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TMI Blog2023 (10) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... essee failed to provide details services rendered, breakup of cost allocated etc., and therefore made the adhoc addition - DRP confirmed the disallowance made by the TPO - HELD THAT:- As in assessee s own case for A.Y. 2008-09 we direct the assessing officer / TPO to delete the adjustment made towards the qualifying activities under TTS only. Benefit of DTAA against Dividend Distribution Tax (DDT) - AR as a counter argument submitted that DDT is a tax on the income of the assessee and is a tax paid in addition to the regular income tax - whether the benefit of DTAA can be extended to domestic company? - HELD THAT:- If we look at the wordings in the India Hungary DTAA, what it provides is that the tax on the profits distributed by an Indian company is taxable at the rate of 10% in the hands of the shareholders. The treaty does not contain anything whereby the domestic company is protected by the DTAA and that the rate mentioned therein shall be considered by domestic company distributing the profit for the purpose of DDT. The clause only specifies that the distributed profits will be taxable in the hands of the shareholders who are residents of Hungary/Netherlands at the rate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps would be treated as shipping income and would be taxable as per the computation mechanism provided therein. The assessee filed the return of income for A.Y. 2009-10 on 30/09/2010 declaring total income at Rs. 10,92,11,700/-. Subsequently, the assessee filed a revised return on 30/03/2011 declaring a total income of Rs. 10,97,33,32/-. The case was selected for scrutiny under CASS and the statutory notices were duly served on the assessee. A reference was made to the Transfer Pricing Officer (TPO) in order to determine the arm s length price from the international transaction detailed in the audit report in form 3CEB. The TPO, vide order dated 29/01/2013 made an adjustment of Rs. 10,60,78,531/-. The Assessing Officer passed a draft assessment order incorporating the said addition. Aggrieved, the assessee filed its objections before the Dispute Resolution Panel (DRP). The DRP rejected the objections from the assessee and confirmed the TP adjustment. The Assessing Officer passed the final assessment order pursuant to the directions of the DRP against which the assessee is in appeal before the Tribunal. 4. The Ld.AR submitted that the issue of applicability of transfer pricing pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad office expenses incurred towards qualifying activity cannot be a subject matter of any adjustment. Therefore, the Ld.AR made a without prejudice submission that if at all there is a disallowance, it has to be restricted to what is attributable to other activities i.e. non-tonnage/non-qualifying activities. The Ld.AR drew our attention to page 40 of the paper book where the working with regard to the head office expenses between qualifying and non qualifying activities are separately claimed as expenses. The Ld.AR further relied on the decision of the co-ordinate bench in assessee s own case for A.Y. 2008-09 in ITA No.6960/Mum/2012 dated 11/05/2023 where a similar issue has been considered. The Ld.DR relied on the order of the lower authorities. 9. We heard the parties and perused the material on record. We notice that the co-ordinate bench in assessee s own case (supra) has considered similar issue and held that 27. Considered the rival submissions and material placed on record, we observe that assessee is a wholly owned subsidiary of Van Oord Dredging and Marine Contractors BV to provide administrative and logistic support to its holding company with respect to dred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act, 1961 ( the Act ) on dividends declared and paid by the Appellant to its parent foreign shareholder Van Oord Dredging Marine Contractors bv, who is a tax resident of Netherlands, is in excess of the rate provided under Article 10 read with the Most Favoured Nation clause under Article IV of the Protocol to the Double Taxation Avoidance Agreement between India and Netherlands. 13. In support of the admission of this additional ground, the ld A.R. submitted that it involved adjudication of only legal issues and no fresh facts were required to be examined. The ld DR opposed the admission of additional ground. Keeping into consideration the entire conspectus of the facts and circumstances of the case and the additional ground raised before us we are convinced that its adjudication does not require any fresh investigation of facts. Respectfully following the judgment of the Hon ble Supreme Court in the case of National Thermal Power Company Ltd. Vs. CIT [(1998) 229 ITR 383 (SC)] we admit this additional ground for disposal on merits. 14. The ld AR submitted that the India-Netherlands DTAA contains the Most Favoured Nation (MFN) clause under Article IV of the Protocol ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as refund under section 237 which only income tax shall be refunded. 16. The ld AR as a counter argument submitted that DDT is a tax on the income of the assessee and is a tax paid in addition to the regular income tax. The ld AR therefore submitted that DDT is very much covered by the definition of tax under section 2(43) and accordingly can be refunded under section 237. 17. We heard the parties and perused the material on record. Before proceeding further we will look at the relevant clauses pertaining to Dividends in the DTAA between India and Netherlands and in the DTAA between India and Hungary. India and Netherlands ARTICLE 10 DIVIDENDS 1. Dividends paid by a company which is a resident of one of the States to a resident of the other State may be taxed in that other State. 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends, the tax so charged shall not exceed 10 per cent of the gross amount of the dividends.] 3. The competent authorities of the States shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvention on the said items of income, then as from the date on which the relevant Indian Convention or Agreement enters into force the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention. India and Hungary Protocol With reference to Article 10 When the company paying the dividends is a resident of India the tax on distributed profits shall be deemed to be taxed in the hands of the shareholders and it shall not exceed 10 per cent of the gross amount of dividend. 18. The contention of the ld AR is that as per the MFN clause of India Netherlands DTAA as reproduced above, the protocol reference to Article 10 of India Hungary DTAA should be read into India Netherlands DTAA. From the plain reading of Protocol with reference to Article 10 of India Hungary DTAA it is clear that the taxability of dividend is more restrictive whereby the dividend paid by the Indian company shall be taxable in the hands of the shareholders at the rate of 10% of gross dividend. It is relevant here to note that it is no longer res integra that the protocol is an indispensable part of the treaty wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that Conclusion: 83. For the reasons give above, we hold that 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 shareholder(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. Thus, the question before the Special Bench is answered, accordingly. (Emphasis supplied) 21. Thus the Tribunal only held that it is the sovereign's prerogative to extend the treaty protection to domestic companies paying divide ..... X X X X Extracts X X X X X X X X Extracts X X X X
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