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TMI Blog2024 (7) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... nother: Refund of excess Dividend Distribution Tax ('DDT') paid on dividend received by the Appellant On the facts and in the circumstances of the case and in law, the learned CIT-A: 1. erred in not restricting the DDT rate on dividend paid by the Appellant to 5 percent as provided under Article 10 read with Article IV of the Protocol to the India - Netherlands DTAA and Article 10 of India - Slovenia DTAA. 2. Erred in not granting refund of excess DDT paid of Rs. 5,79,36,286/- on the dividend income received by the appellant. The appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of appeal, so as to enable the Hon'ble Tribunal to decide the appeal in accordance with the law. 2. The revenue has raised the following grounds:- On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below: 1. Whether on the facts and circumstances of the case and in law, Hon'ble CIT(A) was right in deleting the transfer pricing adjustment of Rs. 1,92,98,946/- on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terprises takes broader consideration than the provision contained in the TTS, as adjustment of transfer pricing on account of transaction between assessee and its associated enterprises may lead to the income from the facts which were not taken into consideration while arriving at income under TTS. 7. Whether on the facts and circumstances of the case and in law, Hon'ble CIT(A) is not correct in appreciating the fact that the adjustment on account of interest on the outstanding balance of receivables from AE beyond 30 days is not as result of computation provided under TTS, but it is default where assessee has foregone opportunity cost and the AE has benefit in the form of interest saved/earned. 8. On the facts and circumstances of the case and in law, whether the Hon'ble CIT(A) is correct in not realizing that there was no uniformity in not charging of interest from AEs and non AEs as in the case of AEs, the maximum delay was 225 days while in the case of non AEs, the maximum delay was 879 days (Dighi Port Ltd) and 318 days (Mumbai Port Trust and thus, there was no complete uniformity, and therefore, the judgment of Hon'ble High Court in the case of Indo America ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Revenue and assessee. Being aggrieved both the sides preferred appeal before us against the order of Ld. CIT(A). We have gone through the order of AO passed u/s. 143(3) r.w.s. 144C (3) of the Act, order of TPO u/s. 92CA (3) of the Act and order of the Ld. CIT(A) passed u/s. 250 of the Act alongwith submissions of the assessee and grounds raised by Revenue and assessee. 6. Issue raised by the assessee is identical and dealt in by the coordinate bench and Special Bench in the case of [2023] 149 taxmann.com 332 (Mumbai - Trib.) (SB) Deputy Commissioner of Income-tax v. Total Oil India (P.) Ltd. and held as under: "A plain reading of the provisions of section 115-O shows that it creates a charge to additional income tax on any amount declared, distributed or paid by domestic company by way of dividend for any assessment year. The tax so charged is 'in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year'. The additional income tax is referred to as 'tax on distributed profits' commonly referred to as 'Dividend Distribution Tax'. It is a tax on 'distributed profits' and not a tax on 'd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rescribed under the Act. After the 2014 amendment, domestic companies paying DDT took a stand that since dividend was ultimately taxable in the hands of the shareholder and since section 115-O merely shifts the burden on the domestic company distributing dividend, the rate at which tax has to be deducted, wherever dividend is paid to non- resident shareholders who are tax resident of a country with whom India has Treaty for Avoidance of Double Taxation (DTAA), it would be the lower rate of tax, if so provided in the relevant DTAA. It appears that it was only in October, 2020 that such a point came up in the case of Giesecke & Devrient India (P.) Ltd. v. Asstt. CIT [2020] 120 taxmann.com 338 (Trib. - Delhi) before the Tribunal, where the tax payer company sought to raise the plea for adopting lower rate of tax on dividend payout based on corresponding Treaty provisions; this is indicative of the fact that, perhaps the trigger for debate on adopting the lower rate of taxation on dividend as provided in the DTAAs in preference to the rate prescribed under section 115-O was the amendment of grossing up made by the Finance Act, 2014 with effect from 1-10-2014. [Para 60] On behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and not a charge in the hands of the shareholder or tax paid on behalf of the shareholder by the domestic company. Further, it is also seen from the provisions of section 115-O(3) and (4) the tax on distributed profits so paid by the company shall be treated as the final payment of tax in respect of the amount declared, distributed or paid as dividends and no further credit therefor shall be claimed by the company or by any other person in respect of the amount of tax so paid and no deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the amount which has been charged to tax under sub-section (1) or the tax thereon. These provisions also show that shareholder does not enter the domain of DDT at all. [Para 77] Another argument that was advanced was that the incidence of tax in the form of DDT is on the domestic company but in effect it is a tax paid on behalf of the shareholder and it is income of the shareholder that is sought to be taxed albeit in the hands of the domestic company. In this regard, the proposition advanced by the revenue was that in fundamental concept of income-tax there is nothing which prevents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce should be taxed in India. DDT is paid by the domestic company resident in India. It is a tax on its income and not tax paid on behalf of the shareholder. In such circumstances, the domestic company under section 115-O does not enter the domain of DTAA at all. [Para 80] If domestic company has to enter the domain of DTAA, the countries should have agreed specifically in the DTAA to that effect. In the Treaty between India and Hungary, the Contracting States have extended the Treaty protection to the dividend distribution tax. It has been specifically provided in the protocol to the Indo-Hungarian Tax Treaty that, 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. While, making reference in the case of Total Oil India (P.) Ltd. the division bench has made observations, that the dividend distribution tax, not being a tax paid by or on behalf of a resident of treaty partner jurisdiction, cannot thus be curtailed by a tax treaty provision. [Para 81] The above exposition of law is correct as laid down in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces or tax incentives are deemed to be allowed while computing the total income of a company as per TTS. The income thus computed shall be deemed to be the income chargeable to tax under the head 'Profit and gains of business or profession'. Hence, it is clear from the above that actual receipts/revenues earned and expenses incurred are not taken into consideration for the purpose of determining the tonnage income of the company. The entire computation of the tonnage income depends on the tonnage capacity of qualifying ships and number of days it has been held. The transfer pricing provisions envisage computation of income from specified international transactions of receipt or expenditure, of-course with reference to the stated price of such transactions. This is completely in contrast to Chapter-XII-G, where the stated price of the transaction has no relevance to the computation of income of qualifying ships, which is based on the weight of the ship and the number of days it has been held. In other words, the determination 'of income/expense having regard to arm's length price as envisaged in Chapter-X has no relevance, as it would not affect the computation of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such transactions, because the statutorily prescribed formula to compute income under chapter XII-G is based on the weight of the qualifying ship and number of days it has been held, irrespective of whether the ship has been used for a related party or an unrelated party. Once again, therefore, the computation provisions of Chapter-X fail and, in such circumstances, the application of Chapter-X fails. [Para 8] An identical situation arose in assessee's own case for assessment year 2013-14 where the Dispute Resolution Panel ('DRP') vide its order dated 18-9-2017 held that transfer pricing regulations do not apply to the assessee to the extent of operations carried out through operating qualifying ships where the income is taxed under TTS. [Para 13] To sum up, Tonnage Tax Scheme, as per Chapter XII-G, is a separate code by itself inasmuch as it provides a self-contained charging provision as well as 'method of computation of income in the chapter, and, the method of computation of income under TTS is not dependent on receipt or expenditure of the assessee. Under Tonnage Tax Scheme, the income has to be computed as per the method prescribed in section 115VG. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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