TWEEZERMAN INDIA PRIVATE LIMITED,PONDICHERRY vs. DEPUTY COMMISSIONER OF INCOME TAX, PONDICHERRY

Ground No.6 - DDT paid is a tax on dividend income of shareholders. Consequently, the provisions of DTAA shall be applicable and hence, tax liability needs to be determined post factoring the provisions of the Act and relevant Article of DTAAs, whichever is more beneficial. The Ld. CIT(A) has erred in facts and law by failing to appreciate that DDT paid is a tax on dividend income of shareholders and the tax liability needs to be determined post factoring the provisions of the Act and relevant Article of DTAAs, whichever is more beneficial. Ground No.7 - Specific inclusion of provisions deeming DDT as a tax on shareholders income in a particular tax treaty cannot be construed as leading to its automatic exclusion in other tax treaties The Ld. CIT (A) has failed to appreciate the fact that the specific inclusion of DDT in a particular tax treaty cannot be construed as an automatic exclusion of the same in other treaties. Consequently, irrespective of a specific inclusion the beneficial tax rates shall be available to DDT as well. Ground No.8- The Appellant is eligible for DDT refund claim. Further, given that the DDT has been paid by the Indian Company and consequently, the refund claim would need to be made by the Indian company and not the non-resident shareholders. The Ld. CIT(A) has erred in facts and law by failing to appreciate that the appellant is eligible to DDT refund. Further, the Ld. CIT(A) ought to have considered the fact that the liability to discharge DDT is on the Company declaring the dividends and accordingly, the claim for refund of excess DDT paid by the Indian Company shall be required to be made by the Indian company and not the non-resident shareholders.

2.1 From the orders of lower authorities, it emerges that that assessee is a subsidiary entity of two German-based entities. The non-resident entity M/s Zwilling International held 79.98% equity shares of the assessee whereas another non-resident entity M/s Zwilling Beauty held 9.75% shares of the assessee entity. The assessee pad dividend to its shareholders and in terms of provisions of Sec.115-O, it paid Dividend Distribution Tax (DDT) of 15% on dividend so paid by the assessee.

2.2 Subsequently, the assessee made refund application u/s 237 on the ground that as per Article-10 of India-Germany DTAA, such dividend would be liable to DDT only at the rate of 10% in the hands of the recipients. However, Ld. AO denied the same on the ground that DDT was additional Income Tax levied on distributed profits of the company i.e., payer entity. It is a tax on income of payer entity and not tax on the shareholders. With effect from, 01-04-2020, DDT was abolished and withholding tax was introduced on payment of dividend. As a result of new provisions, dividend was now to be taxed in the hands of the recipients. These provisions would not apply retrospectively. Accordingly, the claim was rejected. 2.3 The Ld. CIT(A), relying on the decision of Mumbai Tribunal (Special Bench) in the case of Total Oil India Pvt. Ltd. (149 Taxmann.com 332), confirmed the stand of Ld. AO. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 3. Though the Ld. AR has relied on exhaustive written submissions which are placed on record, yet it is admitted position that the aforesaid issue is squarely covered against the assessee by the cited decision of Special Bench of Mumbai Tribunal. The final conclusion of the Special Bench was 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), 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 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.