TaxTMI 
TaxTMI 
TaxTMI 
2025 (2) TMI 1389
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....dia- Netherlands DTAA read with the India-Slovenia DTAA by invoking the MFN Clause as per Clause IV of the Protocol. 1.4. The lower authorities have, in the facts and circumstances of the case and in law, erred in relying on Circular No. 3/2022 dated February 03, 2022, issued by the Central Board of Direct Taxes ("CBDT") and thereby denying the benefit of the MFN clause to the Appellant. 1.5. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in levying any consequential additional interest under section 234D of the Act. 1.6. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in not granting the TDS credit with regard to the interest amount received on the refund. 1.7. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 274 read with section 270A of the Act, for underreporting of income. 1.8. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 274 read with section 270A of the Act, for misreporting of income." Brief ....
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....10% of the capital of the company paying dividends. 2.4 Accordingly, the assessee invoked the MFN clause provided in the Protocol to India-Netherlands DTAA and offered the dividend income to tax at the rate of 5% as per the India-Slovenia DTAA in its return for year under consideration. 2.5 The Ld.AO, disagreed with the submissions of assessee and passed Draft Assessment Order on 27/12/2022, proposing to tax the dividend income received by the assessee at 10%. 3. On receipt of the draft assessment order, the assessee preferred objection before the DRP. 3.1 The Ld.DRP, vide the directions dated 22/09/2023 upheld the proposition of the Ld.AO to tax the dividend income received at 10% as per Article 10 of the India-Netherlands UTAA, denying the beneficial rate of 5% as per the MFN clause. 3.2 On receipt of DRP direction, the Ld.AO passed the final assessment order incorporating the directions and taxing, the dividend income of INR 26,99,97,500/- received by the assessee at 10%. Against the final assessment order, the assessee is in appeal before this Tribunal. 4. It is noted that the said appeal was filed on 27/12/2023. Subsequently the appeals was fixed for heari....
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....gal findings made by the A.O. in the assessment order followed by the order passed by the Hon'ble DRP. During the year under consideration, the Assessee had earned Rs. 27,84,85,278/- as Dividend Income from Indian companies, which the Assessee offered to tax @5% on gross basis. This was in contravention to the provisions of the Income Tax Act, 1961 as well as the India Netherlands DTAA. Taxability of dividend income @10% earned from the Indian subsidiaries: The argument of the Assessee revolves principally around members of OECD of third country and a beneficial rate of tax at the time of application of MFN being sufficient to afford a reduced rate of taxation. Para 4(2) of the India Netherlands Protocol reads as follows: 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 dat....
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....he terms of a double taxation avoidance agreement. When that happens, the provisions of such an agreement, with respect to cases to which where they apply, would operate even if inconsistent with the provisions of the Income-tax Act. If it was not the intention of the legislature to make a departure from the general principle of chargeability to tax under section 4 and the general principle of ascertainment of total income under section 5 of the Act then there was no purpose in making those sections "subject to the provisions of the Act". The very object of grafting the said two sections with the said clause is to enable the Central Government to issue a notification under section 90 towards implementation of the terms of the DTAs which would automatically override the provisions of the Income- tax Act in the matter of ascertainment of chargeability to Income tax and ascertainment of total income, to the extent of inconsistency with the terms of the DTAC. Section 90 of the Income Tax Act: Section 90, which delegates powers to the Central government, has not been challenged and as such, the court proceeded on the footing that the section is constitutionall....
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....e: India has entered into DTAA's having an MFN clause with various countries. The Protocol to the DTAA's with said countries ('relevant DTAA') provide that if under any DTAA between India and a third State ('subsequent DTAA'), India limits its taxation to a lower rate or a more restricted scope than the rate or scope provided in the relevant DTAA, the same rate or scope as is applicable in the subsequent DTAA shall also apply under the relevant DTAA. MFN clause is usually found in Protocols and Exchange of Notes to DTAAS. Once this clause is part of a treaty, the residents of contracting states get equal treatment as is being given to resident of other (third) states. The intention of MFN clause in tax treaties is by granting of lower rate on specified income and/or; restricting the scope of income and/or; other benefit in terms of allowance of expenses in case of business income MFN clause, as forming part of protocol, is an integral part of the tax treaty. A typical MFN clause in any Indian DTAA reads as under (reproduced from Protocol IV(2) of the India-Netherlands treaty- "If after the signature of this convention under any Con....
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....ntry can be applied by invoking the MFN clause, only if the third country was a member of Organisation for Economic Co- operation and Development (OECD), at the time of signing its tax treaty with India. * India's tax treaties with certain OECD countries include an MFN clause, which provides that if after the original treaty (with the "first country") has entered into force, India enters into a tax treaty with an OECD member third country that provides a beneficial tax rate or restrictive scope for taxation of dividends, interest, royalties, etc., India must accord a similar benefit to the first country. * The Indian Constitution enables the Indian Government to enter into international treaties; however, the treaty must be enacted by law or through legislation for it to be binding on Indian nationals if it restricts or affects the rights of citizens or others or modifies the law of India. * The Indian Government, in the past, has followed the practice of expressly issuing notification under Section 90 of the ITL to give effect to the MFN clause of the original country when a subsequent tax treaty results in a more beneficial arrangement with a third ....
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....wing due procedure under the Indian tax law. In the present case, condition mentioned at (iv) has not been satisfied. In a landmark judgment, the Division Bench of the Hon'ble Supreme Court (SC) on 19 October 2023 in the case of Nestle SA, ruled in favour of the Revenue certain aspects related to the Most Favoured Nation (MFN) clause in the tax treaties. In view of the above detailed written submission, the assessment order needs to be upheld" 5. It is noted that the assessee had invoked MFN clause under India Netherlands protocol which reads as under: 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....