2024 (1) TMI 944 - AT - Income Tax

Refund of excess Dividend Distribution Tax (DDT) paid - Rate of tax payable on DDT, will be as per section 115-O or as per rates mentioned in DTAA - Distribution of dividends to its share holders (Germany) (Non-residents) and paid DDT on distribution of dividends u/s 115-O - assessee is engaged in the business of sales and distribution of headphones, microphones, monitoring systems, tour guide systems and aviation headsets. It imports goods from Sennheiser group companies for reselling through its distributors in India - HELD THAT - We find that this issue is no longer res integra in view of the recent Special Bench decision of Mumbai Tribunal in the case of DCIT Vs. Total Oil India Private Limited 2023 (4) TMI 988 - ITAT MUMBAI (SB) 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-O 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 shareholders(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 - Decided against assessee.

Summary

Issues:
The main issue in this case is whether the National Faceless Appeal Centre (NFAC) was justified in not granting a refund of the Dividend Distribution Tax (DDT) to the assessee.

Details of the Judgment:
The assessee, engaged in the business of sales and distribution of electronic goods, imported goods for resale through its distributors in India. The return of income for the assessment year 2019-20 was filed by the assessee, declaring total income. During the year, the assessee distributed dividends to its shareholders and paid DDT on the distribution of dividends. The assessee sought a refund of the excess DDT paid.

The Tribunal referred to a recent Special Bench decision of the Mumbai Tribunal in the case of DCIT Vs. Total Oil India Private Limited. The Special Bench decision clarified that the additional income tax payable by a domestic company on dividends to non-resident shareholders shall be at the rate mentioned in section 115-O of the Income Tax Act, and not at the rate specified in the Double Taxation Avoidance Agreement (DTAA) with the non-resident shareholders. The decision emphasized that treaty protection under DTAA can only be claimed by a domestic company paying DDT if the Contracting States intend to extend such protection.

Based on the Special Bench decision, the Tribunal dismissed the grounds raised by the assessee and upheld the decision of the NFAC to not grant a refund of the DDT. Consequently, the appeal of the assessee was dismissed.

The judgment was pronounced in the open court on the specified date.