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2016 (5) TMI 1103 - ITAT KOLKATA

2016 (5) TMI 1103 - ITAT KOLKATA - TMI - Taxability of dividend received from brazilian company in India - India Brazil DTAA - Held that:- From the perusal of DTAA between India and Brazil vide Article 10 paragraphs 1 and 2 as well as Article 23 Paragraph 3 , since dividend is received from Brazil, wherein the same could have been taxed upto a rate not exceeding 15% as per DTAA but have been by Brazilian law declared to be not subject to income tax and the assessee is a resident company of India .....

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ue arises out of the order of the learned CIT(A)-VIII, Kolkata in appeal no. 114/CIT(A)-VIII/Kol/10-11 dated 27-02-2012 against the order of assessment framed for the assessment year 2008-09 u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ). 2. The only issue to be decided in this appeal is as to whether the dividend received from brazilian company could be claimed as not taxable in India in the facts and circumstances of the case. 3. The brief facts of this issue is .....

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a certificate of foreign inward remittance certificate issued by UTI Bank Ltd before the Learned AO evidencing the nature of remittance. The Learned AO observed that only the dividend received from domestic company is exempt u/s 10(34) of the Act. In the instant case, the assesseee company had received dividend from Millinium Investimentos Ltd , which is a foreign company, and hence the same would not fall in the ambit of dividend distribution tax contemplated in section 115O of the Act and acc .....

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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 a company which is the beneficial owner of the dividends the tax so charged shall not exceed 15 per cent of the gross amount of the dividends. This paragraph shall not effect the taxation of the company in respect of the profits out of which the dividends are paid. 3. The term "dividends" as used in .....

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ends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, and the holding by virtue of which the dividends are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply. 5. Where a resident of India has a permanent establishment in Brazil, this permanent establishment may be subject to a ta .....

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f that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State. 4. We find from Article 10 of DTAA between India and Brazil, dividend received by assessee .....

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p; Services (P) Ltd (assessee herein), an Indian Company, had invested in 40% Equity Capital of a Brazilian Company named Millenium Investmentos Ltda, which is a Joint Venture Investment Company with remaining 60% Equity held by Citra do Brazil (a Brazilian Company), with the main object of making equity investment in industrial venture for making railway wagon under the Banner of Santa Fe Vagoes Ltda, a Brazilian Company. Millinium Investmentos Ltd had invested 60% Equity of Santa Fe Vagoes , M .....

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mitted by assessee to RBI by declaring dividend received along with the bank documents and also the Brazilian Audited Balance Sheet of Millinium along with the English translated version which confirm payment of dividend to the assessee after all the statutory compliance of that country. The Learned AR stated that M/s Millinium Investmentos Ltd. had already paid tax at the rate of 34% as per Brazilian Tax Rate and the post tax profits were only distributed as dividend to Besco Engineering & .....

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nt of dividends with reference to the minimum portion established in the article of incorporation considering the minimum limit of 25% of the net profit of the year. According to him, in the instant case, the company has fulfilled this criteria also as below:- Millinium Investmentors Ltda has net profit before tax of 2421,277.28 C Dividend distributed by the company during the year 974376.01 D Hence % of dividend distributed from profit = 974376.01 / 2421277.28 * 100 40.24% He argued that minimu .....

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sent the remand report on 15.2.2012 for which the assessee had filed a rejoinder before the Learned CIT(A). We find that the assessee had produced sufficient material evidence before the lower authorities to show that the dividend had been declared by the Brazilian company from its current profits and that tax had been paid on the same as per Brazilian tax laws. The Learned CIT(A) observed that there are two modes of granting relief under DTAA. One is (a) exemption method and other is (b) tax cr .....

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The effect of DTAA is as follows:- a. If no tax liability is imposed under the Act, the question of resorting to the agreement would not arise, no provision of the agreement can possibly fasten a tax liability where the liability is not imposed by the Act; b. If a tax liability is imposed by the Act, an agreement may be resorted to for negotiating or reducing it; c. In case of difference between the provisions of the Act and of the agreement, the provisions of the agreement prevail over the pro .....

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s a deduction from the tax on the income of that resident an amount equal to the tax paid in that other State. Such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is attributable to the income which may taxed in that other State. 2. For the deduction mentioned in paragraph 1, the tax paid in that other State shall always be deemed to have been paid at the rate of 25 per cent of the gross amount of interest referred to in paragraph 2 of .....

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