TaxTMI 
TaxTMI 
2024 (12) TMI 855
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....AA. Consequently, the refund of excess tax (DDT) paid by the Appellant be granted. The Appellant craves leave to add, alter, amend modify or withdraw any or all the above grounds of appeal herein above and to submit such statements, documents and papers as may be considered necessary either at or before the being of this appeal as per the law." 3. Briefly stated, the assessee is a domestic company and is engaged in manufacture and sale of three and four wheeler motor vehicles for the transportation of goods and passengers. It is also engaged in the manufacture of two wheeler vehicles by the brand name 'Vespa' as well as sale of spare parts of two wheelers, three wheelers and four wheelers and manufacture of petrol and diesel engines. It e-filed its return of income for AY 2016-17 on 30.11.2016 declaring total income of Rs. 2,44,62,64,850/- which was subsequently revised by filing the revised return on 08.03.2018 declaring total income of Rs. 2,44,75,01,310/-. The case was selected for scrutiny through CASS. Statutory notices u/s 143(2) and 142(1) of the Income Tax Act, 1961 (the "Act") were issued and served upon the assessee. 3.1 A reference was made to the Transfer Pricing Of....
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....,81,10,000 to its shareholders during AY 2016-17. As per Section 115-O of the Act, dividend declared, distributed or paid by an Indian company is subject to tax @ 20.36 percent (grossed up) (referred to as 'Dividend Distribution Tax' or 'DDT') in the hands of the dividend declaring company. Accordingly, the Company paid DDT of INR 21,33,70,540 on the aforesaid dividend. The break-up of the dividend paid to the shareholders and DDT thereon (as duly disclosed in the Schedule DDT of Form ITR-6) is as under : Shareholders Country of Shareholder % of equity share held Dividend paid (INR) DDT paid (INR) Piaggio & C.S.p.A ('P&C') Italy 99.9999 1,04,81,08,952 21,33,70,327 Vespa B.V. Netherlands 0.00001 1,048 213 5.2 As per Article 11 of the India-Italy Tax Treaty ('the Tax Treaty') dividend paid by an Italian tax resident may be taxed in Italy. Further, such dividend may also be taxed in India, according to the domestic tax law of India, but tax so charged shall not exceed 15 percent of the gross dividend (where at least 10% of capital of the Indian company is held by such Italian company). 5.3. Given that P&C holds more than 10% of shares of the Appellant, the tax on ....
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....') was not dealing with the nature of DOT as to whether it is tax on the company or a tax on the shareholder. Thus, the Tata Tea decision does not support the cause of assesses, having regard to the well settled principle that a judicial precedent is only "an authority for what it actually decides and not what may come to follow from some observations which find place therein". [Refer Para 70 of the order of Hon'ble SB). Appellant's rebuttals The Appellant's rebuttals to observation no. 1 are as follows: a. As per Section 3 read with Section 4 of the Act, tax under the Act can be only levied on 'income'. While Section 115-0 of the Act is a notwithstanding section, it cannot create a charge other than on 'income'. b. In the aforesaid decision passed by the Hon'ble SC in case of Tata Tea Co. Ud (supra), the constitutional validity of Section 115-0 of the Act was challenged by the assessee (which was in the business of cultivating and processing tea) before the Hon'ble Calcutta HC. While the Hon'ble HC upheld the constitutional validity of this provision, it held that the additional tax (i.e. the ~OT) could be imposed only on 40% of ....
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.... of the shareholder under S. 115-0 of the Income tax Act, 1961 ('the Act'). [Refer Para 72 of the order of Hon'ble SB]. The observations of the Hon'ble Bombay HC in G&B HC decision regarding the legal characteristics of DOT, that it is tax on a company paying the dividend and "is chargeable to tax on its profits as a distinct taxable entity and that the domestic company paying DOT does not do so on behalf of the shareholder nor does it act as an agent of the shareholder in paying the tax under S. 115-0, cannot be said to have been diluted or overruled by the Hon'ble SC in Godrej & Boyce Mfg. Co. Ltd. (394 ITR 449) ('G&B SC decision'). It can be said that the Hon'ble SC has taken a different basis to reach the same conclusion but without diluting the reasoning of the Hon'ble Bombay HC that DOT is not a tax paid by the domestic company on behalf of the shareholder. [Refer Para 74 of the order of Hon'ble SB]. Appellant's rebuttals The Appellant's rebuttals to observation no. 2 are as follows: a. As discussed at Para (A) above, while Section 115-0 is a notwithstanding section and creates charge of tax in the hands of the company distributin....
