Case Law Details
Cognizant Technology-Solutions India Pvt. Ltd. Vs ACIT (ITAT Chennai)
ITAT Chennai held that transaction of purchase of own shares by the appellant company is distribution of accumulated profits within the meaning of section 2(22) of the Income Tax Act, 1961. Accordingly, it is treated as dividend u/s. 2(22)(a)/2(22)(d) read with section 115-O of the Act.
Facts- The assessee had filed its return of income for AY 2017-18 on 28.11.2017 declaring total income of Rs.5399,54,16,100/- and the ROI filed by the assessee has been processed u/s.143(1) of the Act, on 30.03.2019. The assessee had received a communication dated 22.03.2018 from the Office of the AO informing the assessee that it is deemed to be assessee in default u/s.115QA of the Act, for failure to pay tax u/s.115-O of the Act, in respect of consideration paid for purchase of its own shares. The AO in the said communication called upon the assessee to explain ‘as to why’ an order u/s.115-O of the Act, cannot be passed in respect of consideration paid for purchase of its own shares as deemed dividend u/s.2(22)(a) / 2(22)(d) of the Act.
AO after considering relevant submissions of the assessee held that consideration paid by the assessee to its shareholders for purchase of its own shares was liable to tax as deemed dividend u/s.2(22)(d) of the Act, and alternatively, u/s.2(22)(a) of the Act, and consequently, the assessee company was liable for payment of Dividend Distribution Tax u/s.115-O of the Act. AO held that consideration paid by the assessee to its shareholders for purchase of its own shares under the ‘Scheme of Arrangement & Compromise’ u/s.391 to 393 of the Companies Act, 1956, is nothing but dividend within the meaning of Sections 2(22)(a) / 2(22)(d) of the Act. Thus, held that assessee is liable to pay DDT u/s. 115-O of the Act.
Conclusion- Held that consideration paid by the assessee for purchase of its own shares in accordance with scheme sanctioned by the Hon’ble High Court of Madras in terms of provisions of Sec.391-393 of the Companies Act, 1956, amounts to distribution of accumulated profits which entails release of all or part of assets of a company on reduction of capital which attracts provisions of Sec.2(22) of the Income Tax Act, 1961. The Ld.CIT(A) has discussed the issue at length in light of plethora of judicial precedents and held the transaction of purchase of own shares by the appellant company is distribution of accumulated profits within the meaning of section 2(22) of the Income Tax Act, 1961. Therefore, we are of the considered view that there is no error in the reasons given by the Ld.CIT(A) to treat the transactions of the assessee as dividend u/s.2(22)(a)/2(22)(d) r.w.s.115-O of the Income Tax Act, 1961, and thus, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss appeal filed by the assessee.
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