Dividend Distribution Tax under treaty relief fails where the DTAA does not expressly extend protection to the company's DDT liability.

Dividend Distribution Tax was treated as a tax on the domestic company's distributed profits, not as a tax paid on behalf of shareholders. On that basis, the dividend article in the India-UK DTAA did not apply to reduce the tax unless the treaty expressly extended protection to DDT. As no such extension was shown, the assessee could not apply the concessional treaty rate under Article 11 or claim refund of the excess tax; the claim was rejected.

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Issues: Whether the assessee was entitled to refund of Dividend Distribution Tax by applying the concessional rate under Article 11 of the India-UK DTAA instead of the rate under section 115-O of the Income-tax Act, 1961.

Analysis: The issue was governed by the Special Bench view that Dividend Distribution Tax is a tax on the domestic company's distributed profits and not a tax paid on behalf of the shareholder. On that reasoning, the treaty provision dealing with dividends does not get triggered in the case of the company paying DDT, unless the relevant treaty expressly extends such protection. The record did not show any such extension in the India-UK DTAA, and the Tribunal followed the binding Special Bench decision until displaced by a higher forum.

Conclusion: The assessee was not entitled to restrict DDT to the DTAA rate or to claim refund of the excess tax. The issue was decided against the assessee.

Ratio Decidendi: Where dividend distribution tax is levied on the domestic company's distributed profits and the applicable tax treaty does not specifically extend treaty protection to such tax, the treaty rate on dividends cannot be invoked to reduce the DDT payable by the company.

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