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2024 (7) TMI 1139 - AT - Income TaxRefund on account of excess DDT - payments by way of DDT were paid by the assessee company on distribution of dividend - HELD THAT - It is the case of the assessee that while the assessee has paid DDT u/s 115-O of the Act at applicable rate under the Act which is 12.5% surcharge cess for A.Ys. 2005-06 and 2006-07 and 15% surcharge cess for remaining years in appeal, the assessee in terms of Article 10(2)(a) of DTAA between India and Mauritius is liable to pay lower rate of tax, i.e. 5% on dividend payable to the shareholder (tax resident of Mauritius) and consequently assessee is entitled to refund of excess tax collected by the revenue on dividend distributed and paid to the Holding company (a tax resident of Mauritius). Assessee has thus alleged that the Revenue Authorities have wrongfully retained excess tax paid on remittance of dividend and thus wrongfully denied the benefit of treaty available to the assessee. We straightaway take note of the special bench decision in the case of Total Oil 2023 (4) TMI 988 - ITAT MUMBAI (SB) In that case, the assessee M/s Total Oil India Private Ltd., an Indian Co., declared/paid dividend for AY 2016-17. One of the shareholders to whom dividend was to be paid was a Non Resident (Tax resident of France). Similar plea was raised in that case that the rate at which tax under 115-O of the Act had to be paid could not be more than the rate at which dividend could be taxed in the hands of the Non Resident shareholder in India under the DTAA between India and France as the rate of tax prescribed in the DTAA is generally less than the rate prescribed in section 115-O. On nuanced analysis, the Special bench formed a view that dividend declared by a domestic company to a non resident should be taxed at the rate given u/s 115-O and not the beneficial rates given under DTAA for Non Residents unless the contracting state to which the treaty intends to extend the treaty protection to the domestic company. It thus observed that 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. No such protection has been shown to be extended in the instant case. The issue is thus squarely covered in favour of the revenue and against the assessee. In the instant case, the treaty benefit is thus not available in relation to provisions of 115-O of the Act. The provisions of section 237 is thus of no avail. Appeals of the Assessee are thus dismissed.
Issues Involved:
1. Entitlement to refund of excess Dividend Distribution Tax (DDT) paid under Section 237 of the Income Tax Act, 1961. 2. Applicability of Article 10 of the Indo-Mauritius Double Taxation Avoidance Agreement (DTAA) for DDT. 3. Legitimacy of claims not made in the Return of Income (ROI) as per Goetze (India) Ltd. v. CIT. Detailed Analysis: 1. Entitlement to Refund of Excess DDT Paid Under Section 237 of the Income Tax Act, 1961: The assessee, a private limited company incorporated in India, engaged in the manufacture and sale of alcoholic beverages, paid DDT on dividends distributed to its holding company, a tax resident of Mauritius. The assessee claimed a refund of excess DDT paid, arguing that the applicable rate under the Indo-Mauritius DTAA was 5%, significantly lower than the rates prescribed under Section 115-O of the Act (12.5% to 15% plus surcharge and cess). The Assessing Officer (AO) rejected the refund claim on two grounds: - The Finance Act, 1997, made dividends chargeable in the hands of the payer-company, and any claim for excess tax should be made by the shareholder, not the company. - The refund claim was not made in the Return of Income (ROI), and as per Goetze (India) Ltd. v. CIT, the assessee cannot claim a refund without filing a revised return. 2. Applicability of Article 10 of the Indo-Mauritius Double Taxation Avoidance Agreement (DTAA) for DDT: The CIT(A) upheld the AO's decision, stating: - Dividend is income in the hands of the shareholders, not the appellant. - Section 115-O was included for administrative convenience, and the character of dividend income remains that of the shareholders. - The DTAA benefits are available to eligible non-residents, not domestic companies. - Even if the holding company is the beneficiary of the treaty, the refund of excess payment cannot be claimed by the appellant-company as it benefits the company, not the non-resident shareholders. 3. Legitimacy of Claims Not Made in the Return of Income (ROI) as per Goetze (India) Ltd. v. CIT: The Tribunal examined the arguments presented by both parties. The assessee contended that Section 237 entitles it to a refund of excess tax paid due to inadvertence or mistake. The CIT-DR argued that Section 237 allows refunds only when the amount is chargeable in the hands of the assessee seeking the refund. Since the dividend is not chargeable to tax in the hands of the payer-company, the benefit of Article 10 of the DTAA does not apply. The Tribunal referred to the Special Bench decision in DCIT vs. Total Oil India (P) Ltd., which concluded that the rate of tax under Section 115-O should apply, not the beneficial rates under the DTAA, unless the treaty explicitly extends protection to the domestic company. In this case, no such protection was shown. Conclusion: The Tribunal upheld the decisions of the lower authorities, ruling that the treaty benefit under Article 10 of the Indo-Mauritius DTAA does not apply to the provisions of Section 115-O. Consequently, the provisions of Section 237 are not applicable for claiming a refund of excess DDT paid. All appeals by the assessee were dismissed. Order pronounced in the open Court on 19 July, 2024.
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