TaxTMI 
TaxTMI 
2024 (11) TMI 1635
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....n the circumstances of the case, the Ld. CIT (A) has been grossly erroneous and unjustified in not admitting that dividend distribution tax is tax in the hands of the shareholders and not in the hands of the company as the onus to pay dividend distribution tax has shifted from shareholders to the company to only simplify the administrative burden of collection process. 3. That on the fact and in the circumstances of the case, DDT paid u/s 115- O of the Act on dividends declared and paid to foreign shareholders - Vesuvius Holdings Limited (VHL), Foseco Overseas Limited (FOL) & Foseco UK Limited (FUL), who are tax residents of United Kingdom cannot exceed the rate provided under Article 11 to the Double Taxation Avoidance Agreement between India and UK. 4. That on the facts and in the circumstances of the case, excess DDT paid during the relevant assessment year be refunded, since, as per the provisions of Section 237 of the Act read with Article 265 of the Constitution of India, only legitimate tax could be retained. 5. That the appellant craves leave, to add, to amend, modify, rescind, supplement, or alter any of the Grounds stated here-in above, either b....
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....-O of the Act and not the shareholder and hence, the assessee is not entitled to benefit of reduced rate of tax as per the India-UK DTAA. 5. Aggrieved, the assessee carried the matter in appeal before the Ld. CIT (A) challenging the order passed u/s 237 of the Act by the Ld. AO whereby he rejected its application for refund of excess DDT paid. Before the Ld. CIT(A), the assessee submitted that in respect of the dividend declared by it, DDT has been paid @ 16.994% (grossed up) as per the provisions of section 115-O of the Act as against the rate of 15%/10% provided in India-UK DTAA and therefore the reduced rate of 15% as per the India-UK DTAA should be applied for the payment of DDT and the excess tax paid should be refunded to the assessee. However, the Ld. CIT (A) did not accept the above contention of the assessee and dismissed the appeal by relying on the decision of the Special Bench of the Tribunal in the case of Total Oil India Pvt. Ltd. & Oth Vs. DCIT vide ITA No. 6997/Mum/2019 dated 20.04.2023 decided in favour of the Revenue. The relevant para of the Ld. CIT(A)'s order reads as under : "2.3 I have carefully considered the facts of the case and submission ....
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....t has been specifically provided in the protocol to the Indo Hungarian Tax Treaty that, when the company paying the dividends is a resident of India the tax on distributed profits shall be deemed to be taxed in the hands of the shareholders and it shall not exceed 10 per cent of the gross amount of dividend. While making Reference in the case of Total Oil (supra), the Id. Division Bench has made the following observations on this aspect: "(f) Wherever the Contracting States to a tax treaty intended to extend the treaty protection to the dividend distribution tax, it has been so specifically provided in the tax treaty itself. For example, in India Hungry Double Taxation Avoidance Agreement ((2005) 274 ITR (Stat) 74; Indo Hungarian tax treaty, in short], it is specifically provided, In the protocol to the Indo Hungarian tax treaty it is specifically stated that "When the company paying the dividends is a resident of India the tax on distributed profits shall be deemed to be taxed in the hands of the shareholders and it shall not exceed 10 per cent of the gross amount of dividend". That is a provision in the protocol, which is essentially an integral part of the treaty, and t....
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.... (h) Taxation is a sovereign power of the State- collection and imposition of taxes are sovereign functions. Double Taxation Avoidance Agreement is in the nature of self-imposed limitations of a State's inherent right to tax, and these DTAAs divide tax sources, taxable objects amongst themselves. Inherent in the self-imposed restrictions imposed by the DTAA is the fact that outside of the limitations imposed by the DTAA, the State is free to levy taxes as per its own policy choices. The dividend distribution tax, not being a tax paid by or on behalf of a resident of treaty partner jurisdiction, cannot thus be curtailed by a tax treaty provision 82. We are of the view that the above exposition of law is correct and we agree with the same. Therefore, the DTAA does not get triggered at all company pays DOT u/s 1160 of the A Act when a domestic company pays DDT u/s. 115O of the Act. 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. 115-0 of the Act, such ad....
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....;FOL) & Foseco UK Limited (FUL') aggregating to Rs. 7,66,30,021/-. VHL, FOL & FUL are tax residents of United Kingdom ('UK"). On the dividend distributed to VHL, FOL & FUL, the appellant had paid Dividend Distribution Tax ('DDT') amounting to Rs. 1,30,23,272/- @ 16.994%). In terms of Article 11 of India-UK Double Taxation Avoidance Agreement (DTAA'), dividend shall be taxable @ 15% in the hands of beneficial owner of the dividend i.e. shareholders. Consequently, dividend of Rs. 7,66,30,021/- paid to VHL, FOL & FUL of UK shall be taxable at the beneficial rate of 15% as prescribed under DTAA, i.e. Rs. 1,14,94,503/-. Hence, the appellant is eligible for refund of the DDT paid in excess of the rates prescribed under applicable DTAA amounting to Rs. 15,28,769/- (Rs. 1,30,23,272/- less Rs. 1,14,94,503/-). On the basis of the above understanding, the appellant has filed a petition u/s 237 of the Act dated 1304-2021 (filed on 12-05-2021) for claiming refund of excess DOT paid over and above the rates specified in India-UK DTAA for dividend distributed to non-resident shareholders Post filing of the above petition, letter u/s 154 o....
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....d that the Protocol to India- Hungary DTAA have extended the Treaty protection to DDT wherein it has been specifically provided that when the Co. paying dividend is a resident of India, the tax on distributed profits shall be deemed to be taxed in the hands of shareholders and it shall not exceed 10% of gross amount of dividend. Referring to the same, it was held that wherever the Contracting States to a tax treaty intend to extend the treaty protection to the domestic company paying DDT, only then, the domestic company can claim benefit of the DTAA, if any. However, the aforesaid judgment have not considered the following aspects: Though SB has held that Sec. 115-0 is a complete code independent from the concept "total income" as envisaged under the statute, however, it is worthwhile to mention that in terms of entry 82 of List I of Schedule VII of the Constitution of India and as per the conjoint reading of the Preamble, Sec. 4 & 5 of the Act, a tax under the Act can only be levied on the income of the person assessable under the statute and if such distributed profits are not part of "total income", then such levy is not in accordance with law; In terms of the memorandu....
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.... the said view is against the judgement of Hon'ble Apex court in the case of UOI vs. Tata Tea Co. Ltd. |2017 85 taxmann.com 346 (SC) dated 20-09-2017 (Division Bench Judgement) wherein the Apex Court while dealing with the issue with respect to constitutional validity of DDT on composite income of tea company held that the provisions of Sec. 115-0 of the Act shall be applicable on dividend distributed from agricultural income also. The Hon'ble Apex Court held that when dividend is declared to be distributed and paid to company's shareholder, it is not impressed with the character of source of its income. In the light of above, the appellant humbly submits that reliance of SB on judgement of Bombay HC is misplaced, The Hon'ble SB held that, the Godrej & Boyce Mfg. Co., Ltd. vs. DCIT 120101 194 Taxman 203 (Bombay HC) decision lays down the principle that DDT is not a tax paid on behalf of the shareholder. The said principle has also been upheld by Godrej & Boyce Manufacturing Company Ltd. vs. DCIT (2017) 81 taxmann.com 111 (SC). However, the said principle does not dilute the principle that it is tax on 'dividend income, with merely the incidence of tax being o....