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....sions, therefore, limited their observations to the applicability of Section 14A of the Act on dividend income. Also, the G&B HC decision and the G&B SC decision have not laid down any principle contrary to those laid down by the Hon'ble SC in Tata Tea decision and both the decisions operate in different fields. As discussed above, since the Tata Tea decision of Hon'ble SC specifically discusses regarding the characterization and validity of 00 T under Section 115-0 of the Act, the said ruling is a binding in the present context. C. Observation no. 3 of the Hon'ble SB The additional income tax under S. 115-0 of the Act is referred to as "tax on distributed profits" commonly referred to as "Dividend Distribution Tax". It is a tax on "distributed profits" and not a tax on "dividend distributed". Further, the non obstante clause in S. 115-0 "notwithstanding anything contained in this Act but subject to the provisions of S. 115-0" is an indication that the charge under the said section is independent and divorced from the concept of "total income" under the Act. [Refer Para 58 of the order of Hon'ble SB]. Also, the Hon'ble Bombay HC [in case of SIDBI vs.....
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....ssed in detail at Para (B) above, the ruling in G&B HC case itself was not in the context of characterization of DOT under Section 115-0, but was on applicability of Section 14A. Consequentially, the reliance placed by the Hon'ble HC in SIDBI ruling on the ruling in G&B HC decision is inappropriate, especially considering that the Hon'ble SC has taken a principally different view on characterization of DOT in the Tata Tea decision. D. Observation no. 4 of the Hon'ble SB DDT is paid by the domestic company resident in India. It is a tax on its income and not tax paid on behalf of the shareholder. In such circumstances, the domestic company under S. 115-0 does not enter the domain of DTAA at all. [Refer Para 80 of the order of Hon'ble SB]. Appellant's rebuttals a. Section 90(1) of the Act allows the Government of India to enter into a Tax Treaty for avoiding 'double taxation of income' and not for avoiding 'double taxation of non-residents'. Similarly, it refers to, granting of relief in respect of 'income' on which tax is paid in both countries. Further, Section 90(2) of the Act provides that, in relation to the assessee to whom ....
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....he Tax Treaty that limits the applicability of Article 10 to taxes that are levied on the shareholders. g. Having regard to the above, the Appellant submits that the applicability of the Tax Treaty rate to dividends ought not to be excluded on account of the fact that the tax on dividends levied under Indian law is on the domestic company (being a resident in India) rather than the non-resident shareholder. E. Observation no. 5 of the Hon'ble SB If domestic company has to enter the domain of DTAA, the countries should have agreed specifically in the DTAA to that effect, as in case of Treaty between India and Hungary, wherein the Contracting States have extended the Treaty protection to the dividend distribution tax. [Refer Para 81 of the order of Hon'ble SB]. Appellant's rebuttals a. As discussed at Para (0) above, there is no prohibition/ restriction on applicability of tax treaty for a domestic company, specifically in the context of Article 11. b. Further, a specific provision on a subject matter may not always be necessitated when the general provisions are wide enough to cover the same. Thus, though the Protocol to the India-Hungary Tax Treaty specifi....
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.... filed by the appellant. It is seen that I have decided the identical issue of refund of excess taxes paid on the dividend distributed in AY 2015- 16 in appellant's own case also. The relevant findings of the same is extract below for reference: "QUOTE 8.6 Briefly, the appellant company distributed dividend of Rs. 79,50,61,309 to its shareholder during the relevant financial year. The appellant company deducted TDS on this as per section 115-0 of the Act amounting to Rs. 14,55,98,543. The appellant has claimed that instead of Tax deducted @ 16.995% and 19.994% (grossed up), the TDS should have been restricted @ 15% as per Article 11 of the India-Italy DTAA. The appellant has referred to section 90 of the Income Tax Act and stated that it overrides provision of section 115-0. It is seen that section 90 is under Chapter IX of the Income Tax Act which is on double taxation relief This primarily deals with non-resident assesses and section 90(2) states the principle for granting relief of tax for non-resident assesses for avoidance of double taxation. It is not furnished how the dividends have been taxed in both India and Italy for the non-resident parent entity. In the instant....
