TaxTMI 
TaxTMI 
2026 (5) TMI 608
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....017 declaring total income of Rs. 12,19,83,430/-. The case was selected for scrutiny and statutory notices under section 143(2) and 142(1) of the Income-tax Act, 1961 (for short 'the Act') were issued and served on the assessee. In response, assessee filed various details as asked for. 4. After considering the submissions of the assessee, the AO observed that assessee has claimed depreciation on goodwill to the extent of Rs. 36,12,964/-. In response, assessee submitted the details of tangible and intangible assets and submitted details of determining goodwill and heavily relied on the decision of CIT vs. Smifs Services Limited 348 ITR 302. The issue under consideration is similar to the issues raised in AYs 2011-12, 2012-13 and 2013-14 and in those assessment years, the claim of the assessee was allowed. After considering the submissions of the assessee, the AO rejected the same and observed that the goodwill is intangible asset but it has to be valued for the purpose of accounting. Assessee has not submitted any valuation report of asset of metal division of Mitsubishi Corporation India Limited, therefore, the above additional payment has not been made on account of goodwill. H....
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....e detailed submissions made by the assessee. Further he brought to our notice findings of the ld. CIT (A) at page 33 of the appellate order. For the sake of brevity, we reproduce the same :- "6. Adjudication: I carefully considered the submission of the appellant in view of the relevant provisions of the Income Tax Act, Double Tax Avoidance Agreements between India and Japan, and India and Thailand. Also perused and considered carefully the judicial precedence referred by the appellant. 6.1.1. The appellant is a company incorporated under the Companies Act, 1956, and is a wholly owned subsidiary of Metal One Corporation, Japan (MOC Japan). The appellant began operations on June 1, 2008. During FY 2016-17 relevant to the assessment under reference, the appellant distributed a total dividend of Rs. 8,62,82,925/- to its two non-resident shareholders i.e. MOC Japan (Rs.8,62,81,199) and Metal One (Thailand) Co. Ltd. (Rs.1,726/-). On the total dividend distributed, the appellant paid Dividend Distribution Tax (DDT) amounting to Rs. 1,75,65,173/- at the effective rate of 17.304% (including surcharge and cess) as required under section 115-O of the Income Tax Act, 1961. S....
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....t. Ltd. (83 taxmann.com 163), wherein it has been held that the benefit of Article 10 of the DTAA between India and Switzerland must be examined even where DOT is paid by the Indian company. 6.1.4. The appellant also contends that Section 115-O(1) clearly states that DDT is payable on dividends declared, distributed, or paid by domestic companies. Section 115-O(4) specifies that this tax is final in respect of such dividend and not further creditable. The appellant submits that this tax, although paid by the company, is fundamentally a tax on dividend income of the shareholder, not the distributing company's own income. The Hon'ble SC observed in Tata Tea Case(supra) that dividend is a part of "income" within the meaning of Entry 82, List I of the Constitution and hence DOT falls within "tax on income". The judgment also reinforces that the income tax character remains attached to the dividend in the hands of the shareholder despite DOT being paid by the company. 6.1.5. Regarding Implication of the Treaty the appellant has stated that as per Article 10(2) of the DTAAs with Japan and Thailand, India's right to tax dividend income of non-residents is cap....
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....T has been levied on the dividend income of its non-resident shareholders. The shareholders being non-residents are not being directly taxed on the dividend income in India, as such income is exempt in their hands under section 10(34) of the Act, as applicable during the relevant assessment year. This position was upheld by the Hon'ble Karnataka High Court in the case of Infosys BPO Ltd. v. DCIT [(2020) 429 ITR 346 (Kar)], where the Court observed: "Section 115-O imposes tax liability on the domestic company paying the dividend. Therefore, provisions of DTAA between India and the country of residence of the shareholder are not attracted for determining the DOT liability of the Indian company." Similarly, the Mumbai ITAT in the case of Reliance Industries Ltd. v. DCIT [(2018) 96 taxmann.com 586] held that: "Tax under section 115-O is not covered under the DTAA as it is a tax levied on the company and not on the shareholder." 6.2.4. The appellant's contention that DDT should be subject to DTAA restrictions on the ground that it represents tax on shareholder's income is misconceived. Even assuming that DDT is economically borne on accoun....
