FOSECO INDIA LIMITED,PUNE vs. ACIT CIRCLE 1(1), PUNE

The seven appeals filed by the assessee are directed against the separate order(s) all dated 28.03.2024 of the Ld. Commissioner of Income Tax (Appeals)-13, Pune [“CIT(A)”] pertaining to Assessment Years (“AYs”) 2014-15 to 2020-21. Since the issue(s) involved are identical, these were heard together and are being disposed of by this common order.

We take up the appeal in for AY 2014-15 as the lead case.

That on the fact and in the circumstances of the case, DDT paid u/s 115- O of the Act on dividends declared and paid to foreign shareholders - Vesuvius Holdings Limited (VHL), Foseco Overseas Limited (FOL) & Foseco UK Limited (FUL), who are tax residents of United Kingdom cannot exceed the rate provided under Article 11 to the Double Taxation Avoidance Agreement between India and UK.

Briefly stated, the assessee is a domestic company engaged in the business of manufacture, marketing and trading of foundry chemicals and foundry fluxes for the metallurgical industry, including the steel and foundry industry. It is a part of the Ceramics division of the Vesuvius group. For AY 2014-15, the assessee filed its return of income on 30.11.2024 disclosing a total income of Rs.27,17,03,590/- and book profit amounting to Rs.25,66,62,099/- under the provisions of section 115JB of the Income Tax Act, 1961 (the “Act”). During the relevant AY 2014-15, the assessee distributed dividend, amongst others, to its three foreign shareholders i.e. (i) Vesuvius Holdings Limited (“VHL”), Foseco Overseas Limited (“FOL”) and Foseco UK Limited (“FUL”) who all are the tax residents of UK, aggregating to Rs.7,66,30,021/-. On the dividend distributed to VHL, FOL and FUL, the assessee paid Dividend Distribution Tax (“DDT”) amounting to Rs.1,30,23,272/- under the provisions of section 115-O of the Act. The assessee filed an application on 12.05.2021 before the Ld. Assessing Officer (“AO”) requesting for refund of excess DDT paid under the relevant provisions of the Act over and above the rates prescribed under Article 11 of the India-UK Double Taxation Avoidance Agreement (“India-UK DTAA”) on the ground that the DDT is a tax on shareholders and covered under the India-UK DTAA and that the foreign shareholders viz. VHL, FOL and FUL are entitled to take the recourse to the beneficial provisions of India-UK DTAA vis-à-vis the provisions of the Act and relying on certain judicial pronouncements wherein it has been held that the DDT levied shall not exceed the rate specified in the DTAA. Therefore, the assessee claimed that it is eligible for refund of the DDT amounting to Rs.15,28,769/- (Rs.1,30,23,272/- - Rs.1,14,94,503/-) paid in excess of the rate prescribed under the India-UK DTAA. After analyzing the submission of the assessee and relevant provisions of the Act and India-UK DTAA, the Ld. AO rejected the assessee’s application for refund on account of excess DDT paid by it vide his order passed u/s 237 of the Act dated 25.11.2022 observing that the DDT is an additional income-tax on companies and it is the company which is subject to tax u/s 115-O of the Act and not the shareholder and hence, the assessee is not entitled to benefit of reduced rate of tax as per the India-UK DTAA.

