Dividend distribution tax under the India-UK treaty cannot be capped by the shareholder dividend article absent express treaty protection.

Dividend distribution tax under section 115-O was treated as an additional income-tax levied on the domestic company, and the treaty rate under Article 11 of the India-UK DTAA was held not to control that domestic levy in the absence of an express treaty extension to distributed profits. The claim that tax paid on dividend distributed to UK-resident shareholders should be limited to the treaty rate, and that excess tax should be refunded, was therefore rejected. The stated principle is that treaty protection for dividend income in the shareholder's hands does not by itself reduce dividend distribution tax payable by the distributing company.

---

---

Issues: Whether dividend distribution tax paid by a domestic company on dividend distributed to non-resident shareholders resident in the United Kingdom could be limited by Article 11 of the India-UK Double Taxation Avoidance Agreement and whether refund of tax paid in excess of the treaty rate was allowable.

Analysis: The dispute turned on the character of dividend distribution tax under section 115-O of the Income-tax Act, 1961 and on whether the treaty protection available to dividend income could be extended to the domestic company paying such tax. The issue had already been decided by the Special Bench in favour of the Revenue, holding that dividend distribution tax is an additional income-tax levied on the domestic company and that, unless the treaty itself specifically extends protection to distributed profits, the treaty rate applicable to dividend in the hands of the shareholder cannot control the domestic levy. No contrary material was brought to disturb that view.

Conclusion: The claim for restricting dividend distribution tax to the India-UK treaty rate and for refund of the alleged excess was rejected, and the assessee's grounds failed.

Ratio Decidendi: In the absence of an express treaty provision extending protection to dividend distribution tax, the tax under section 115-O remains chargeable at the domestic statutory rate on the domestic company and cannot be reduced by the dividend article applicable to the non-resident shareholder.

---