TaxTMI 
TaxTMI 
2026 (7) TMI 297
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for short). 3. Briefly the facts relating to this issue are, the assessee is a resident corporate entity and is an affiliate company of the Societe Generale de Surveillance Group (SGS Group), which is one of the leading inspections, testing and certification organizations in the world and is an entity incorporated in Switzerland. In the respective assessment years under dispute, the assessee had distributed dividend to its overseas shareholders who are tax residents of Switzerland and paid DDT in terms with section 115-O of the Act. 4. In course of assessment proceeding, the assessee made a submission before the Assessing Officer ('AO' for short), claiming part refund of DDT on the ground that as per Article 10 of India-Switzerland DTAA, tax on dividend is 10%. Whereas, the assessee has paid DDT @ 16.99%. The aforesaid contention of the assessee was rejected by the AO on the reasoning that DTAA deals with the taxation of dividend at the hands of the recipient. Whereas, DDT is payable by the payer of the dividend and not by the payee. 5. The aforesaid decision of the AO was contested before learned first appellate authority. Relying upon the decision of the Income Tax Appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ividend to the shareholders. It is the say of the assessee that since the recipients of dividend are tax residents of various countries and covered under the respective DTAAs between India and those countries, the beneficial rate of tax on dividend as per the terms of the respective DTAAs will apply. No doubt, in assessee's own case, as well as in case of Total Oil India Ltd. (supra), the co-ordinate bench and ITAT (SB) have decided the issue against the assessee by holding that the rate of tax on dividend as per the treaty provision would not apply to DDT paid u/s. 115-O of the Act. However, in case of Colorcon Asia (P.) Ltd. (supra), the Hon'ble Jurisdictional High Court, while reversing the decision of ITAT (SB) in case of Total Oil India Ltd. (supra) has held that the rate of tax as provided under the respective DTAAs of the country of residence of recipient of dividend would apply, if it is less than the rate provided u/s. 115-O of the Act. In this context, we may reproduce the following observations of Hon'ble Jurisdictional High Court: D: CONCLUSION 55 We find ourself fortified by the observation of Delhi Tribunal in Giesecke & Devrient Ltd. (supra)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dividend, it is held by the Apex Court that the source of the income may be agriculture, but when dividend is declared to be distributed and paid to shareholder of a company, its source is not relevant, as it remains dividend income. Nor does the fact that it is share of the company's profit, is held to be interfere with character of profit, from which it reaches hands of shareholder. 57 BFAR has based its decision on the definitional and conceptual framework of DDT holding that if it paid by the petitioner to its shareholder, it falls outside scope of DTAA as, (a) Dividend is an amount declared, distributed or paid by the Domestic Company out of the current or accumulated profits; (b) Dividend is additional income tax payable over and above the income tax chargeable in respect in total income of such company. BFAR has concluded that incidence of tax under Section 115-0 is only upon domestic company and not shareholder Le. Colorcon U.K. and DTAA is not triggered and, therefore, there is no question of its being taxed @ 10% as per DTAA. It also render a finding that Article 11(2) is not triggered at all, as there is no mutual agreement settling the mode of application o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not an income tax on profits or income of the company, but, is a tax on the dividend, which is income of the shareholder of the company. Hence, DDT is tax on the dividend income of the shareholder, which is merely, for administrative convenience, charged in the hands of, and recovered from the company distributing dividend. There is no denying that dividend income is not chargeable to tax and is exempt in the hands of the shareholders in light of the provisions of Section 10(34) of the Act, since the burden of taxation has been shifted to the company distributing the dividend, from the shareholder. While the DDT is a tax payable by the company, and not the shareholders, in pith and substance, it is a tax on dividends that is income of the shareholders. 59 The We must also note that BFAR has grossly erred in rejecting the distinction and has failed to consider the binding dictum of the Apex Court in Tata Tea (supra) and on the other hand its reliance upon Godrej and Boyce (supra) is misplaced. decision in Godrej & Boyce was rendered on an issue as to whether expenses incurred in relation to earning an exempt income by way of dividend was to be disallowed under Section 14A ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Company, resident of India to a resident of UK and therefore, in our view, Article 11(1) is automatically triggered, consequently triggering the restriction in rate of tax under Article 11(2). 60 Thus, the BFAR erred in not appreciating that the tax under Section 115-0 is an additional tax under its sub section (4) which in turn is a part of the Income tax statute and legislation subject to section 90 read with the relevant DTAA. Therefore, levy of tax on dividend paid/distributed by the Appellant in excess of 10% would squarely be contrary to the provision of India- UK DTAA. The BFAR therefore erred in overlooking the settled legal principle that with respect to taxability of dividend income tax under India-UK DTAA, Article 11 allocates the taxing rights between the two contracting states. Para 1 thereof gives the primary right to tax dividend income to the state of residence. However, para 2 entitles the source state to tax the dividend paid in accordance with its domestic laws, but imposes a fetter viz. the tax so charged cannot exceed the rate of 10% under Article 11(2) (b) if the resident of UK is the beneficial owner of the dividend in all cases other than t....