VALEO,FRANCE vs. ACIT, INTERNATIONAL TAXATION CIRCLE 2(2), CHENNAI, CHENNAI

ITTPA 72/CHNY/2023Status: DisposedITAT Chennai22 March 2024AY 2021-226 pages
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What were the facts?

The assessee, M/s. Valeo, a French company with Indian subsidiaries, appealed against the order of the Assistant Commissioner of Income Tax (AO) for Assessment Year 2021-22. The assessee had declared dividend income from its subsidiaries and offered it to tax at 5% under Article 11(2) of the India-France Double Taxation Avoidance Agreement (DTAA), invoking the Most Favoured Nation (MFN) clause by importing provisions from India's DTAAs with Slovenia, Lithuania, or Columbia. The AO, citing CBDT Circular No. 2/2022 and the DRP's directions, rejected this claim and assessed the dividend income at 10% as per the India-France DTAA. The AO also levied interest under Sections 234B/234C and initiated penalty proceedings. The assessee claimed the entire tax liability was discharged by TDS at the 10% rate.

What did the Tribunal hold?

The Tribunal dismissed the assessee's ground relating to the denial of the MFN clause benefit for the lower tax rate on dividends. The decision was based on the Hon'ble Apex Court's ruling in Assessing Officer Circle (International Taxation) 2(2)(2), New Delhi vs. M/s Nestle SA, which held that a notification under Section 90(1) is mandatory for giving effect to a DTAA or its protocol that alters existing law. The Apex Court also clarified that a stipulation in a DTAA with one nation requiring same treatment as a better treatment given to another OECD member nation does not automatically extend that benefit; it requires amendment through a separate notification. The Tribunal found that the interpretation of 'is' in the MFN clause has present signification, making the date of entering into the treaty with India relevant for claiming benefits based on another state's DTAA. Consequently, the assessee's claim for a 5% tax rate was rejected. Regarding the interest levy under Sections 234B/234C, the Tribunal directed the AO to re-examine the assessee's claim that the entire tax liability was discharged by TDS at the 10% rate and to delete the interest of Rs. 18,14,556, deciding this ground in favour of the assessee for statistical purposes. The issue of penalty proceedings was not explicitly decided, but the overall result indicates it was not allowed.

What were the issues?

1. Whether the assessee is eligible to claim the benefit of the Most Favoured Nation (MFN) clause in the India-France DTAA, importing a lower tax rate on dividends from India's DTAAs with Slovenia, Lithuania, or Columbia, and if so, whether the OECD membership status of these third countries at the time of signing the DTAA with India or at the time of MFN clause application is relevant, and if a separate notification under Section 90(1) of the Income Tax Act, 1961 is mandatory for such import of benefits, as argued by the assessee, relying on the Delhi High Court case of Concentrix Services Netherlands B.V. v. ITO (TDS) and challenging the binding nature of contrary CBDT circulars and their retrospective application. The revenue contended that Slovenia/Lithuania/Columbia should have been OECD members at the time of signing the treaty with India and that a separate notification is required. 2. Whether the levy of interest of Rs. 18,14,556 under Sections 234B/234C is erroneous, with the assessee arguing that the entire tax liability was discharged by way of TDS at the 10% rate, and the revenue not objecting to re-examination. 3. Whether penalty proceedings were erroneously initiated, with the assessee arguing no income had escaped assessment.

Which sections of the Income-tax Act were involved?

Section 90(1),Section 143(3),Section 144C(13),Section 234B,Section 234C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: SHRI MANJUNATHA. G & SHRI MANOMOHAN DAS

Hearing: 06.03.2024Pronounced: 22.03.2024

PER MANOMOHAN DAS, J.M: This appeal by the assessee is directed against the order of the learned Assistant Commissioner of Income Tax, International Taxation Circle-2(2), Chennai [AO] dated 23-08-2023 and pertains to the Assessment Year [AY] 2021-2022. 2. The grounds of appeal of the assessee are as under: “A. Ground relating to denial of benefit of MFN Clause

IT(TP)A No.72/Chny/2023 :- 2 -:

1.

The ld. AO and the Ld. DRP erred In law by contending that Slovenia

The order continues below.

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