If domestic company has to enter the domain of DTAA, the countries should have agreed specifically in the DTAA to that effect. In the Treaty between India and Hungary, the Contracting States have extended the Treaty protection to the dividend distribution tax. It has been specifically provided in the protocol to the Indo Hungarian Tax Treaty that, when the company paying the dividends is a resident of India the tax on distributed profits shall be deemed to be taxed in the hands of the shareholders and it shall not exceed 10 per cent of the gross amount of dividend. While making Reference in the case of Total Oil (supra), the Id. Division Bench has made the following observations on this aspect: “(f) Wherever the Contracting States to a tax treaty intended to extend the treaty protection to the dividend distribution tax, it has been so specifically provided in the tax treaty itself. For example, in India Hungry Double Taxation Avoidance Agreement ((2005) 274 ITR (Stat) 74; Indo Hungarian tax treaty, in short], it is specifically provided, In the protocol to the Indo Hungarian tax treaty it is specifically stated that "When the company paying the dividends is a resident of India the tax on distributed profits shall be deemed to be taxed in the hands of the shareholders and it shall not exceed 10 per cent of the gross amount of dividend". That is a provision in the protocol, which is essentially an integral part of the treaty, and the protocol to a treaty is as binding as the provisions in the main treaty itself. In the absence of such a provision in other tax treaties, it cannot be inferred as such because a protocol does not explain, but rather lays down, a treaty provision. No matter how desirable be such provisions in the other tax treaties, these provisions cannot be inferred on the basis of a rather aggressively creative process of interpretation of tax treaties. The tax treaties are agreements between the treaty partner jurisdictions, and agreements are to be interpreted as they exist and not on the basis of what ideally these agreements should have been. (g) A tax treaty protects taxation of income in the hands of residents of the treaty partner jurisdictions in the other treaty partner jurisdiction. Therefore, in order to seek treaty protection of an income in India under the Indo French tax treaty, the person seeking such treaty protection has to be a resident of France. The expression 'resident' is defined, under article 4(1) of the Indo French tax treaty, as "any person who, under the laws of that Contracting State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature". Obviously, the company incorporated in India, i.e. the assessee before us, cannot seek treaty protection in India- except for the purpose of, in deserving cases, where the cases are covered by the nationality non-discrimination under article 26(1), deductibility non-discrimination under article 26(4), and ownership non- discrimination under article 24(5) as, for example, article 26(5) specifically extends the scope of tax treaty protection to the enterprises of one of the Contracting States, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State" The same is the position with respect of the other non-discrimination provisions. No such extension of the scope of treaty protection is envisaged, or demonstrated, in the present case. When the taxes are paid by the resident of India, in respect of its own liability in India, such taxation in India, in our considered view, cannot be protected or influenced by a tax treaty provision, unless a specific provision exists in the related tax treaty enabling extension of the treaty protection. (h) Taxation is a sovereign power of the State- collection and imposition of taxes are sovereign functions. Double Taxation Avoidance Agreement is in the nature of self-imposed limitations of a State's inherent right to tax, and these DTAAs divide tax sources, taxable objects amongst themselves. Inherent in the self-imposed restrictions imposed by the DTAA is the fact that outside of the limitations imposed by the DTAA, the State is free to levy taxes as per its own policy choices. The dividend distribution tax, not being a tax paid by or on behalf of a resident of treaty partner jurisdiction, cannot thus be curtailed by a tax treaty provision 82. We are of the view that the above exposition of law is correct and we agree with the same. Therefore, the DTAA does not get triggered at all company pays DOT u/s 1160 of the A Act when a domestic company pays DDT u/s. 115O of the Act. 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. 115-0 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. UNQUOTE" On the basis of the reasoning given above, it is concluded that where dividend is declared, distributed or paid by a domestic company to a non- resident shareholder, which attracts DDT referred to in Section 115-0 of the Act, such DDT payable by the domestic company shall be at the rate mentioned in Section 115-0 of the Act and not at the rate of tax applicable to the non-resident shareholder as specified in the relevant DTAA with reference to such dividend income. Wherever the Contracting States to a tax treaty intend to extend the treaty protection to the domestic company paying DDT, only then, the domestic company can claim benefit of the DTAA, if any.”

Dissatisfied, the assessee is in appeal before the Tribunal and all the grounds raised by the assessee relate thereto.

