JCIT Vs Colorcon Asia Pvt. Ltd. (Supreme Court of India)
In JCIT Vs Colorcon Asia Pvt. Ltd., the Supreme Court considered substantial questions of law relating to the nature of Dividend Distribution Tax (DDT) under Section 115-O of the Income Tax Act, 1961, and its interaction with the India-UK Double Taxation Avoidance Agreement (DTAA).
The Supreme Court framed three substantial questions for consideration: whether DDT under Section 115-O is a tax on distributed profits or a tax on dividend; whether DDT paid on dividends distributed to a UK resident can be levied at a rate higher than that permitted under the India-UK DTAA; and whether DDT, being an income tax or substantially similar tax, is governed by the treaty. The Court noted that a coordinate bench of the Bombay High Court in Foseco India Ltd. had doubted the correctness of the Bombay High Court’s earlier decision in Colorcon Asia Pvt. Ltd. and referred related questions to a larger bench. Considering the wider ramifications, the Supreme Court allowed intervention applications, directed circulation of its order to all High Courts, and observed that High Courts may consider staying proceedings involving similar issues.
Before the Bombay High Court, the appellant, an Indian subsidiary wholly owned by a UK company, challenged a ruling of the Board for Advance Rulings (BFAR), which had held that DDT was outside the scope of the India-UK DTAA and therefore not entitled to the treaty rate of 10% under Article 11 relating to dividends. The appellant had distributed dividends to its UK parent company during assessment years 2016-17 to 2019-20 and paid DDT at rates prescribed under Section 115-O.
