SGS INDIA PRIVATE LIMITED,MUMBAI vs. COMMISSIONER OF INCOME-TAX (APPEALS)-58, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER

ITA No. Assessment Year 1054/Mum/2026 2009-10 1055/Mum/2026 2010-11 1056/Mum/2026 2011-12 1057/Mum/2026 2012-13 1067/Mum/2026 2011-12

SGS India Private Limited Commissioner of Income Tax SGS House, 4B, (Appeals)-58 Adi Shankaracharya Marg, Vs. 515, Earnest House, Vikhroli (W), Mumbai-400 083 Nariman Point, Mumbai-400 021 PAN/GIR No. AAACS 5514 Q (Appellant) : (Respondent) Appellant by : Shri Siddhesh Choughule/ Shri Nikhil Tikam Respondent by : Shri Sridhar G. Menon (Sr. DR) Date of Hearing : 11.06.2026 Date of Pronouncement : 30.06.2026 O R D E R Per Bench : Captioned appeals by the assessee, arise out of separate orders of learned Commissioner of Income Tax (Appeals), Mumbai (‘ld.CIT(A) for short), pertaining to the assessment years (A.Ys.) 2009-10, 2010-11, 2011-12 & 2012-13.

2 ITA No. 1054/Mum/2026 & others (A.Ys. 2009-10 to 2012-13) SGS India Private Limited (DDT) is to be paid as per the rate prescribed u/s. 115-O of the Act or as per the rate of tax for dividend under the respective Double Taxation Avoidance Agreement (‘DTAA’ for short).

3 ITA No. 1054/Mum/2026 & others (A.Ys. 2009-10 to 2012-13) SGS India Private Limited 6. Before us, ld. Counsel appearing for the assessee submitted that while adjudicating the appeal of Jt. CIT vs. Colorcon Asia (P.) Ltd. [2026] 186 taxmann.com774 (SC), the Hon'ble Bombay High Court in Tax Appeal No. 5 of 2024 vide judgement dated 23.11.2025 has not only reversed the decision of ITAT Special bench in case of Total Oil India Ltd. (supra), but has held that the rate of DDT cannot exceed the rate at which dividend distributed to the shareholders as per the respective treaty provision is taxable. Thus, he submitted, the issue stands covered in favour of the assessee by the decision of the Hon'ble jurisdictional High Court.

4 ITA No. 1054/Mum/2026 & others (A.Ys. 2009-10 to 2012-13) SGS India Private Limited 9. We have considered rival submission and perused the materials available on record. The short issue arising for consideration is, what should be the rate of tax on the DDT payable by the payer of the dividend to the shareholders? Undisputedly, u/s.115-O of the Act, a liability has been fastened on all resident corporate entities to pay DDT @ 15% on distribution of dividend 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), where with reference to the legislative history of Section 115-0, it emerges with clarity, that DDT, is a levy on the dividend distributed by payer company. being an additional tax is covered within "Tax' as defined in Section 2(43) of Act and, hence, is chargeable as per Section 4, which is subject to other provisions, which include Section 90 and sub-clause (2) thereof, then specially in case of Avoidance of Double Tax, the provisions more beneficial to assessee must be preferred. Considering that the international treaties involve extensive negotiations between two nations, and definitely being conscious of the respective Nation's power to tax, the benefits and detriments of a treaty and particularly a double tax treaty and its avoidance, can only be reciprocal when the flow of trade and investment between treaty partners rests on balance and it is not allowed for one treaty partner to secure 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