Both the Ld. Representatives of the parties fairly conceded that the impugned issue stands decided against the assessee by the decision of the Special Bench of the Tribunal in the case of Total Oil India Pvt. Ltd. & Oth (supra), which has been followed by the Ld. CIT(A). The Ld. AR, however filed the written submission in support of its claim and made a request to consider the same. The written submission filed by the Ld. AR reads as under : Gr. Particulars Key submissions No. 1 to 5 Refund of excess DDT 1. In terms of Memorandum explaining the paid u/s 115-0 amounting provisions of Finance Bill, 1997, 2002, 2003, to Rs.15,28,769/- 2016 & 2020, in relation to dividend distribution it is apparent that dividend is Brief Facts During the taxable in the hands of the recipient. For previous year relevant to the administrative purpose, provision of DDT assessment year under was introduced in the statute books to consideration, the appellant simplify the collection process by making the had distributed dividend, company liable to pay tax on such dividend among other shareholders, distributed. The relevant portion of the to its foreign shareholders, Memorandum are enclosed and collectively Vesuvius Holdings Limited marked as Annexure – 1. In essence, tax ('VHL'), Foseco 2. Overseas on shareholders was collected through Limited ('FOL) & Foseco UK companies. Limited (FUL') aggregating to Rs.7,66,30,021/-. VHL, FOL 2. There are several decisions wherein it has & FUL are tax residents of been held that DDT being a tax on United Kingdom ('UK"). On shareholder and not on the company, the tax the dividend distributed to rates specified in DTAA in respect of VHL, FOL & FUL, the dividend must prevail over DDT- appellant had paid Dividend Distribution Tax ('DDT') M/s. Indian Oil Petronas Pvt. Ltd. vs. amounting to DCIT 120211 127 taxmann.com 389 Rs.1,30,23,272/- @ (Kolkata - Trib.) Giesecke & Devrient 16.994%). India Pvt Ltd. vs ACIT [20201 120 taxmann.com 338 (Delhi -Trib.) In terms of Article 11 of India-UK Double Taxation 3. However, the Ld. CIT(A) had dismissed Avoidance Agreement appeal by placing reliance on judgment of the (DTAA'), dividend shall be Special Bench (SB) of Hon'ble Mumbai ITAT taxable @ 15% in the hands in case of DCIT Vs Total Oil India Pvt. of beneficial owner of the Ltd.

Further, Hon'ble Delhi HC has admitted appeal in the case of Intertek India Private Limited vs. DCIT [ITA No. 405/2024] wherein following question of law has been considered - (a) Whether the DDT prescribed u/s 115-O of the Act is in substance and effect a tax on dividend income of non-resident shareholders and where recipient shareholders are residents of United Kingdom the more beneficial rate of tax of 10% under Article 11 of DTAA between India- UK is applicable? (b) Whether decision of the SB in the case of Total Oil India Pvt. Ltd. (supra) lays down the correct law? 6. The appellant prays to keep the aforesaid proceedings on hold till the disposal of appeal by Hon'ble Delhi HC since the same involves substantial question of law.

We have heard the Ld. Representative of the parties, considered their submission and perused the material available on record. The facts are not in dispute. We observe that the impugned issue is squarely covered in favour of the Revenue by the decision of the Special Bench of Mumbai Tribunal in the case of Total Oil India Pvt. Ltd. & Oth (supra). The Ld. CIT(A) while deciding the impugned issue against the assessee followed the decision of the Special Bench of the Tribunal (supra). There is no contrary material that has been brought to our notice. We, therefore, do not find any infirmity in the order of Ld. CIT(A) which is hereby upheld. Respectfully following the decision (supra) of the Special Bench of Mumbai Tribunal in Total Oil India (P.) Ltd’s case, the grounds raised by the assessee are dismissed.

In the result, the appeal of the assessee for AY 2014-15 is dismissed. to 1120/PUN/2024, AYs 2015-16 to 2020-21

Both the sides are unanimous in stating that the facts and the grounds of appeals in to 1120/PUN/2024 are identical to the grounds raised in except the variance in amounts. Thus, in view of the fact that the issue raised in the appeals are identical and are arising from same set of facts, the findings given by us while adjudicating the appeal in ITA No. 1114/PUN/2024 would mutatis mutandis apply to the appeals in ITA Nos. 1115 to 1120/PUN/2024 as well. Accordingly, these appeals of the assessee are also dismissed in the same terms.

To sum up, all the seven appeals of the assessee in to 1120/PUN/2024 for AYs 2014-15 to 2020-21 are dismissed.