TMI Blog2023 (9) TMI 850X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indian Investors, as it would form part of their gross income under Article 8, if not for the tax exemption provided under Article 8(bis). A plain reading of Article 8 and Article 8 (bis) would manifest that under Article 8, dividend is taxable, whereas, Article 8(bis) exempts dividend received by a company from its ownership of shares, portions, or shareholding in the share capital in any other company. Thus, Article 8(bis) exempts dividend tax received by the assessee from its PE in Oman and by virtue of Article 25, the assessee is entitled to the same tax treatment in India as it received in Oman. Assessee not having PE in Oman - As it is significant to note that from the year 2002 to 2006, a common order was made under Article 26 (2) of the Income Tax Law of Oman. As apparent that the assessee s establishment in Oman has been treated as PE from the very inception up to the year 2011. There is no reason as to why all of a sudden, the assessee s establishment in Oman would not be treated as PE when for about 10 years it was so treated, and tax exemption was granted basing upon the provisions contained in Article 25 read with Article 8 (bis) of the Omani Tax Laws. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is a multi-State Co-operative Society registered in India, under the administrative control of the Department of Fertilizers, Ministry of Agriculture and Co-operation, Government of India. In the course of its business of manufacturing fertilizers, it entered into a joint venture with Oman Oil Company to form the Oman Fertilizer Company SAOC (for short OMIFCO or the JV ), a registered company in Oman under the Omani laws. The assessee has 25% share in the JV. The JV manufactures fertilizers, which are purchased by the Central Government. The assessee has a branch office in Oman which is independently registered as company under the Omani laws having permanent establishment status in Oman in terms of Article 25 of the DTAA. The branch office maintains its own books of account and submits returns of income under the Omani income tax laws. 5. The assessment for the relevant year was completed under Section 143 (3) of the Income Tax Act, 1961 (for short, the Act ). The Assessing Officer allowed tax credit in respect of the dividend income received by the assessee from the JV. The dividend income was simultaneously brought to the charge of tax in the assessment as per the Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see would contend that the provisions of DTAA fully exempt the assessee from payment of tax on dividend in Oman which, in turn, would exempt the assessee from taxation in India. It is further argued that the letter issued by the Sultanate of Oman, Ministry of Finance emanates from the highest authority of the Omani regime, therefore, the clarification set out in the said letter is valid for interpretation of the relevant clauses of DTAA, to exempt the assessee from payment of dividend tax in Oman and, in turn, in India. ISSUE TO BE CONSIDERED BY THIS COURT: 11. All the matters involve a similar question of law as to whether the dividend income earned by the assessee is taxable, although exempted under Omani Tax Laws to entitle the assessee to the benefits of the Double Taxation Avoidance Agreement (for short, DTAA ) between India and Oman. ANALYSIS AND FINDINGS: 12. The decision in these appeals revolves around the relevant provisions of the DTAA and Omani Tax Laws, therefore, it is profitable to extract them for ready reference. Article 7 speaks about business profits which reads as follows: ARTICLE 7. The profits of an enterprise of a Contracting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me from the other Contracting State, that other Contracting State may not impose any tax on the dividends paid by the company except insofar as such dividends are paid to a resident of that other Contracting State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other Contracting 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 Contracting State. The significant provision concerning avoidance of double taxation is contained in Article 25, which is re-produced hereinunder: 25. AVOIDANCE OF DOUBLE TAXATION. (1) The law in force in either of the Contracting States will continue to govern the taxation of the income in the respective Contracting States except where provisions to the contrary are made in this Agreement. (2) Where a resident of India derives income which, in accordance with the provisions of this Agreement, may be taxed in the Sultanate of Oman, India shall allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax incentive granted under the laws of the Contracting State and which are designed to promote development. 14. The revenue relied upon Article 11 which provides that dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other Contracting State. Thus, according to the revenue, dividend received by the assessee is taxable in India and is not exempt because the same is not designed as tax incentive in Oman to promote development in that country. In the same manner, it is argued that the letter issued by the Secretary General for Taxation, Ministry of Finance, Oman was not issued by the competent Omani authority and has no statutory force. 15. The term incentive is neither defined in the Omani Tax Laws nor in the Income Tax Act, 1961. Faced with this situation, the JV addressed a letter in November, 2000 to Oman Oil Company seeking clarification regarding the purpose of Article 8 (bis) of the Omani Tax Laws. The clarification letter dated 11.12.2000 addressed by the Secretary General for Taxation, Sultanate of Oman, Ministry of Finance, Muscat to Oman Oil Company SAOC is significant, and reads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conomic development in Oman, the Indian Investors should be able to obtain relief in India ITA Nos. 6785 6786/DEL/2015 (AYRS. 2010-11 2011-12) KRISHAK BHARATI CO-OPERATIVE LIMITED VS. ACIT under Article 25 (4) of the Agreement for Avoidance of Double Taxation in India. All other matters covered in our letter No. FT/13/92 dated 6th August, 2000 remained unchanged. 16. It is, thus, clear from the above letter of the Omani Finance Ministry that the dividend distributed by all companies, including the tax-exempt companies would be exempt from payment of income tax in the hands of the recipients. By extending the facility of exemption, the Government of Oman intend to achieve its object of promoting development within Oman by attracting investments. Since the assessee has invested in the project by setting up a permanent establishment in Oman, as the JV is registered as a separate company under the Omani laws, it is aiding to promote economic development within Oman and achieve the object of Article 8 (bis). The Omani Finance Ministry concluded by saying that tax would be payable on dividend income earned by the permanent establishments of the Indian Investors, as it would for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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