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.... u/s 115-O and whether the assessee can take the benefit under Double Taxation Avoidance Agreement with regard to rate of tax applicable on Dividend Distribution Tax. He further brought to our notice discussion of the issue under consideration in para 26 of the above order wherein similar issue was discussed. Finally, he brought to our notice page 302 of the case laws paper book wherein Hon'ble High Court gave a detailed findings from paras 55 to 61 and they finally held that assessee is entitled to restrict the tax rate on Dividend Distribution by it to M/s. Colorcon Asia Private Ltd. UK at 10% under Article 11 of the Indo UK Tax Treaty and they specially held that Dividend Distribution Tax is a tax on shareholder. He further submitted that Hon'ble High Court has elaborately considered and discussed Special Bench decision of ITAT in the case of DCIT vs. Total Oil India (P.) Ltd. (2025) 176 taxmann.com 186. Further, he heavily relied on the decision of coordinate Bench in the case of Mitsui Kinzoku Components India Pvt. Ltd. in ITA Nos.3910/Del/2024 & Ors. dated 31.12.2025 (Delhi ITAT) and Intertek India Private Limited in ITA Nos.2903/Del/2025 and 2904/Del/2025 dated 7th January 2....
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.... benefit to detriment of other. When a treaty is entered into, it is expected to have considered its impact on trade and investment and since it is mutual arrangement, it must be given full effect to and merely because there are unilateral amendments made on domestic front, the treaty cannot be made ineffective by construing the same in light of domestic law. The Parliament, is not within its power to change the terms of a bilateral treaty, which is a result of negotiated economic bargain between India and UK. A party may not follow the treaty, it may choose to renege from its obligations thereunder, but it cannot amend the treaty on the guise of its domestic law, having undergone change. Amendments to domestic law, cannot be read into treaty provisions, without amending Treaty itself. Since it is necessary for the contracting party to fulfill their obligations under a Treaty in good faith and this includes its accountability under it and act in a manner, not to defeat its purpose and object, we find that the benefit accruing under the DTAA, and Article 11 thereof, cannot be denied as Revenue is of the opinion that the Treaty do not cover 'Dividend' or it is not applicable to a dom....
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....f dividends" as "income" of the company distributing dividends. Moreover, the Hon'ble Supreme Court in UOI v. Tata Tea Co. Ltd. (supra), has, in no uncertain words, held that "income as denied in Section 2(24) of the 1961, Act is the inclusive definition including specifically 'dividend' and that "section 115-O pertain to declaration, distribution or payment of dividend by company and imposition of additional tax on dividend is thus clearly covered by subject as embraced by Entry 82 ". Once the Hon'ble Supreme Court has held that dividend connotes ' income ', the natural corollary is that as per section 4, the said income should be chargeable to tax in the hands of the person earning such income. However, from a combined reading of Section 115-O and 10(34), alongwith the legislative history narrated earlier, it is evident that DDT is a tax on the dividend income of the shareholder, though the incidence of tax has shifted from the shareholder to the company paying the dividend. Any other interpretation of the provisions will render the section 115-O of the Act unconstitutional as it will fall foul of Entry 82, since what is sought to be taxed by the Respondent is not ....
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.... fall in Entry 82 of the Union List. Further reliance on decision by special bench in Tata Oil is also not well founded as the Apex Court in Godrej & Boyce observed that even if it 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, it would not have made any material difference to the applicability of Section 14-A. The BFAR also erred in not appreciating that as per Section 90(2) of the Income Tax, the provision of DTAA would prevail over the domestic law to the extent they are more beneficial to the assessee who is subjected to tax in India and as per Article 1 of the DTAA, it shall apply to the persons who are residents of one or both of the Contracting States. Further, Article 2 of the Treaty apply in respect of income tax and also to any identical or substantially similar taxes which are imposed after DTAA is brought into force. Since DDT is an 'Income Tax' as per the provisions of the Act, it definitely fall within ambit of Article 2 of DTAA as income tax includes surcharge and dividend and Article 2 (2) clearly apply to any identical or substantia....
