Case Law Details
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.
The appellant argued that DDT was essentially a tax on dividend income of shareholders, though collected from the company for administrative convenience. Reliance was placed on the legislative history of Section 115-O, amendments introduced through Finance Acts, and Article 11 of the India-UK DTAA. It was contended that dividend remained shareholder income under Section 2(22), and treaty protection under Section 90 of the Act could not be denied merely because the incidence of collection shifted to the distributing company. The appellant also relied on judgments including Azadi Bachao Andolan, Engineering Analysis Centre of Excellence, and Sanofi Pasteur Holding SA.
The Revenue contended that DDT was an additional income tax levied on the domestic company and not on the shareholder. It relied on Godrej and Boyce Manufacturing Company Ltd. and the ITAT Special Bench decision in Total Oil India Pvt. Ltd., which held that DDT was not a tax on non-resident dividend income and therefore DTAA provisions were not attracted. According to the Revenue, the India-UK DTAA did not specifically provide treaty protection for DDT.
The Bombay High Court examined the legislative history of Section 115-O, including the repeated shifts in incidence of taxation between shareholders and companies from 1997 onwards. The Court observed that explanatory memoranda to various Finance Acts indicated that dividend remained shareholder income and that shifting the tax burden to companies was done for administrative convenience. The High Court concluded that DDT was ultimately a tax on dividend income of shareholders, though collected from the distributing company. It also analysed Section 90, principles governing interpretation of tax treaties, and judicial precedents on DTAA supremacy where treaty provisions are more beneficial.
The matter is now pending consideration before the Supreme Court, which is set to decide the nature of DDT and whether treaty limits under the India-UK DTAA apply to such levy.
Read HC Judgment in this case: Colorcon Asia Pvt. Ltd. Vs JCIT (Bombay High Court)
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
The following substantial questions of law arise for consideration in the present special leave petition:
i. Whether tax under Section 115-O on any amount declared, distributed or paid by a company by way of dividend chargeable to additional income tax is in the nature of tax on distributed profits or tax on dividend?
ii. Whether Dividend Distribution Tax (DDT) paid by the respondent company on amounts declared, distributed and paid as dividend [as defined under the India-UK Double Taxation Avoidance Agreement (DTAA) and the Income Tax] to a resident of UK can be levied at a rate higher than permitted under the treaty; and
iii Whether DDT being an income tax or an identical and/ or substantially similar tax is governed by UK DTAA.
It has been brought to our notice that the correctness of the decision impugned in this special leave petition has been doubted by a coordinate bench of the Bombay High Court vide order dated 27.04.2026 passed in Income Tax Appeal No.1123 of 2025 (Foseco India Ltd. Company vs. Assistant Commissioner of Income Tax, Circle (1), Pune). A copy of the order dated 27.04.2026 has been placed before us. In paragraph 40 of the said order, the following questions have been referred to a larger bench of the High Court. The said paragraph is reproduced herein under:
40. In our respectful opinion, in these circumstances, the following questions of law are required to be answered by the Larger Bench:
(I) Whether the decision of the Division Bench in M/s. Colorcon Asia Pvt. Ltd. vs. The Joint Commissioner of Income Tax, Panji Goa and Ors. (Tax Appeal No.5/2004 decided on 28 November, 2025) lays down the correct position in law when it holds that, Dividend Distribution Tax (DDT) is a tax paid by the Company, on dividend income of the shareholder, entitling the shareholder of the benefit of the provisions of Double Taxation Avoidance Agreement (DTAA) between India and UK?
(ii) Considering the decision of the Supreme Court in Godrej and Boyce Pvt. Ltd. (supra), whether the decision of the Division Bench in M/s Colorcon Asia Pvt. Ltd. (supra) is per incuriam?
Having regard to the ramifications of the aforesaid questions being answered either way, several intervention applications (IA No.143674/2026, IA No.147312/2026, IA NO.146726/2026 and IA No.151478/2026) have been filed. To enable the parties to make their submissions before us, the intervention applications are allowed.
Having regard to the fact that similar issue may have arisen before other High Courts also, we deem it appropriate to direct that the Registry of this Court shall circulate this order to all the High Courts. The Registry of the each High Court shall publish this order in the cause list of the High Court informing the parties about the matter being considered by us. Such exercise may be completed within a period of three weeks from today.
If any intervention application needs to be made before us, the same may be made by 15.07.2026.
List on 12.08.2026.
In the meantime, the High Courts may consider staying the further proceedings of any matter involving similar issues.
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