TaxTMI 
TaxTMI 
2025 (6) TMI 1316
X X X X Extracts X X X X
X X X X Extracts X X X X
....e International Finance Corporation ('IFC') which is not subjected to tax on account of immunity granted under section 9 of Article VI of the International Finance Corporation (Status, Immunities and Privileges) Act, 1958 ('IFC Act, 1958'); 2. erred in not appreciating the fact that the DDT under section 115-0 of the Act, is a tax on the dividend Income earned by the shareholder and therefore, the same is not applicable to IFC since its entire income is immune from taxation in India, 3. erred in holding that DDT has to be borne by the company and has no relation with the status of the shareholding without appreciating the facts of the case and law in force; 4. erred in not appreciating that the IFC Act, 1958, has been notified in "the Gazette of India" by the Government of India pursuant to the International Finance Corporation Agreement and the same ought to have been honoured while levying the tax on transactions entered by IFC 5. erred in disregarding the fact that the IFC Act, 1958, provides blanket immunity from levy of any tax in India on the assets, property, income, operations and transactions pertaining to the IFC and the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, operations and transactions. Relevant provisions are reproduced as under: "3. (1) Notwithstanding anything to the contrary contained in any other law, the provisions of the Agreement set out in the Schedule shall have the force of law in India: SECTION 9. Immunities from Taxation (a). The Corporation, its assets, property, Income and its operations and transactions authorized by this Agreement, shall be immune from all taxation and from all custom duties. The Corporation shall also be immune from liability for the collection or payment of any tax or duty...... Ergo, by virtue of the IFC Act, 1958, IFC has immunity from, all taxation, on its assets, property, Income and its operations and transactions. 7. During the A.Y.2018-19, assessee had declared dividend of Rs. 1 per equity share on 03/07/2018 and deposited dividend distribution tax on such dividend as per the provisions of Section 115O @20.36%. The details of dividend and DDT details for the A.Y. 2018-19 are as under:- Particulars FY 2017-18 Total IFC No of Shares 14,12,05,838 2,11,76,446 Shareholding (%) 100.00% 15.00% Dividend per share 1 1 Divi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ze the tax status/exempt status of each shareholder and accordingly pay DDT However, the intent of the Act is clear and therefore even in ITR there is no differentiation made between shareholders based on their tax status/exempt status under Schedule DDT in ITR-VI. The chargeability of tax u/s 115-O in the hands of the assessee is exclusive of the taxability of such income in the hands of recipient In view of the above, I am not satisfied with the contention of the assessee company and therefore I reject the application under section 237 of the IT Act, 1961." 11. Before ld. CIT (A) assessee made detailed submissions which has been dealt and incorporated in the impugned order. Ld. CIT (A) too has rejected assessee's contention relying upon the decision of ITAT Special Bench in the case of Total Oil India Pvt. Ltd., reported in (2023) 149 taxmann.com 332, the relevant observation of the ld. CIT(A) referring to the decision of the Special Bench are as under:- 5.9. The Hon'ble Mumbai ITAT Special Bench in the case of Total Oil India P Ltd dated 20.04.2023 [2023] 149 taxmann.com 332 (Mumbai Trib.) (SB) held that dividend distributed by a domestic company to a no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion is on the company, no such arguments can be canvassed. If the appellant's arguments were to be accepted, then it would lead to absurd situations wherein DDT liability will keep on changing depending on the shareholders, which is clearly not what is laid down in the provisions of the Act. 5.11. To understand better, let's visualize two scenarios where a company has declared dividend of Rs. 1,000. Particulars Scenario 1 Scenario 2 Gross Dividend paid Rs.1,000 DDT rate 15% DDT amount Rs. 150 Shares held by IFC Nil 20% of capital DDT as per assessee Rs.150 Rs. 120 In the scenario 2 referred above, several questions arise: Where is the provision in Act which states that taxation of the company changes with shareholding pattern? What will the company do with the savings of Rs. 307 Will it pass this on to IFC separately as additional dividend to only one shareholder in contravention of Companies Act? Whether the immunity granted to IFC in respect of its tax liability can be subverted to enrich the appellant by Rs 30 and reduce its tax liability? The answer in my view, is a categorical NO 5.12. Let me take ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of sub-section (1A) of section 115O. His contention was based on the proposition that if the statute has stipulated that amount of dividend paid to any person for or on behalf of the new pension system trust referred to any Section 10(44) is to be reduced, then similar exemption of income which is also enjoyed by IFC by virtue of a separate statute should also be reduced. Accordingly, claim of the assessee should be allowed. 14. On the other hand, ld. DR submitted that, now whence the Hon'ble Special Bench of ITAT, Mumbai has held that charge u/s. 115O is on the company's profits and not income in the hands of the shareholder then, where is the question of any refund. He submitted that Section 115O stipulates additional tax on the company if any amount is declared, distributed or paid by such company by way of dividend, then whether the income is taxable in the hands of the shareholder or shareholders income is exempt is not material or relevant. What is taxed is additional tax on profits of the company at the time of distribution of dividend and it is not tax in the hands of the shareholders. Thus, this issue is squarely covered by the decision of the Hon'ble Special Bench in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion (1) shall be reduced by,- (i) the amount of dividend, if any, received by the domestic company during the financial year, if such dividend is received from its subsidiary and,- (a) where such subsidiary is a domestic company, the subsidiary has paid the tax which is payable under this section on such dividend; or (b) where such subsidiary is a foreign company, the tax is payable by the domestic company under section 115BBD on such dividend: Provided that the same amount of dividend shall not be taken into account for reduction more than once; (ii) the amount of dividend, if any, paid to any person for, or on behalf of, the New Pension System Trust referred to in clause (44) of section 10. 18. The rationale for exemption of dividend paid to pension trust from applicability of u/s. 115O of the Act has been given in the Explanatory Memorandum in the Finance (No.2) Act, 2009 was explained in the following manner:- "The National Pension System (NPS) was initially introduced for Central Government service from 1 January, 2004. Since then, it has been opened up for employees of State Governments, the private sector, and the self-employe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der the Act due to the over-arching reach of the RBI Act. 21. Similarly, exemption to income of the Securities and Exchange Board of India, International Monetary Fund, United Nations (including its affiliated organizations) and the World Bank Group (of which IFC is a part) as well as exemption of tax on salaries paid to foreign national employees of such employees. 22. Similar provisions have been made in SEBI, IMF, UN (including its affiliated organizations) and the World Bank Group (of which IFC is a part) to grant exemption from income received by these organizations. 23. The Courts have held that the immunity available for salaries of employees of certain foreign institutions like UN, World Bank, etc. is also available to pensions received by such employees even in the absence of specific provisions under the Act * Hon'ble Karnataka HC in case of K. Ramaiah (126 ITR 638) * Hon'ble Delhi HC in case of Dr. P. L. Narula (17 Taxman 223) 24. From the above it can be inferred that when there is an agreement between the sovereign countries and diplomatic understanding which are codified as Act of the parliament that income of such institutions ar....