AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (10) TMI 395
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....lty under section 271(1)(c) (Ground 17) Applicability of transfer pricing provisions to companies covered under the Tonnage Tax Scheme (Grounds 2 - 11) 3. The assessee is a company incorporated on 05/11/1997 and is a wholly owned subsidiary of Van Oord Dredging and Marine Contractors BV, a company registered in Netherlands. The assessee over the years has become a main contractor directly entering into contracts with Government and port authorities in India. The assessee also owns certain equipment which it uses for undertaking specified dredging activities. The assessee is registered as a Tonnage Tax Company under the Tonnage Tax Scheme (TTS) as provided under Chapter XXIIHG of the Act. As per the provisions of TTS, income derived from porting qualified ships would be treated as shipping income and would be taxable as per the computation mechanism provided therein. The assessee filed the return of income for A.Y. 2009-10 on 30/09/2010 declaring total income at Rs. 10,92,11,700/-. Subsequently, the assessee filed a revised return on 30/03/2011 declaring a total income of Rs. 10,97,33,32/-. The case was selected for scrutiny under CASS and the statutory notices were duly serve....
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....ffice expenses (Grounds 12-16) 7. The TPO, for the purpose of making the transfer pricing adjustment, has added a sum of Rs. 10,60,78,531/- being 50% of the expenses allocated to the assessee for the cost incurred centrally at head office towards rendering various services. The TPO made the adjustment for the reason that the assessee failed to provide details services rendered, breakup of cost allocated etc., and therefore made the adhoc addition. The DRP confirmed the disallowance made by the TPO 8. The Ld.AR submitted that the head office expenses are allocated based on the revenue generation from qualifying activity and other activities. The Ld.AR further submitted that the qualifying activities under TTS is outside the provisions of TP and, therefore, the head office expenses incurred towards qualifying activity cannot be a subject matter of any adjustment. Therefore, the Ld.AR made a without prejudice submission that if at all there is a disallowance, it has to be restricted to what is attributable to other activities i.e. non-tonnage/non-qualifying activities. The Ld.AR drew our attention to page 40 of the paper book where the working with regard to the head office expe....
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.... conceded that the adhoc addition made towards 50% of expenses pertaining to non-qualifying activities is not contended. Therefore respectfully following the above decision of the coordinate bench we direct the assessing officer / TPO to delete the adjustment made towards the qualifying activities under TTS only. Initiation o penalty under section 271(1)(c) (Ground 17) 11. Issue with regard to initiation of penalty under section 271(1)(c) is premature at this stage hence dismissed. Rate applicable for Dividend Distribution Tax (DDT) - Additional Ground 12. The assessee also has raised additional ground, which reads as under:- "The Appellant prays that the Dividend Distribution Tax ("DDT") paid under section 115-O of the Income-tax Act, 1961 ("the Act") on dividends declared and paid by the Appellant to its parent foreign shareholder Van Oord Dredging & Marine Contractors bv, who is a tax resident of Netherlands, is in excess of the rate provided under Article 10 read with the Most Favoured Nation clause under Article IV of the Protocol to the Double Taxation Avoidance Agreement between India and Netherlands." 13. In support of the admission of this additiona....
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....tion to the relevant observations of the Hon'ble Tribunal in Para 81 to 83 of the order and submitted that if the ratio laid down by the Hon'ble Tribunal therein is applied in assessee's case then the DDT rate as per the Treaty should be applied and excess DDT paid as per rate mentioned under section 115-O should be refunded. 15. The ld DR on the other hand vehemently argued that the excess DDT cannot be refunded to the assessee for the reason that section 237 of the Act which contains provisions with regard to refund should be read with section 2(43) in which the term "tax" is defined. The ld DR submitted that tax would include only the income tax and DDT cannot be considered as income tax. Therefore the excess DDT cannot be claimed as refund under section 237 which only income tax shall be refunded. 16. The ld AR as a counter argument submitted that DDT is a tax on the income of the assessee and is a tax paid in addition to the regular income tax. The ld AR therefore submitted that DDT is very much covered by the definition of tax under section 2(43) and accordingly can be refunded under section 237. 17. We heard the parties and perused the material on record....
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....re paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State. Protocol IV. Ad Articles 10, 11 and 12 1. *** 2. If after the signature of this convention under any Convention or Agreement between India and a third State which is a member of the OECD India should limit its taxation at source on dividends, interests, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, then as from the date on which the relevant Indian Convention or Agreement enters into force the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention. India and Hungary Protocol With reference to Article 10 When the company paying the dividends....
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....ifies that the distributed profits will be taxable in the hands of the shareholders who are residents of Hungary/Netherlands at the rate of 10% which otherwise be subject to tax in accordance with Article 10 of the Treaty. If the tax laws of recipient shareholder country so provides, they can take the benefit of tax credit. The argument of the ld AR is that the Tribunal in the case of Total Oil India (P.) Ltd (supra) has laid down the ratio that as per the India Hungary DTAA the treaty protection is extended to domestic companies. However we are unable to agree with this contention of the ld AR, on perusal of the order it is not coming out that the Special Bench has held that as per the India Hungary DTAA the domestic companies are covered under the Treaty. In conclusion the Special Bench has observed that - Conclusion: 83. For the reasons give above, we hold 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 sec.115-O of the Act, such additional income tax payable by the domestic company shall be at the rate mentioned in secti....