5 ITA No. 1054/Mum/2026 & others (A.Ys. 2009-10 to 2012-13) SGS India Private Limited 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 domestic company. 56 In Tata Tea Company (supra), while pronouncing upon the constitutional validity of Section 115-0 of the Act of 1961, which is a provision for declaration, distribution or payment of dividend by domestic company and imposition of additional tax on 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 of tax rates. On perusal of the impugned Ruling by BFAR and on its detail analysis, according to us BFAR has failed to appreciate that section 4 of the Act of 1961 levies income-tax, including additional income tax, in respect of the 'total income' of the previous year of every person. Thus, it is the earning of the 'income' that attracts the charge. 'Income' has been defined under Section 2(24) of the Act to include 'dividend'. Therefore, the Authority has erred in not appreciating that Section 115-0 levies additional tax on the company on the "amounts declared, distributed or paid by way of dividends". According to us, the declaration, distribution or payment of dividend by company cannot in any manner be regarded as 'income of the company distributing the dividend. Even Section 2(24) has not been amended by the Legislature inasmuch as regarding the "amounts declared, distributed or paid by way of 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 defined in Section 2(24) of the 1961, Act is the inclusive definition including specifically 'dividend' and that "section 115-0 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 115-0 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 115-0 of the Act unconstitutional as it will fall foul of Entry 82, since what is sought to be taxed by the Respondent is not 'income' of the company. 58 The Board of Advanced Ruling has further failed to appreciate that in view of the statutory provisions and legislative background of Section 115-0 of the Act, DDT paid by a company distributing dividend is not an income tax on profits or income of the company, but, is a tax on the

6 ITA No. 1054/Mum/2026 & others (A.Ys. 2009-10 to 2012-13) SGS India Private Limited 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 pf the Act. The Assessee argued that dividend income could not be treated as 'exempt' as the income suffered tax under Section 115-0 in hands of the company distributing dividend. It was argued that DDT under Section 115-0 was nothing but tax paid on behalf of the shareholder and such income which had attracted tax could not be said to be 'exempt'. The conclusion was therefore arrived that Section 14-A of the Act would apply to dividend income on which tax is payable under Section 115-0 of the Act. The decision in Godrej & Boyce is, therefore, in a completely different context as the issue before the Court was whether the dividend income not forming part of shareholders income attract Section 14-A qua the shareholder, but the issue before the BFAR was as to what could be taxed under Section 115-0 and the answer is to be found in Tata Tea Company Ltd. (supra), where it is held that DDT is a tax on dividend Income of shareholder and it would 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 substantially similar tax in addition to or in place of tax. DDT is squarely covered under Article 11 of the DTAA. On its plain reading the payment being covered under definition of dividend under Article 11(3) which is paid by the 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

7 ITA No. 1054/Mum/2026 & others (A.Ys. 2009-10 to 2012-13) SGS India Private Limited 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 the case falling under Article 11(2)(a) where dividend is being paid out of income derived directly or indirectly from immovable properties, subject to such income from immovable property being exempt from tax. Article 11 therefore, restricts the right of India, as a source State, to levy tax in accordance with its domestic laws, that is, Section 115-0, but instead of the rate prescribed for therein, the tax has to be levied at the minimum rate of 10% to the extent the dividend is paid to a resident of UK. The BFAR erred in holding the respondent's submission by merely following the special bench's ruling stating that in order to invoke Article 11, the shareholder has to be taxed in India on the dividend earned from India. On a plain reading of the said Article, it is evident that the person on whom the tax on dividend is levied is an irrelevant and extraneous consideration for its application. There is nothing in the Article which suggests that the income has to be 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 115-0 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 115-0 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 India-UK DTAA is erroneous and contrary to law and retention of excess tax would be contrary to Article 265 of the Constitution of India. As a result of the above, the Appeal is allowed by setting aside the Ruling dated 27/06/2024 passed by the Board For Advanced Rulings, New Delhi, by declaring that, on the facts and circumstances of the case and in law, Colorcon Asia Pvt. Ltd ("Colorcon India" or "the Applicant" or "Company") is entitled to restrict the tax rate on dividends distributed by it to Colorcon Ltd, United Kingdom (UK), at 10% under Article 11 of the India -UK Tax Treaty. Upon the said question being answered the Department is at liberty to gross up the tax rate in an appropriate manner.

8 ITA No. 1054/Mum/2026 & others (A.Ys. 2009-10 to 2012-13) SGS India Private Limited aforesaid, respectfully following the decision of Hon'ble Jurisdictional High Court, we direct the A.O. to refund the DDT paid in excess of 10% of the rate of dividend as per Article 10(2) of India-Switzerland DTAA.

(Dy./Asstt. Registrar) ITAT, Mumbai