TMI Blog2021 (6) TMI 855X X X X Extracts X X X X X X X X Extracts X X X X ..... ture . Obviously, the company incorporated in India, i.e. the assessee before us, cannot seek treaty protection in India- except for the purpose of, in deserving cases, where the cases are covered by the nationality non-discrimination under article 26(1), deductibility non-discrimination under article 26(4), and ownership nondiscrimination under article 24(5) as, for example, article 26(5) specifically extends the scope of tax treaty protection to the enterprises of one of the Contracting States, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State . The same is the position with respect of the other non-discrimination provisions. No such extension of the scope of treaty protection is envisaged, or demonstrated, in the present case. When the taxes are paid by the resident of India, in respect of its own liability in India, such taxation in India, in our considered view, cannot be protected or influenced by a tax treaty provision, unless a specific provision exists in the related tax treaty enabling extension of the treaty protection. Taxation is a sovereign power of the State- collecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this set of appeal and the cross-objection, by way of ground no. 4 in the cross-objections filed by the assessee, is as follows: The learned Assessing Officer be directed to compute the tax payable by the assessee under section 115-O of the Income Tax Act, 1961 ( the Act ) at the rate prescribed in the DTAA between India and France in respect of dividend paid by the assessee to the non-resident shareholders i.e., Total Marketing Services and Total Holdings Asie, a tax resident of France. 3. Learned Departmental Representative has various preliminary objections to the above issue being raised before us. His first objection is that the cross-objection is time-barred inasmuch as while the appeal was filed by the Assessing Officer on 14th November 2019, the cross-objection is filed much after that date on 17th May 2021. It is contended that the time limit prescribed in section 253(4) of the Income Tax Act, 1961, has clearly lapsed, and, for this short reason alone, the cross-objection is liable to dismissed as time-barred. His second point is this claim about treaty protection, so far as the rate of dividend distribution tax is concerned, was never raised before any of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal is put to notice about the appeal having been filed by the other party, notwithstanding the fact that such a party may not have filed an appeal against related order or any part thereof, within thirty days of being so put to notice, file a memorandum of cross-objections, verified in the prescribed manner, against any part of the order of the Commissioner (Appeals), and such memorandum shall be disposed of by the Appellate Tribunal as if it were an appeal presented within the time specified in sub-section (3) . When this cross-objection is required to be treated as an appeal presented , there cannot be any justification in restricting the scope of issues which can be raised in a cross-objection. Whatever issues, therefore, can be raised by way of an appeal are the issues that can be raised by way of a cross-objection. As learned counsel for the assessee aptly points out, as held by Hon ble Gauhati High Court in the case of Purbanchal Paribartan Gosthi (supra), it can safely be held on a point of law that there is absolutely no difference between an appeal and a cross-objection. The only difference if at all one can be pointed out is that an appeal can be preferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders of the assessee company are entitled to the benefits of the India France Double Taxation Avoidance Agreement [(1994) 209 ITR (Stat) 130; Indo French tax treaty , in short], the dividend distribution tax paid by the assessee, which is nothing but a tax on dividend income of the shareholders, cannot exceed the rate at which, under the Indo French tax treaty, such dividends can be taxed in the hands of the non-resident shareholders in question. In support of this line of reasoning, the assessee relies on a decision of the coordinate bench in the case of Giesecke Devrient India Pvt Ltd Vs ACIT [(2020) 120 taxmann.com 338 (Del)] which has also been subsequently followed by several other coordinate benches as well. What this decision holds, according to a note filed by the learned counsel, can be summed up as follows: - Memorandum to Finance Bill 1997 and 2003 clearly establish that levy of tax on the company was driven by administrative considerations rather than legal necessity and emphasises the fact that the levy is for all intents and purposes, a charge on dividends. - DDT levied on the dividend distributed by the payer company, being an additional tax is covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial bench as the same is squarely covered by the aforesaid decisions and no contrary view has been taken to the best of our (his) knowledge and that following the principles of consistency, the issue does not require a reference to special bench . He thus urges us to follow the coordinate benches and remit the matter to the file of the Assessing Officer for reconsideration in the light of the same. 7. Shri Sanjay Singh, learned Departmental Representative, vehemently opposes the submissions of the assessee on merits as well. In a written note filed by the learned counsel, which sums up his arguments on this issue, the learned Departmental Representative has submitted as follows: 3.1.1. The tax u/s. 115O is tax on distributed taxes of the domestic companies. The sec.115O sub clause 4 specifies that no further credit can be claimed by the company or by any other person in respect of the amount of tax so paid. Sub sec.1a and 1b of the sec.115O supports the view that sec.115O is tax on the distributed profit of the company and is not a tax on the income of the shareholder. Sub sec.5 of the sec.115O provides that no deduction vide any other provision of the act should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed is who is to presently claiming the benefit of the DTAA . The assesse in this case is a resident company and cannot claim the benefit of any DTAA against taxes as per domestic tax statute. As regards the shareholder, details are not available on records. Further, the share holder cannot claim credit of any taxes from its Tax authority since no tax has been paid by it in India. Under various DTAAs that India has entered, the credit of the tax can be allowed by the countries whose resident is the assesse. Under the India France DTAA, France will allow credit to its French resident for taxes paid by it in India and vice versa. There cannot be a situation where either in the Tax Treaty or the Indian domestic tax law, India will be required to give the credit to resident of France of the taxes paid by an Indian resident. 