hussain, learned Advocate. According to him, matter would come within ambit of Section 115-O of Act. He also relied upon Section 115-Q of Act to submit that in case assessee- company had not paid tax on distributed profits in accordance with provisions of Section 115-O, assessee-company would be deemed to be assessee in default in respect of amount of tax and all provisions relating to collection and recovery of income tax would apply. As extension of concept, it was submitted that Department was justified in issuing communication dated 22.03.2018 followed by attachment of accounts of appellant. 16. On issue whether communication dated 22.03.2018 was in nature of determination of liability, both learned counsel were heard at considerable length, at end of which it was agreed by Mr. Zoheb Hossain, learned Advocate for Department, that communication Civil Appeal No. 1992 of 2020 @ SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 14 dated 22.03.2018 could be treated as show cause notice and Department be permitted to conclude issue within reasonable time, provided interim order passed by Single Judge of High Court on 03.04.2018 was continued. course suggested by learned counsel for Department was acceptable to learned Senior Counsel for appellant. 17. It was, therefore, suggested that appellant may file affidavit of undertaking to withdraw proceedings initiated by it before AAR and Department may also file appropriate affidavit stating that it was willing to treat communication dated 22.03.2018 as show cause notice. appropriate affidavit of undertaking to withdraw proceedings initiated before AAR has since then been filed by appellant. affidavit has also been filed on behalf of Department stating:- communication dated 22.03.2018 may be treated as show cause notice and assessee will be given opportunity of being heard and fresh order will be passed within two months from date of judgment of this Hon ble Court. 18. In peculiar facts and circumstances of present case, while disposing of this Appeal, we direct:- Civil Appeal No. 1992 of 2020 @ SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 15 a) communication dated 22.03.2018 shall be treated as show cause notice calling upon appellant to respond with regard to aspects adverted to in said communication; b) appellant shall be entitled to put in its reply and place such material, on which it seeks to place reliance, within 10 days from today; c) appellant shall thereafter be afforded oral hearing in matter; d) matter shall thereafter be decided on merits by concerned authority within two months from today; e) Pending such consideration, as also till period to prefer appeal from decision on merits is not over, interim order passed by Single Judge of High Court on 03.04.2018 and as affirmed by this Court vide its order dated 14.10.2019, shall continue to be in operation; and f) amount of Rs.495,24,73,287/- deposited towards payment of tax and amount of Rs.2806,40,15,294/- which stands deposited and invested in form of Fixed Deposit Receipts shall be subject to decision to be taken by concerned Authority on merits or to such directions as may be issued by Appellate Authority. Civil Appeal No. 1992 of 2020 @ SLP(C)No.23705 of 2019 Cognizant Technology Solutions India Pvt. Ltd. Vs. Deputy Commnr. Of Income Tax Large Tax Payer Unit 1. 16 19. We have stated facts of present case only by way of narration of events and explaining chronology. We shall not be taken to have dealt with merits or demerits of rival contentions of parties. merits of matter shall be gone into independently by concerned authorities without being influenced, in any way, by any of observations made by High Court and this Court. 20. Appeal is disposed of in aforesaid terms and judgment and order presently under appeal shall stand modified accordingly. No costs. J. [UDAY UMESH LALIT] J. [INDU MALHOTRA] J. [HEMANT GUPTA] New Delhi; March 04, 2020. Cognizant Technology Solutions India Pvt. Limited v. Deputy Commissioner of Income-tax, Large Tax Payer Unit-1