2016 (5) TMI 1103 - AT - Income Tax

Taxability of dividend received from brazilian company in India - India Brazil DTAA - Held that - From the perusal of DTAA between India and Brazil vide Article 10 paragraphs 1 and 2 as well as Article 23 Paragraph 3 , since dividend is received from Brazil, wherein the same could have been taxed upto a rate not exceeding 15% as per DTAA but have been by Brazilian law declared to be not subject to income tax and the assessee is a resident company of India within the meaning of Article 23 paragraph 3 of DTAA , such dividends shall be exempt from Indian Income Tax. Hence we find no infirmity in the order of the Learned CIT(A) in this regard. - Decided against revenue

Summary

Issues:
1. Taxability of dividend received from a Brazilian company in India under the Income-tax Act, 1961.

Analysis:

Issue 1: Taxability of Dividend

The appeal revolved around determining whether the dividend received from a Brazilian company by an Indian private limited company was taxable in India. The Assessing Officer (AO) contended that only dividends from domestic companies are exempt under section 10(34) of the Income-tax Act. However, the appellant argued that the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and Brazil should be considered. The DTAA outlined that dividends paid by a company resident in one contracting state to a resident of the other state may be taxed in the recipient state, subject to certain conditions. The appellant provided evidence that the Brazilian company had paid tax on the dividend at a rate of 34% as per Brazilian tax laws. The appellant also demonstrated compliance with the minimum profit distribution criteria set by Brazilian laws. The appellate authorities observed that under the DTAA, dividends received from Brazil are exempt from Indian income tax, as per Article 23 paragraph 3, when the recipient is a resident company of India. The DTAA provisions prevailed over the Income-tax Act, leading to the dismissal of the revenue's appeal.

The judgment highlighted the importance of considering international tax treaties, such as the DTAA, in determining the taxability of income received from foreign sources. It emphasized the significance of providing sufficient evidence to support claims of tax exemption under such agreements. The decision underscored the principle that DTAA provisions take precedence over domestic tax laws when resolving issues of double taxation. Ultimately, the appellate tribunal upheld the exemption of the dividend from Indian income tax based on the provisions of the DTAA between India and Brazil.