In Brief
Cognizant Technology Solutions, a software company, carried out a share buyback through a court-sanctioned scheme of arrangement for approximately Rs. 19,080 crores in May 2016. The Income Tax Department subsequently demanded tax at 15% under Section 115-O, treating the buyback as a dividend distribution. Cognizant challenged the demand in the High Court. The Supreme Court, rather than deciding whether the buyback was taxable as a dividend, modified the High Court's order to treat the Department's demand letter as a show cause notice. The Court directed the tax authority to afford Cognizant a fair hearing and decide the merits independently within two months, without being influenced by either court's interim observations.
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