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2010 (2) TMI 119 - AUTHORITY FOR ADVANCE RULINGSTax on dividend received from wholly owned subsidiary companies – Sale / purchase / buyback transactions – DTAA with Netherlands - The applicant is a company incorporated in the Netherlands - PG India is a private limited company (Pierburg India) incorporated in India - The applicant expects to receive income in the form of dividends declared and distributed by PG India. - The applicant may also realize capital gains through a sale of portion or all of its shares in PG India to another non-resident company. - PG India may also consider a buy-back of its shares by the applicant. Consequent to the buy back, PG India would continue to be the wholly owned subsidiary of the applicant. Held that - in respect of dividends received by the applicant from its wholly owned subsidiary Pierburg India Pvt. Ltd. By virtue of section 9(1)(iv) of the IT Act, a dividend paid by an Indian company outside India is deemed to be taxable income. However, in view of section 10(34) of the Act, the income by way of dividends referred to in section 115-O of the Act is liable to be excluded from the total income of the previous year of any person - under section 115-O, PG India would be liable to pay tax on the distribution of profits by way of dividends to the applicant @ 15 per cent. However, such dividends received by the applicant (shareholder of PG India) would not be taxable in its hands under the IT Act. - The applicant is entitled to invoke the benefit of the provisions in the Treaty notwithstanding the provisions of the Income-tax Act, 1961 on the same subject. Section 90(2) of the IT Act recognizes this principle. It lays down that in relation to the assessee to whom the Agreement (Treaty) applies, the provisions of the Act shall apply to the extent they are more beneficial to the assessee
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