Chennai, Mar 28: The Income Tax department has frozen accounts of IT major Cognizant Technology Solutions India Private Limited for not paying whopping Rs 2,500 crore as dividend distribution tax (DDT).

DDT has to be paid on profits that are defined as dividends. The company had not paid the tax in the financial year 2016-2017, reports said. The I-T department said Cognizant earned dividends by way of buyback– which is purchasing its own shares from shareholders in May 2016. The shareholders were a Mauritius-based company and an American company, which held 54 per cent and 46 per cent shares respectively. The company only deducted 10 per cent as tax on the remittances to the US company.

Meanwhile, Cognizant said it paid all applicable taxes related to its buyback transaction in 2016 and the Indian Income Tax Department’s (ITD) position is “contrary to law and without merit”.

The tech giant’s comments follow ITD’s freezing its certain bank accounts in the country over a dispute on payment of dividend distribution tax (DDT) running into hundreds of crores.

Cognizant said it will “continue to vigorously defend itself and will pursue all available legal remedies”.

In an e-mailed statement, a Cognizant spokesperson said the company’s business operations and its work with clients were “not impacted by actions recently attempted by the Income Tax Department”.

The spokesperson said the Chennai High Court heard the matter yesterday and has instructed the ITD not to take further action pending hearings.

“The company believes that the positions taken by the Indian Income Tax Department are contrary to law and without merit. Cognizant has paid all applicable taxes due on the transaction at issue,” the statement added.

(with agency inputs)