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....t rather lays down, a treaty provision. No matter how desirable be such provisions in the other tax treaties, these provisions cannot be inferred on the basis of a rather aggressively creative process of interpretation of tax treaties. The tax treaties are agreements between the treaty partner jurisdictions, and agreements are to be interpreted as they exist and not on the basis of what ideally these agreements should have been. (g) A tax treaty protects taxation of income in the hands of residents of the treaty partner jurisdictions in the other treaty partner jurisdiction. Therefore, in order to seek treaty protection of an income in India under the Indo French tax treaty, the person seeking such treaty protection has to be a resident of France. The expression 'resident' is defined, under article 4(1) of the Indo French tax treaty, as "any person who, under the laws of that Contracting State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature". Obviously, the company incorporated in India, i. e. the assessee before us, cannot seek treaty protection in India- except for the purpose of, in deservin....
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....sovereign's prerogative to extend the treaty protection to domestic companies paying dividend distribution tax through the mechanism of DTAAs. 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. Thus, the question before the Special Bench is answered, accordingly. UNQUOTE" In view of the above, I reject the claim of the appellant for refund of excess DDT. Accordingly, this ground of appeal is dismissed." 5. Aggrieved, the assessee is in appeal before the Tribunal and the solitary ground raised by the assessee relates thereto. 6. The Ld. AR brought to our notice that the impugned issue relating to the refund of excess DDT paid by the assessee company stands covered by the decision of Special Bench of Mumbai Tribunal in the case of Total Oil India (P.) Ltd. (supra). However, he reiterated the contentions raised by the assessee before the Ld. CIT(A) specially in rebuttal to the decision of the Special Bench of Mumbai Tribunal (supra) in support of its claim before us. The Ld. DR relied upon the order of Ld. ....
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....ection (1) shall be payable by such company. (2) The principal officer of the domestic company and the company shall be liable to pay the tax on distributed profits to the credit of the Central Government within fourteen days from the date of- (a) declaration of any dividend; or (b) distribution of any dividend; or (c) payment of any dividend, whichever is earliest. (3) The tax on distributed profits so paid by the company shall be treated as the final payment of tax in respect of the amount declared, distributed or paid as dividends and no further credit therefor shall be claimed by the company or by any other person in respect of the amount of tax so paid. (4) No deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the amount which has been charged to tax under sub-section (1) or the tax thereon." 58. A plain reading of the provisions of Sec.115O shows that it creates a charge to additional income tax on any amount declared, distributed or paid by domestic company by way of dividend for any assessment year. The tax so charged is "in addition to the income-tax chargeable in respect of the total income of a d....
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....er section 2(24)(ii) dividend is included in 'income' and is thus covered by Entry 82 of List I to Seventh Schedule, "taxes on income, other than agricultural income". The argument on behalf of the assessee was that in "pith and substance" DDT was a tax on Agricultural income, which was rejected by the Hon'ble Supreme Court. The law is well settled that a judicial precedent is only "an authority for what it actually decides and not what may come to follow from some observations which find place therein". The Hon'ble Supreme Court was not dealing with the nature of DDT as to whether it is tax on the company or a tax on the shareholder. Thus, in our considered view the decision rendered in the case of Tata Tea Co. Ltd. (supra) does not support the cause of assesses. 72. On appeal against the decision of the Hon'ble Bombay High Court, the Hon'ble Supreme Court, in the judgment reported as Godrej & Boyce Mfg Co Ltd Vs DCIT (supra), has observed that "the fact that section 10(33) and section 115 O of the Act were brought in together; deleted and reintroduced in a composite manner, also, does not assist the assessee" and that "if the argument is that tax paid by the dividend paying com....
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....f the Act would operate to disallow deduction of all expenditure incurred in earning the dividend income under Section 115-O which is not includible in the total income of the assessee. 31. So far as the provisions of Section 115-O of the Act are concerned, even if it is assumed that the additional income tax under the aforesaid provision is on the dividend and not on the distributed profits of the dividend paying company, no material difference to the applicability of Section 14A would arise. Sub-sections (4) and (5) of Section 115-O of the Act makes it very clear that the further benefit of such payments cannot be claimed either by the dividend paying company or by the recipient assessee. The provisions of Sections 194, 195, 196C and 199 of the Act, quoted above, would further fortify the fact that the dividend income under Section 115-O of the Act is a special category of income which has been treated differently by the Act making the same non-includible in the total income of the recipient assessee as tax thereon had already been paid by the dividend distributing company. The other species of dividend income which attracts levy of income tax at the hands of the recipient asse....
