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Tax Publishers
Buyback or Dividend distribution arising out of an
amalgamation under section 391 to 393 of Companies Act, 1956
Facts:
Arising out of a court approved amalgamation 3 group
companies were merged. Assessee was amalgamated with Cognizant India Pvt. Ltd.
(CIPL) and MarketRx India Pvt. Ltd. (MIPL). CIPL was a wholly owned subsidiary
of Cognizant Mauritius Ltd. and MIPL was a wholly owned subsidiary of MarketRx
Inc. USA. Both these entities were wholly owned subsidiaries of Cognizant
Technology Solutions Corporation, USA. As fall out of the amalgamation assessee
purchased 94,00,354 own equity shares of face value Rs. 10 each for a price of
Rs. 20,297 each aggregating to 19,080.26 crores. There were adequate reserves
standing in the books of the assessee and it was noticed that they did not pay
any dividend. The buyback was done in a disproportionate manner though all
shareholders were part of the buyback process. It was also noticed that the
share swap ratios were not based on the valuation of the entities but on 1:1
basis. This eventually made Cognizant Mauritius Ltd. as becoming the immediate
parent entity as an end outcome of the amalgamation/buyback process. Revenue
alleged that this was not a buy back but a dividend distribution taxable under
section 2(22(d) entailing capital reduction and distribution of accumulated
profits and the buy back via amalgamation process itself was a cloak to defraud
revenue. Assessee's plea was that this was buyback and the capital gains of the
respective shareholding entities were duly discharged except for the Mauritian
entity where vide DTAA the capital gains was exempt from tax in India. On
appeal by the assessee after going through writs/SLP's and court verdicts -
Held against the assessee that the buyback was indeed a
dividend distribution taxable under section 2(22)(d) and since assessee did not
discharge the dividend distribution tax obligations they were held to be in
default.
Ed. Note: The
decision is epochal for the topical reading and its fine contents.
Case: Cognizant Technology
Solutions India (P) Ltd. v. Asstt. CIT 2023 TaxPub(DT) 5805 (Chny-Trib)
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