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....e taxed in India in the hands of the shareholders. It merely deals with the nature of income, viz. dividend, which cannot be taxed in India at a rate exceeding 10%, if other stipulated conditions are met. The nature of income is a apropos element to invoke the said Article, and not the person who is subjected to tax, in whose hands the tax is levied, is not relevant for application of Article 11, as DDT is a 'tax on dividend income of the shareholder'. The entire legislative history of Section 115-O corroborates this. More importantly, the Apex Court in the case of Tata Tea (supra) too has confirmed the nature of income being dividend income, which is subject to DDT and under Section 115-O the dividend income is sought to be taxed at a rate of 20.36%. Section 90(2) of the Act of 1961 allow the appellant to apply the lower rate under the DTAA and Article 11(2) restrict tax rate of such dividend income to 10% and there is no embargo in Article 11 of the DTAA on the Appellant to apply the lower tax rate stipulated in Article 11(2). 61 In the wake of the above, the Authority has erred in not appreciating that DDT erroneously collected in excess of 10% as provided by I....
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....s 21 to 22 of the appellate order. 16. Aggrieved with the above order, assessee is in appeal before us. 17. At the time of hearing, ld. AR of the assessee submitted that the issue under consideration is squarely covered in the following decisions :- "1. United Glass Mfg. Co. Ltd. (CA NOS. 6447 TO 6449 OF 2012) dated 12 September 2012 (Hon. Supreme Court) 2. Nestle India Ltd. (ITA NO. 1488 OF 2006) dated 25 April 2007 (Delhi High Court) 3. Samtel Color Ltd (IT A NO. 1152 OF 2008) dated 30 January, 2009 (Delhi High Court) 4. Nijhawan Travel Services (P.) Ltd (ITA NO. 4296 (Delhi) of 2019) dated 25 April 2025 (Delhi ITAT) 5. Punjab National Bank (ITA No. 49631De1l2024) dated 1 May 2025 (Delhi ITAT) 6. Cherry Hill Interiors Pvt. Ltd. (ITA No. 17791De1/20 19) dated 28 June 2023 (Delhi ITA T) 7. WSP Consultants India (P.) Ltd. (ITA Nos. 2939 AND 2940 (Delhi) of 2018) dated 22 February 2022 (Delhi ITAT) 8. IL & FS Transportation Networks (ITA Nos.2927 & 2928/Mum/2018) dated 28 January 2021 (Mumbai ITAT) 18. On the other hand, ld. DR of the Revenue brought to our attention para 5 of the ld. CIT (A) order and a....
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.... expenditure incurred wholly and exclusively for the purposes of business and not towards capital account as it only facilitates smooth and efficient running of a business enterprise and does not add to the profit earning apparatus of a business enterprise. 5.3 To support the revenue's contention that the impugned expenditure is on capital account the learned counsel, Ms. Prem Lata Bansal has cited the judgment of the Framatone Connector OEN Ltd. v. Dy. CIT [2006] 157 Taxman 116 (Ker.). The said judgment is based on the Supreme Court judgment in the case of Punjab State Industrial Development Corpn. Ltd. v. CIT [1997] 225 ITR 792. The judgment of the Supreme Court on which the Kerala High Court has relied heavily dealt with the issue with regard to fee paid to the Registrar of Companies for increase of authorised capital, that is, whether such an expense was in the nature of revenue or capital expenditure. The Supreme Court came to the conclusion that since the fee was paid to - the Registrar of Companies for increase in the capital base of the assessee it was in the nature of capital expenditure. According to us the ratio of the afore-mentioned Supreme Court judgment ....