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....tion that remains undisturbed is the conclusion that "DDT is not a payment on behalf of the shareholder" by the domestic company. The observations of the Hon'ble Bombay High Court regarding the legal characteristics of DDT that it is tax on a company paying the dividend and "is chargeable to tax on its profits as a distinct taxable entity and that the domestic company paying DDT does not do so on behalf of the shareholder nor does it act as an agent of the shareholder in paying the tax under Section 115-O, cannot therefore be said to have been diluted or overruled by the Hon'ble Supreme Court. It can be said that the Hon'ble Supreme Court has taken a different basis to reach the same conclusion but without diluting the reasoning of the Hon'ble Bombay High Court that DDT is not a tax paid by the domestic company on behalf of the shareholder. The additional reasoning in the Hon'ble Bombay High Court's judgment is the conclusion that it is a tax on domestic company on its profits/amount payable on declaration, distribution or payment, as the case may be, of amount as dividend out of accumulated profits. Therefore the argument that DDT is paid on behalf of the shareholder and has to be....
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.... Boyce Mfg. Co. Ltd. (supra) and contended that the court in Godrej and Boyce case (supra) held that the charge under sub-section (1) of Section 115-O of the said Act is on the profits of the domestic company and more specifically on that part of the profits which is declared and distributed by way of dividend. Therefore, it was submitted that the Bank was entitled to refund of the tax amount paid under protest by it. The Court after discussing the effect of the non-obstante clause in Sec.50 of SIDBI Act, and holding that those provisions will override Sec.115O of the Act, further went on to hold that dividend is distributed from and out of the accumulated profits and therefore would fall within the ambit of the expression "income, profits or gains accruing or arising to the Small Industries Development Assistance and or any amount received in that fund, and be any income profits or gains derived or any amount received by the Small Industries Bank". The following were the relevant observations by the Hon'ble High Court: "14. Dividend is defined in Section 2(22) of the IT Act to, inter alia, include any distribution by a company of accumulated profits, which entails releasing any ....
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....nce of tax in the form of DDT is on the domestic company but in effect it is a tax paid on behalf of the shareholder and it is income of the shareholder that is sought to be taxed albeit in the hands of the domestic company. In this regard, the proposition advanced by the learned DR was that in fundamental concept of income-tax there is nothing which prevents imposition of immediate and apparent incidence of tax on a person other than person whose income is to be assessed, i.e., the legislature has power to enact provisions imposing tax liability on domestic company on income of shareholder (even if it is construed as income of shareholder without conceding that it was tax on income of the domestic company). In this regard he relied on decision of Hon'ble Madras High Court in the case of B.M. Amin Umma Vs. ITO 26 ITR 137 (Mad). In the aforesaid case the constitutional validity of the provisions of Section 16(3)(a)(ii), of Income Tax Act, 1922 (equivalent to Sec.64 of the Act), was challenged. The said provision provided for inclusion of the income of wife or minor child of an individual in the income of the individual. It was challenged on the ground that it was beyond the legislat....
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....hile there can be substantial variations between one tax treaty and another, double tax treaties generally follow a relatively uniform structure, which can be viewed as a list of provisions performing separate and distinct functions: (i) Articles dealing with the scope and application of the tax treaty, (ii) Articles addressing the conflict of taxing jurisdiction, (iii) Articles providing for double taxation relief, (iv) Articles concerned with the prevention of tax avoidance and fiscal evasion, and (v) Articles addressing miscellaneous matters (e.g. dministrative assistance). Articles 23A and 23B of the OECD model convention give methods to eliminate double taxation. 80. A reading of Article 10 of the model OECD DTAA shows that Dividends paid by a company which is a resident of a Contracting State, say India to a resident of the other Contracting State (say France) may be taxed in that other State (France). However, if the beneficial owner of the Dividend is a resident in France, the tax so charged shall not exceed specified percent. The first condition is that the non-resident in France should be taxed in India. We have to look at the DTAA from the recipients taxability perspec....
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....sidents of the treaty partner jurisdictions in the other treaty partner jurisdiction. Therefore, in order to seek treaty protection of an income in India under the Indo French tax treaty, the person seeking such treaty protection has to be a resident of France. The expression 'resident' is defined, under article 4(1) of the Indo French tax treaty, as "any person who, under the laws of that Contracting State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature". Obviously, the company incorporated in India, i.e. the assessee before us, cannot seek treaty protection in India- except for the purpose of, in deserving cases, where the cases are covered by the nationality non-discrimination under article 26(1), deductibility non-discrimination under article 26(4), and ownership non-discrimination under article 24(5) as, for example, article 26(5) specifically extends the scope of tax treaty protection to the "enterprises of one of the Contracting States, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State". The same is....