PERNOD RICARD INDIA PRIVATE LIMITED,NEW DELHI vs. ACIT CIRCLE-31, NEW DELHI

The AO however refused to entertain the claim of refund on account of excess DDT paid on two counts (i) the Finance Act, 1997 changed the system of taxation and made dividend chargeable in the hands of the payer-company. The claim towards excess payment towards tax on distributed profits , if any, can be examined only where it is made by the shareholder and not by the company. The dividend in question is not recorded as income of the captioned assessee and therefore, the applicant-assessee is not entitled to claim refund due to purported excess payment of tax on dividend distribution (ii) the DDT refund claim was not made by the assessee in the Return of Income (ROI) and consequently in terms of Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC), the assessee cannot claim refund in the absence of any revised return filed in this regard. The application moved under Section 237 was thus rejected.

Further aggrieved, the assessee preferred appeal before the Tribunal.

The ld. counsel for the assessee, at the outset, adverted to Section 237 of the Act and submitted that such provision entitles the assessee to claim refund of excess tax paid by it owing to inadvertence or mistake committed. In the present case, the assessee-company while making distribution / remittance of dividend to its non-resident shareholder (a tax resident of Mauritius) has paid DDT at applicable rates ranging between 12.5% to 15% + surcharge + cess under Section 115-O of the Act instead of 5% applicable to residents of Mauritius in terms of Article 10(2)(a) of Indo-Mauritius DTAA on dividend payment. The ld. counsel submitted that shareholder M/s. Peri Mauritius being a tax resident of Mauritius, the tax liability on dividend stands @ 5% only as per India- Mauritius DTAA. The excess tax paid by the assessee while making the distribution of dividend under Section 115-O of the Act is thus liable to refund under Section 237 of the Act. The ld. counsel adverted to provisions of Section 237 of the Act, Section 115-O of the Act and 5 ITAs No.1136 to 1142/Del/2023 Article 10 of DTAA to contend that the revenue authorities were not justified in law in retaining the excess distribution tax paid by the assessee-company over and above the beneficial tax rate of 5% applicable in terms of Article-10 of DTAA. The ld. counsel thus urged for a direction to the AO to refund the DTT paid in excess of 5% by the assessee-company for different assessment years.

The ld. CIT-DR, on the other hand, relied upon the order passed by the AO under Section 237 of the Act and the first appellate order passed thereon. In furtherance, the ld. CIT-DR submitted that a plain reading of Section 237 would reveal that claim of refund of alleged excess tax, if any, is plausible only where the amount is chargeable in the hands of the assessee seeking refund. In the instant case, the dividend is not chargeable to tax in the hands of the assessee payer per se. The dividend income has not been included as taxable income. The tax has been paid by the assessee in terms of Section 115-O of the Act classified as ‘special provision’ relating to ‘Tax in Distribution Profits of Domestic Companies’. As per the overriding provisions of Section 115-O, an obligation has been shifted upon the domestic company proposing to declare, distribute or pay amounts by way of dividend to its shareholders in departure to normal rule of taxation of dividends in the hands of recipients. Section 115-O has merely caused an additional burden upon the company declaring / distributing dividend towards payment of DDT which shall be regarded as additional income tax on distributed profits. Thus, the assessee in the instant case has paid distribution tax at specified rate as provided under Section 115-O owing to special provision. There is no legal obligation to pay tax upon the shareholder who is recipient of the dividend income in view of Section 115-O of the Act notwithstanding default, if committed, in payment of DDT by the Domestic Company distributing dividend. The payment of DDT thus is not on behalf of the shareholder but owing to obligation squarely placed upon the domestic company distributing profits by way of dividend. The payment of tax is to be regarded as additional income tax on account of 6 ITAs No.1136 to 1142/Del/2023 distribution of profits in distinction to vicarious liability of payment of tax on behalf of shareholder. Hence, the benefit of Article-10 is not available to the domestic company. In the absence of any obligation towards payment of taxation upon the beneficial owner of the dividend, the benefit of treaty in terms of provisions of Article-10 is not triggered at all. The Ld CIT-DR also pleaded that the issue is no longer res integra. The issue has been duly examined by the special bench in the case of DCIT vs. Total Oil India (P) Ltd (2023) 149 taxmann.com 332 (Mum-SB) wherein the issue was decided in favour of the revenue. The CIT-DR thus contended that the view of the lower authorities are in accordance with law and cannot be faulted. Hence no interference with the appellate order under challenge is called for.

We have carefully considered the rival submissions and perused the material available on record.

It is the case of the assessee that while the assessee has paid DDT under Section 115-O of the Act at applicable rate under the Act which is 12.5% + surcharge + cess for A.Ys. 2005-06 and 2006-07 and 15% + surcharge + cess for remaining years in appeal, the assessee in terms of Article 10(2)(a) of DTAA between India and Mauritius is liable to pay lower rate of tax, i.e. 5% on dividend payable to the shareholder (tax resident of Mauritius) and consequently assessee is entitled to refund of excess tax collected by the revenue on dividend distributed and paid to the Holding company (a tax resident of Mauritius). The assessee has thus alleged that the Revenue Authorities have wrongfully retained excess tax paid on remittance of dividend and thus wrongfully denied the benefit of treaty available to the assessee.

We straightaway take note of the special bench decision in the case of Total Oil (supra). In that case, the assessee M/s Total Oil India Private Ltd., an Indian Co., declared/paid dividend for AY 2016-17. One of the shareholders to whom dividend was to be paid was a Non Resident (Tax

The issue is thus squarely covered in favour of the revenue and against the assessee. In the instant case, the treaty benefit is thus not available in relation to provisions of 115-O of the Act. The provisions of section 237 is thus of no avail.

As a result, all the captioned appeals of the Assessee are thus dismissed.