2008 (2) TMI 43 - SC - Income Tax

Assessee claimed refund on the basis of deemed TDS on dividend received from a Malaysian company - Double Taxation Avoidance Agreement entered into by the GOI with the Government of Malayasia would override the provisions of the IT Act on basis of Article XI of the DTAA held that HC was justified in holding that dividend income derived by the assessee from a company in Malaysia is not liable to be taxed in the hands of the assessee in India under any of the provisions of the Act

Summary

Issues:
1. Taxability of dividend income earned from a Malaysian company in India under the Income Tax Act.
2. Interpretation of Double Taxation Avoidance Agreement (DTAA) between India and Malaysia.
3. Justifiability of points raised before different appellate authorities.

Analysis:

Issue 1: Taxability of Dividend Income
The case involved the taxability of dividend income earned by the assessee from a Malaysian company in India under the Income Tax Act. The Assessing Officer raised a demand after rejecting the credit claimed by the assessee based on deemed TDS on the dividend received. The CIT(Appeals) accepted the assessee's appeal, leading to further appeals by the revenue. The Tribunal held that the DTAA between India and Malaysia would override the provisions of the Act if they conflicted. It concluded that dividend income would only be taxed in the contracting state where it accrued. The High Court, following precedent, affirmed that the dividend income derived by the assessee from the Malaysian company was not liable to be taxed in India under the Act.

Issue 2: Interpretation of DTAA
Regarding the interpretation of the DTAA between India and Malaysia, the High Court clarified that tax liability under Section 5(1)(c) of the Income Tax Act would apply, but under the DTAA, tax should be levied in the country where the income accrued. The Court found that the question of taxing income accrued outside the country under Section 5(1)(c) did not arise from the Tribunal's order due to the DTAA provisions.

Issue 3: Points Raised Before Appellate Authorities
The High Court addressed the justifiability of points raised by the assessee at different appellate stages. It noted that the assessee had raised relevant points before the CIT(Appeals) and filed cross-objections before the Tribunal. The Court observed that since the CIT(Appeals) had decided against the assessee, the points raised were not new before the Tribunal. The High Court refrained from discussing the TDS tax credit issue due to its decision on the taxability of income derived in Malaysia.

In conclusion, the Supreme Court dismissed the appeals, upholding the decisions favoring the assessee based on the interpretation of the DTAA and relevant legal precedents. The parties were directed to bear their own costs in the matter.