Dividend distribution tax is a separate domestic levy and cannot be reduced by treaty rate without express protection.

Dividend distribution tax under section 115-O is a separate levy on the domestic company on distributed profits, not a tax paid on behalf of the shareholder. Applying the Special Bench view in Total Oil India (P.) Ltd., the Tribunal held that Article 11 of the India-Italy treaty could not be used to reduce the statutory DDT rate unless the treaty expressly extended its protection to that levy. The assessee therefore was not entitled to restrict DDT to the treaty rate or to obtain a refund of the excess tax.

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Issues: Whether the dividend distribution tax paid under section 115-O of the Income-tax Act, 1961 could be restricted to the treaty rate under Article 11 of the India-Italy Double Taxation Avoidance Agreement and refunded to the assessee.

Analysis: The assessee sought refund of the excess dividend distribution tax on the footing that the levy was a tax on dividend income and therefore had to yield to the beneficial rate under the India-Italy treaty. The Tribunal followed the Special Bench decision in Total Oil India (P.) Ltd., which held that section 115-O creates a distinct levy on the domestic company as tax on distributed profits, that the levy is not a tax paid on behalf of the shareholder, and that the treaty provision governing dividends does not apply unless the treaty itself specifically extends its protection to dividend distribution tax. The Tribunal therefore accepted the view that the domestic company paying dividend distribution tax does not enter the domain of the treaty merely because the dividend is paid to a non-resident shareholder.

Conclusion: The assessee was not entitled to restrict dividend distribution tax to the India-Italy treaty rate or to claim refund of the excess tax.

Ratio Decidendi: Dividend distribution tax under section 115-O is a separate levy on the domestic company on distributed profits, and in the absence of an express treaty provision extending treaty protection to such levy, Article 11 of the dividend treaty cannot be invoked to reduce the statutory rate.

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