Treaty rate for dividend tax prevails over domestic DDT where the India-Switzerland DTAA gives a lower rate.

Dividend Distribution Tax on dividends paid to Swiss resident shareholders was treated as covered by the India-Switzerland DTAA, because section 90(2) gives treaty benefit over the domestic rate under section 115-O. The Tribunal followed the jurisdictional High Court's view that the treaty rate for dividends cannot be ignored merely because the levy is collected from the dividend-paying company. It also recorded that the beneficial ownership objection was not a live issue before the lower authorities. DDT was therefore limited to 10% under Article 10(2), and tax paid in excess of that rate was refundable.

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Issues: Whether Dividend Distribution Tax on dividends paid to Swiss resident shareholders was chargeable at the domestic rate under section 115-O of the Income-tax Act, 1961, or at the beneficial rate prescribed under Article 10 of the India-Switzerland DTAA.

Analysis: The dispute turned on the effect of section 90(2) of the Income-tax Act, 1961, vis-a -vis section 115-O. The Tribunal followed the jurisdictional High Court's ruling that DDT is covered by the treaty and that the rate applicable to dividend under the relevant DTAA cannot be ignored merely because the levy is collected from the dividend-paying company. The Tribunal also noted that the beneficial ownership objection was not raised as a live dispute before the lower authorities.

Conclusion: The Tribunal held that DDT could not exceed 10% under Article 10(2) of the India-Switzerland DTAA and directed refund of tax paid in excess of that rate.

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