TN HC grants interim stay against liquidation of Cognizent's FD by IT

Chennai: The Madras High Court has granted an interim stay against the Income Tax department liquidating over Rs 2,956 crore fixed deposit of Cognizant Technology Solutions Pvt. Ltd in lieu of the existing tax liability of around Rs 6,000 crore.

A division bench comprising Justices R Mahadevan and Mohammed Shaffiq in its recent order, granted the interim stay with certain conditions on a Tax Case Appeal filed by the firm, challenging the recovery proceedings initiated by the Revenue department.

The bench said appellant/assessee (Cognizant) shall make a payment of Rs 1,500 crore in cash or give a letter to the bank to remit the said amount to the credit of the Revenue from the fixed deposit available and furnish property security for the balance tax liability with interest and penalty to the department within four weeks.

The bench said on such payment and deposit of title deeds pertaining to the property, the Revenue shall release the lien on the remaining fixed deposits lying in the banks.

The bench made it clear that in the event of default on the part of the company in complying with the aforesaid conditions, this order shall stand vacated automatically, without any further reference to this court. It was also open to the Revenue to recover the tax liability from the appellant in the manner known to law.

The bench said the substantial questions of law raised in this case shall be considered at the time of final hearing of the appeal.

According to senior counsel for Revenue, the tax liability payable by Cognizant Technology Solutions Pvt. Ltd was around Rs 9,403 crore including interest and penalty. Except the payment of Rs 495 crore, in compliance with the order of a single judge, the company did not make any payment of tax till date, he added.

He said the fixed deposit of Rs 2,956 crore would not be sufficient to meet the existing tax liability of Rs 4,358 crore and the corresponding interest liability of Rs 1,743 crore aggregating to Rs 6,101 crore and as the demand has now been confirmed by the appellate authorities, the department was entitled to liquidate the security and realise the existing tax liabilities.

However, they have not taken any recovery action and the lien was created on the fixed deposits only for the purpose of security, he added and sought to protect the interest of the Revenue while passing any order in this petition.