2025 (7) TMI 1854 - AT - Income Tax

ITAT Rules Dividend Distribution Tax Under Section 115O Applies Only to Domestic Company Income, Not Non-Resident Shareholders

The ITAT Kolkata upheld that the dividend distribution tax (DDT) under section 115O is a tax on the domestic company's income, not on the non-resident ... Tax liability of a domestic company on the dividend distributed to its non-resident shareholders u/s 115O - HELD THAT:- We note that the CIT (A) has followed the case of Total Oil India Pvt. Ltd [2023 (4) TMI 988 - ITAT MUMBAI (SB)] wherein it has been held that the dividend distribution tax is a tax on the income of the company and not on the shareholder and therefore, there is no double taxation of the same. As held by the Special Bench that the domestic company u/s 115O does not enter the domain of Double Taxation Avoidance Agreement (DTAA) at all and the DTAA does not get attracted at all when a domestic company pays DTT under section 115-O of the Act. Decided against assessee. The Appellate Tribunal (ITAT Kolkata) dismissed the assessee's appeals against the Commissioner of Income-tax (Appeals) order for AYs 2017-18 and 2018-19 concerning the applicability of Double Taxation Avoidance Agreement (DTAA) rates on Dividend Distribution Tax (DDT) under section 115-O of the Income Tax Act. The key issue was whether a domestic company's tax liability on dividends paid to non-resident shareholders should be governed by the DTAA rate if more beneficial than the rate under section 115-O. The assessee, a joint venture company, paid DDT at 20.3576% on dividends including those to a Malaysian resident shareholder, claiming entitlement to the DTAA rate of 5% and sought refund of excess DDT paid. The Assessing Officer rejected the claim without adjudication, and the CIT(A) upheld the rejection relying on the Special Bench decision in DCIT vs. Total Oil India Pvt. Ltd. (2023) 104 ITR (Trib) 1, which held that DDT under section 115-O is a tax on the company's income, not on the shareholder, and thus the DTAA does not apply to DDT liability. The ITAT affirmed that 'the domestic company u/s 115O does not enter the domain of Double Taxation Avoidance Agreement (DTAA) at all,' and there is no double taxation involved. Consequently, the tribunal found no infirmity in the CIT(A)'s order and dismissed the appeals.