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Facts
The assessee claimed a refund of excess Dividend Distribution Tax (DDT) paid under Section 115-O. The assessee contended that the dividend income was subject to the India-Mauritius DTAA rates. The CIT(A) disallowed the claim, relying on a Special Bench ruling.
Held
The Tribunal held that Section 115-O is a self-contained code, and the DDT is a charge on the company's profits, not on the shareholder's income. The non-obstante clause in Section 115-O overrides other provisions of the Act.
Key Issues
Whether the Dividend Distribution Tax (DDT) paid under Section 115-O is subject to DTAA provisions, and if the assessee is entitled to a refund of DDT paid.
Sections Cited
115-O, 115JB, 143(2), 237, 4
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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI AMARJIT SINGH & SHRI ANIKESH BANERJEE
O R D E R
PER AMARJIT SINGH, ACCOUNTANT MEMBER:
1. The appeal of the assessee for the assessment year 2018-19 is directed against the order dated 20.09.2024 passed by the ld. Commissioner of Income-tax, Appeal [‘CIT(A)’] – 52, Mumbai. The assessee has raised the following grounds of appeal:
“On the facts and in the circumstances of the case and in law, the learned CIT(A):
failed to appreciate that the dividend income was that of the non- resident recipient who was governed by the provisions of relevant Double Taxation Avoidance Agreement ('DTAA'), thereby, erring in not extending the benefit of applicable India - Mauritius DTAA qua the rate of tax on payment of dividend to the shareholder ('The Sea Island Investment Limited').
2. erred in understanding the contention of the Appellant as tax paid under section 115-0 of the Act, as paid by the company on behalf of the shareholder, while the contention of the Appellant was that the tax under section 115-0 of the Act is upon dividend income and thus, the provisions of the India - Mauritius DTAA would apply, and the rates provided therein would prevail over section 115-0 of the Act.
erred in placing reliance upon Special Bench ruling in the case of Total Oil India P Ltd 149.taxmann.com 332 [2023] (Mumbai) wherein the Tribunal failed to appreciate the decision of the Hon'ble Supreme Court in case of Tata Tea Co. Ltd which held that tax levied under section 115-0 of the Act is a tax upon the dividend which is an income thereby overruling the decision of Bombay High Court in case of Godrej & Boyce Mfg. Co Ltd (328 ITR 81).
4. erred in placing reliance upon Special Bench ruling (supra) which failed to appreciate that when the Hon'ble Supreme Court (supra) holds that the charge of tax under section 115-0 of the Act upon dividend, the same can only be a charge on the income of the shareholder and it is the legislative policy for administrative convenience to impose the liability and penal consequences upon the company distributing the dividend.
5. erred in understanding that India as a country of source cannot unilaterally, by way of an amendment under the Act, exceed the rate of tax on dividend to a rate which is higher than the rates prescribed under the DTAA.
erred in not granting refund of the excess Dividend Distribution Tax paid by the appellant, since as per the provisions of section 237 of the Act read with Article 265 of the Constitution of India only legitimate tax could have been retained.”
Fact in brief is that the return of income declaring total income of Rs. 36,18,37,920/- and book profit u/s 115JB of Rs. 42,81,64,555/- was filed on 28.11.2018. The return was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 22.09.2019. The assessee company was incorporated on 27.02.2008as a 100% subsidiary of Red Chillies Entertainment Pvt. Ltd.
3. The assessee has claimed refund of excess dividend distribution tax paid u/s 115-O of the Act to the amount of Rs. 41,46,563/-. However, the ld. CIT(A) has disallowed the claim of the assessee after referring the decision of Hon’ble ITAT Special Bench, Mumbai in the case of Total Oil India P Ltd. (2023) 149 taxmann.com 332 (Mumbai – Trib) wherein held that dividend distributed by a domestic company to a non-resident shareholder to which provisions of section 115-O of the Act apply shall be subject to Dividend Distribution Tax and taxable at the rate mentioned in section 115-O of the Act.
Heard both the sides and perused the material on record. During the course of appellate proceedings before us, the ld. Counsel fairly agreed that impugned issue of claim of refund of dividend distribution tax is squarely covered by the decision of Special Bench of ITAT, Mumbai wherein held that section 115-O is a code and the non-obstante clause in the said section is an indication that charge under this section is independent and not covered under the total income under the Act. By virtue of this non-obstante clause provisions of section 115-O of the Act override provisions of all other section of the Act including section 4 of the Act.
We have perused the decision of ld. CIT(A) wherein the finding of Special Bench of the ITAT in the case of Total Oil India P Ltd. was followed. The relevant extract of the decision of ld. CIT(A) is reproduced as under:
“25.9. The Hon'ble Mumbai ITAT Special Bench in the case of Total Oil India P Ltd dated 20.04.2023 [2023] 149 taxmann.com 332 (Mumbai Trib.) (SB) held that dividend distributed by a domestic company to a non- resident shareholder to which provisions of section 115-0 of the Act apply, shall be subject to Dividend Distribution Tax and taxable at the rate mentioned in section 115-0. The Hon'ble Special Bench has held that section 115-0 is a code and the non-obstante clause in the said section is an indication that the charge under this section is independent and not covered under the 'total income' under the Act. By virtue of this non- obstante clause, provisions of section 115-0 of the Act override provisions of all other sections of the Act including section 4 of the Act. Further, the Bench held that DDT is a charge to tax profits of the company and not a charge in the hands of the shareholder or tax paid on behalf of the shareholder by the domestic company. The Bench relied on the Hon'ble Bombay High Court ruling in the case of Small Industries Development Bank of India vs CBDT, 440 ITR 80, that charge under section 115-0 of the Act is on the company's profits and not income in the hands of the shareholder. The Hon'ble Special Bench ruled that DDT is paid by the domestic company which is resident in India, and it is a tax on the income of the company and not tax paid on behalf of the shareholder, who is the recipient. Given this judicial finding, there is no need to elaborate the issue on any further. Since the charge under section 115-0 of the Act is on the company's profits and not income in the hands of the shareholder, the contentions of the appellant fail.
25.10. One of the arguments of the appellant is that in the case of Total Oil India P Ltd dated 20.04.2023 [2023] 149 taxmann.com 332 (Mumbai - Trib.) (SB), reference was made to case of Total Oil India P Ltd in [2021] 127 taxmann.com 774 (Mumbai -Trib.) wherein reference to Indo Hungary DTAA was made. I am afraid, the appellant's arguments are devoid of merit. When the incidence of taxation is on the company, no such arguments can be canvassed. If the appellant's arguments were to be accepted, then it would lead to absurd situations wherein DDT liability will keep on changing depending on the shareholders, which is clearly not what is laid down in the provisions of the Act.”
6. Following the decision of the Special Bench of ITAT in the case of Total Oil India P Ltd. as discussed in the finding of ld. CIT(A), we do not find any reason to interfere in the ld. CIT(A). Therefore, all the grounds of appeal of the assessee from 1 to 6 are dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 04.02.2025.