3.1.6 The Hon ble ITAT, Delhi Bench in the case of Giesecke Devrient India Pvt. Ltd. have noted the decision of the Hon ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd., which held that Section 115-O deals with tax on the company and not on the shareholders . The Hon ble ITAT has distinguished by treating the tax levied u/s 115-O a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to light what is perceived by them as an erroneous decision in the earlier case and that in such circumstances, it is but natural and reasonable and indeed efficacious that the case is referred to a larger bench . Incidentally, these observations were made in the context of a two-member bench doubting the correctness of a three-member bench decision and referring the matter for the constitution of a five-member bench. Hon ble President of Central Excise, Customs and Gold Control Tribunal (CEGAT), as it then was, accepted these recommendations, and the Hon ble Supreme Court ultimately upheld the action of the Hon ble President, CEGAT. There was no occasion for conflict of decisions of the coordinate benches, and yet, in the esteemed views of Hon ble Supreme Court, the recommendation for constitution of the special bench, as indeed the constitution of the special bench itself, was held to be in order. In this view of the matter, learned counsel s submission that Hon ble President cannot constitute a special bench in the absence of conflict of opinions by the division benches is incorrect and untenable in law. Of course, it is for the Hon ble President to take a considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionally valid or not, and Hon ble Supreme Court has held that under section 2(24)(ii) dividend is included in income and is thus covered by Entry 82 of List I to Seventh Schedule, taxes on income, other than agricultural income in the legislative competence of the Parliament. It deals with the constitutionality, not the interpretation, of Section 115 O . It does not overrule, or even remotely deal with, the specific decision of Hon ble Supreme Court holding that the argument is that tax paid by the dividend paying company under section 115-O is to be understood to be in behalf of the recipient assessee cannot be accepted in law. It is only elementary, as was held by Hon ble jurisdictional High Court in the case of in the case of CIT v. Sudhir Jayantilal Mulji [(1995) 214 ITR 154 (Bom)], a judicial precedent is only an authority for what it actually decides and not what may come to follow from some observations which find place therein . The propositions which are assumed by the Court to be correct for the purpose of deciding the same are, according to this judgment of the Hon'ble jurisdictional High Court, lack precedence value and are not binding in nature. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... base) Hon ble South African High Court has observed that a similar dividend distribution tax, known as Secondary Tax on Companies (STC) paid on the distribution of dividends, is a tax on a company declaring the dividends and not on dividends . Hon ble South African High Court has observed, inter alia , as follows: In the case of STC, the entity liable for the dividend is the company declaring the dividend and the dividend declared is net of tax on the other hand, a withholding tax such as non-resident shareholder s tax was a tax on the shareholder s dividend income. As far as STC is concerned, same is levied on all South African resident companies when they declare dividends. On the other hand, withholding tax such as non-resident shareholder s tax is applicable only to certain type of shareholders, for example a non-resident shareholder. Furthermore, STC is a tax levied with reference to the net amount of a company s total dividends during a particular period, and on the other hand, non-resident shareholder s tax was levied on the amount of the dividend declared to the affected shareholder. The above-mentioned differences between STC and a withholding tax negate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artner jurisdictions in the other treaty partner jurisdiction. Therefore, in order to seek treaty protection of an income in India under the Indo French tax treaty, the person seeking such treaty protection has to be a resident of France. The expression resident is defined, under article 4(1) of the Indo French tax treaty, as any person who, under the laws of that Contracting State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature . Obviously, the company incorporated in India, i.e. the assessee before us, cannot seek treaty protection in India- except for the purpose of, in deserving cases, where the cases are covered by the nationality non-discrimination under article 26(1), deductibility non-discrimination under article 26(4), and ownership nondiscrimination under article 24(5) as, for example, article 26(5) specifically extends the scope of tax treaty protection to the enterprises of one of the Contracting States, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State . The same is the position with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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