Claim raised before appeal accepted, but dividend distribution tax under Section 115O on non-resident dividends upheld

The ITAT Delhi admitted a claim not made in the original return but raised before the appellate authorities, deeming it valid. However, relying on precedent from ITAT Mumbai (SB), the tribunal upheld the levy of dividend distribution tax under section 115O on dividends declared and paid to a non-resident. Consequently, the assessee's appeal was dismissed.

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ISSUES:

Whether the additional ground to restrict the levy of Dividend Distribution Tax (DDT) on dividend declared and paid to non-resident shareholders in accordance with the relevant Double Tax Avoidance Agreement (DTAA) can be admitted when not raised in the original return of income.Whether the levy of Dividend Distribution Tax under section 115-O of the Income Tax Act, 1961 applies to dividends declared and paid to non-resident shareholders despite provisions of the DTAA.Whether provision written back (amounting to INR 25.79 lakhs) should be treated as operating or non-operating for the purpose of computing the Profit Level Indicator (PLI) in transfer pricing assessment.Whether certain comparables (Karvy Data Management Services Ltd. and ACE BPO Services Pvt Ltd.) should have been included for transfer pricing analysis based on similarity of business and satisfaction of filters.Whether certain companies (Infosys Ltd., Mindtree Ltd., and Wipro Ltd.) should have been excluded from comparables due to differences in functions performed, assets employed, and risks assumed.

RULINGS / HOLDINGS:

The Tribunal admitted the additional ground despite it not being raised in the original return, recognizing it as a "valid claim," but rejected it on merits following the Special Bench decision that upheld the levy of DDT under section 115-O irrespective of DTAA provisions.The Tribunal held that "Section 9, read with section 115-O, of the Income-tax Act, 1961... read with article 10 of DTAA" confirms that DDT is a "charge to tax on profits of company and not a charge in hands of shareholder," and therefore, DTAA protections do not apply to the levy of DDT by the domestic company.The grounds relating to treatment of provision written back as non-operating and inclusion/exclusion of comparables were not pressed by the appellant and consequently dismissed.

RATIONALE:

The Tribunal relied on the Special Bench ruling which interpreted section 115-O as imposing a tax on the company's profits distributed as dividends, independent of the shareholder's tax liability or treaty benefits, thus precluding DTAA applicability to the levy of DDT.The legal framework applied includes sections 9 and 115-O of the Income Tax Act, 1961, and article 10 of the relevant DTAA, with the authoritative interpretation provided by the Special Bench of the Tribunal.The Tribunal exercised discretion to admit the additional ground for the first time on appeal, emphasizing the validity of the claim despite procedural non-compliance, but ultimately rejected it based on binding precedent.No unique doctrinal shift or dissenting opinion was recorded; the decision aligns with established precedent affirming the character of DDT as a corporate tax charge.

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