2021 (12) TMI 995 - HC - Income Tax

Certificate u/s 197 - Deduction of TDS are low rate or NIL rate - India Switzerland DTAA read with the protocol and Most Favoured Nation ( MFN ) clause - application of the Petitioner u/s 197 had been disposed of prescribing a rate of 10% on the dividends distributed by Cotecna Inspection India Private Limited ( CIIPL ) to the Petitioner as opposed to the applicable rate of 5% under the India-Switzerland Double Taxation Avoidance Agreement ( DTAA ) read with the MFN clause and the Amending Protocol to the DTAA - HELD THAT - The issues raised in the present writ petition are no longer res integra, as they are fully covered by the judgments of this Court in Concentrix Services Netherlands B.V. 2021 (4) TMI 1051 - DELHI HIGH COURT as well as in Nestle SA 2021 (4) TMI 1267 - DELHI HIGH COURT . In Concentrix Services Netherlands B.V. (Supra) it has been held that no separate notification is required insofar as the applicability of the protocol is concerned and the same forms an integral part of the Convention. It is well settled law that the Department cannot refuse to follow binding jurisdictional decision merely on the basis that the Department proposes to file an appeal. The Supreme Court in UOI v. Kamlakshi Finance Corpn Ltd. 1991 (9) TMI 72 - SUPREME COURT has held that order of higher appellate authorities should be followed unreservedly and mere fact that decision is not acceptable to the Revenue cannot be a ground for not following the decision of higher authority. The impugned order and certificate are set aside and the respondent is directed to issue a certificate under Section 197 of the Act indicating therein that the rate of tax, on dividend, as applicable qua the Petitioner is 5% in India-Switzerland DTAA as held in Nestle SA (Supra) which was also under India-Switzerland DTAA.

Summary

Issues:
Challenge to certificate and communication under Income Tax Act, 1961 for tax withholding rate on dividend under India-Switzerland DTAA with MFN clause.

Analysis:
The petitioner filed a writ petition challenging a certificate and communication issued by the respondent regarding the tax withholding rate on dividends. The petitioner sought directions for a fresh certificate prescribing a 5% tax withholding rate on a specific dividend amount for the Financial Year 2021-22 under the India-Switzerland Double Taxation Avoidance Agreement (DTAA) read with the Most Favoured Nation (MFN) clause. The impugned orders prescribed a 10% tax rate on dividends, contrary to the applicable 5% rate under the DTAA and related agreements.

The petitioner argued that the MFN clause in the India-Switzerland DTAA allows for a lower tax rate on dividend income if India enters into agreements with other OECD member countries at a lower rate. Referring to past judgments, the petitioner contended that the issue raised in the petition has already been settled by the court. The respondent's decision was deemed to contravene established legal principles, and the respondent was criticized for not following binding court decisions.

In response, the respondent argued that no notification had been issued by the Government of India to allow the lower tax rate from agreements with other countries. The respondent also mentioned the intention to file Special Leave Petitions before the Supreme Court challenging the court's decisions in similar cases. However, the court found that the issues raised in the present petition were already settled by previous judgments, emphasizing the importance of following binding jurisdictional decisions without waiting for potential appeals.

The court, after considering the arguments from both parties and the precedents cited, set aside the impugned order and directed the respondent to issue a certificate under Section 197 of the Income Tax Act indicating a 5% tax rate on dividends as applicable under the India-Switzerland DTAA. The court highlighted the need to adhere to established legal principles and previous court decisions, disposing of the writ petition with the given directions.