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Facts
The assessee company paid dividend to its German holding company and claimed a refund of excess Dividend Distribution Tax (DDT) by arguing that the rate of TDS should be governed by the India-Germany DTAA (10%) and not Section 115-O of the Income Tax Act. The assessee paid DDT at the rate specified in Section 115-O.
Held
The Tribunal held that when a domestic company pays dividend to a non-resident shareholder, it attracts Additional Income Tax under Section 115-O of the Act, and this tax is payable at the rate specified in Section 115-O, not the DTAA rate. The CIT(A) correctly followed a Special Bench decision on this matter.
Key Issues
Whether the rate of Dividend Distribution Tax (DDT) on dividend paid to a non-resident shareholder is governed by the Income Tax Act (Section 115-O) or the applicable Double Taxation Avoidance Agreement (DTAA).
Sections Cited
115-O, 90
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI AMITABH SHUKLA
आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the assessee company against the order of the Learned Commissioner of Income Tax (Appeals)-16, (hereinafter referred to as “the Ld.CIT(A)”), Chennai, dated 25.09.2024 for the Assessment Year (hereinafter referred to as "AY”) 2016-17 to 2018-19 & 2020-21.
At the outset, both the parties agreed that the issues permeating in all the Captioned Appeals are similar/identical and therefore, the decision - 2977/Chny/2024 (AY 2016-17 to 2018-19 & 2020-21) M/s.Dormakaba India Pvt. Ltd. :: 2 ::
made in the lead case for AY 2016-17 would decide the fate of other appeals. Therefore, we proceed to adjudicate the appeal for AY 2016-17.
Ground No.1 is general in nature which doesn’t require any adjudication, therefore, we proceed to other grounds raised by the assessee.
And note that the only issue raised before us is whether the provisions of the Tax Treaty [DTAA] Article 10 of the India-Germany DTAA would override the provisions of Sec.115-O of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘).
Brief facts are that the assessee company filed its RoI for AY 2016- 17 on 22.12.2016 admitting total income at Rs.40,70,15,590/- which was later selected for scrutiny. The AO framed the assessment by making certain additions by order dated 28.12.2018 by assessing the income of the assessee at Rs.41,56,33,990/-.
Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) wherein the assessee has raised additional grounds of appeal wherein the assessee prayed for refund of excess Dividend Distribution Tax (DDT) deposited by it. In this regard, the Ld.CIT(A) has noted that the assessee is an Indian company engaged in the business of manufacturing and wholesale trading of automatic door operators, door controls and - 2977/Chny/2024 (AY 2016-17 to 2018-19 & 2020-21) M/s.Dormakaba India Pvt. Ltd. accessories and, inter alia, has claimed refund of excess DDT of Rs.66,96,786/- to its shareholder M/s.Dorma Germany on the plea that the rate of TDS should be governed by Article 10 of the India-Germany DTAA and not by Section 115-O of the Act. The Ld.CIT(A) further noted that the assessee has declared dividend of Rs.6,46,55,782/- out of which Rs.6,46,55,781/- pertained to dividend paid to its holding company viz., M/s.Dorma Vertrieb International GmbH (hereinafter referred to as ‘M/s Dorma Germany’) and that, the assessee had remitted DDT amounting to Rs.1,31,62,365/- u/s.115-O of the Act. According to the assessee, M/s.Dorma Germany is a tax resident of Germany and it holds valid Tax- Residence Certificate (TRC) issued by the tax authorities of Germany.
According to the assessee, as per section 90 of the Act, M/s.Dorma- Germany is eligible to avail the benefit under India-Germany DTAA. And, as per Article 10 of the India-Germany DTAA, dividend is taxable @10%; accordingly, the rate of tax for dividend under the India-Germany DTAA is beneficial tax rate dividend u/s.115-O of the Act. Therefore, it was prayed before the Ld.CIT(A) that the dividend distributed to M/s.Dorma- Germany should be liable for DDT @ of only 10% as prescribed under the India-Germany DTAA. Thus, the assessee prayed for claiming of refund of excess DDT remitted viz., Rs.66,96,786/- [Rs.1,31,62,364/- minus Rs.64,65,578/-]. However, the Ld.CIT(A) was of the view that dividend declared/distributed by the domestic company to the non-resident - 2977/Chny/2024 (AY 2016-17 to 2018-19 & 2020-21) M/s.Dormakaba India Pvt. Ltd. shareholder(s) would attract Additional Income Tax [Tax on Distributed Profits] referred to in sec.115-O of the Act, i.e., at the rate mentioned in sec.115-O of the Act and not at the rate of taxes applicable to the non- resident shareholders as specified in the relevant DTAA, by relyinf on the decision of the Special Bench of this Tribunal [Mumbai] in the case of DCIT v. Total Oil India (P) Ltd., reported in [2023] 149 taxmann.com 332 for AY 2016-17 dated 20.04.2023, and dismissed the ibid additional ground raised by the assessee.
Aggrieved, the assessee is in appeal before this Tribunal.
Having heard both the parties and after perusal of the records, we find that the facts discussed supra are not in dispute. So, it is not repeated for the sake of brevity. And while adjudicating the issue on hand, the Ld.CIT(A) is noted to have rightly followed the ratio/decision of the Special Bench of this Tribunal in the case of Total Oil India (P) Ltd. (supra), and since, the Ld.AR couldn’t point out any change in facts or law, and hence, we don’t find any infirmity in Ld.CIT(A) following the ratio laid by Special Bench on the issue, wherein, Special Bench concluded as under:-
Conclusion: 83. For the reasons give above, we hold that where dividend is declared, distributed or paid by a domestic company to a non-resident shareholder(s), - 2977/Chny/2024 (AY 2016-17 to 2018-19 & 2020-21) M/s.Dormakaba India Pvt. Ltd. which attracts Additional Income Tax (Tax on Distributed Profits) referred to in sec.115-O of the Act, such additional income tax payable by the domestic company shall be at the rate mentioned in section 115-O of the Act and not at the rate of tax applicable to the non-resident shareholder(s) as specified in the relevant DTAA with reference to such dividend income. Nevertheless, we are conscious of the sovereign's prerogative to extend the treaty protection to domestic companies paying dividend distribution tax through the mechanism of DTAAs. Thus, wherever the Contracting States to a tax treaty intend to extend the treaty protection to the domestic company paying dividend distribution tax, only then, the domestic company can 6 claim benefit of the DTAA, if any. Thus, the question before the Special Bench is answered, accordingly. Since Ld. CIT(A) has followed a binding judicial precedent, we find no reason to interfere in the impugned orders, for all the years.
In the light of the decision of the Special Bench decision in the case of Total Oil India (P) Ltd. (supra), we hold that where dividend is declared, distributed or paid by a domestic company to a non-resident shareholder(s), it attracts Additional Income Tax (Tax on Distributed Profits) referred to in sec.115-O of the Act, and such additional income tax payable by the domestic company shall be at the rate mentioned in section 115-O of the Act and not at the rate of tax applicable to the non- resident shareholder(s) as specified in the relevant DTAA with reference to such dividend income and confirm the action of the Ld.CIT(A), and resultantly, dismiss the appeals of the assessee.
In the result, appeals filed by the assessee are dismissed.
Order pronounced on the 23rd day of April, 2025, in Chennai.