2025 (9) TMI 650 - AT - Income Tax

Article 11 DTAA cannot reduce dividend distribution tax; section 115-O tax must be levied at statutory rate

Kalyani Maxion Wheels Private Limited Versus DCIT, Circle 8, Pune

ITAT PUNE - AT affirmed that the taxpayer cannot claim Article 11 DTAA relief to reduce dividend distribution tax; the additional tax under section 115-O ... Refund of excess taxes paid on dividend distributed -CIT(A) not granting the benefit of Article 11 of the India-Germany Double Taxation Avoidance Agreement ('DTAA’) in determining the dividend distribution tax (‘DDT’) payable HELD THAT:- Issue stands decided against the assessee by the decision of Total Oil India (P.) Ltd. [2023 (4) TMI 988 - ITAT MUMBAI (SB)] wherein it has been held that where dividend is declared, distributed or paid by a domestic company to a non-resident shareholder(s), which attracts Additional Income-tax (Tax on Distributed Profits) referred to in section 115-O, such additional income tax payable by the domestic company shall be at the rate mentioned in section 115-O and not at the rate of tax applicable to the non-resident shareholder(s) as specified in the relevant DTAA with reference to such dividend income. Thus, wherever the Contracting States to a tax treaty intend to extend the treaty protection to the domestic company paying dividend distribution tax, only then, the domestic company can claim benefit of the DTAA, if any. Decided against assessee. Four consolidated appeals challenge the CIT(A)'s denial of relief under Article 11 of the India-Germany DTAA for excess tax paid as dividend distribution tax (DDT) under section 115-O. The assessee argued DTAA rates should govern tax on dividends paid to a non-resident shareholder. Reliance was placed on the Special Bench decision in DCIT v. Total Oil India (P.) Ltd. (2023) 104 ITR (T) 1 (Mumbai-Trib.), which the bench treated as binding authority. The tribunal applied the Special Bench holding that 'where dividend is declared, distributed or paid by a domestic company to a non-resident shareholder(s), which attracts Additional Income-tax (Tax on Distributed Profits) referred to in section 115-O, such additional income tax payable by the domestic company shall be at the rate mentioned in section 115-O and not at the rate of tax applicable to the non-resident shareholder(s) as specified in the relevant DTAA with reference to such dividend income.' No objection was raised by the Department; the appeals were dismissed.