Cognizant Saga – Dilemma between dividend and capital gains

Virtual Webinar

18 September 2023 | 3:00 PM – 4:00 PM

An investor in the shares of a company can expect returns on his investments, either in the form of dividend (flowing from the company), or in the form of capital gains (flowing from the buyer).  The source of both the incomes are the shares held by the investor.  There is however a drastic distinction in the manner of taxation and rate of taxation of both these sources of income. 

Dividend can have numerous characters.  To ensure tax efficiency, the Legislature deemed any sum flowing from a company to the investor as dividend.  The fiction is based on the presumption that the only source of income that can flow to the shareholder from the company is dividend.  A difficult legal issue arises if on peculiar facts, the underlying presumption becomes invalid.  

When the shares of the company are bought back by the company itself, the consideration therefor flows from the company to the shareholder. Would the income be in the nature of dividend (because it flowed to the shareholder from the company) or would it be in the nature of capital gains (because it arose from the transfer of shares), more particularly when the shares are bought back under a scheme of arrangement approved by the High Court. This issue was recently a subject matter of dispute before the Income-tax Appellate Tribunal in Cognizant Technology  Solutions India Pvt. Ltd. v. Asst CIT [ITA No.269/Chny/2022].

This decision lays many important taxing principles, more particularly on transactions that are implemented to avoid payment of additional tax. 

Lakshmikumaran & Sridharan Attorneys is organizing a webinar on 18 September 2023 (Monday) between 3:00 PM to 4:00 PM, for an in-depth understanding of the principles laid down by the judgment. The webinar would cover:

  • Principles on taxation of returns from investments in shares (dividend v. capital gains)
  • Developments in Companies Act, to facilitate ease of capital reduction
  • Legislative amendments made in IT Act to overcome tax avoidance on return on investment to shareholders
  • Facts surrounding the recent judgment of the Tribunal in Congnizant India
  • Principles laid down by the Tribunal in the judgment
  • Effect of the judgment on past and future capital reductions
  • Availability of protection under DTAA
  • Effect of the judgment on other transactions


  • S Vasudevan – Executive Partner, LKS
  • Bharathi K Prasad – Associate Director, LKS
  • Dinesh Kukreja – Principal Associate, LKS