Case Law Details
SGS India Private Limited Vs CIT (ITAT Delhi)
ITAT Delhi Directs Refund of Dividend Distribution Tax Paid Above India–Switzerland DTAA Rate Under Section 115-O
The appeals arose from separate orders of the Commissioner of Income Tax (Appeals) for Assessment Years 2009-10, 2010-11, 2011-12 and 2012-13. One appeal also arose from an order passed under Section 154 of the Income-tax Act, 1961. The common issue in all the appeals was whether Dividend Distribution Tax (DDT) was payable at the rate prescribed under Section 115-O of the Income-tax Act or at the rate applicable to dividend under the relevant Double Taxation Avoidance Agreement (DTAA). The assessee, a resident corporate entity affiliated with the Societe Generale de Surveillance Group incorporated in Switzerland, had distributed dividends to its overseas shareholders who were tax residents of Switzerland and paid DDT under Section 115-O.
During the assessment proceedings, the assessee claimed a partial refund of DDT, contending that Article 10 of the India–Switzerland DTAA limited the tax on dividends to 10%, whereas DDT had been paid at 16.99%. The Assessing Officer rejected the claim on the ground that the DTAA governed taxation of dividends in the hands of the recipient, whereas DDT was payable by the company distributing the dividend. The Commissioner (Appeals), relying on the Tribunal’s earlier decision in the assessee’s own case and the ITAT Special Bench decision in DCIT vs. Total Oil India Ltd. (ITA No. 6697/Mum/2019, order dated 20.04.2023), upheld the Assessing Officer’s decision.
Before the Tribunal, the assessee submitted that the Bombay High Court, while deciding Jt. CIT vs. Colorcon Asia (P.) Ltd. [2026] 186 taxmann.com 774 (SC) in Tax Appeal No. 5 of 2024 by judgment dated 23.11.2025, had reversed the Special Bench decision in Total Oil India Ltd. and held that the rate of DDT could not exceed the rate applicable to dividends under the relevant DTAA. The assessee further submitted that subsequent Tribunal decisions, including Mitsui Kinzoku Components India (P.) Ltd. vs. DCIT and Piaggio Vehicles Private Limited vs. ACIT, had followed the High Court judgment. Since Article 10 of the India–Switzerland DTAA prescribed a 10% rate on dividends, the assessee contended that DDT should also be restricted to 10% and the excess amount refunded.
The Departmental Representative accepted that the principal issue stood covered by the jurisdictional High Court’s decision but argued that the concessional treaty rate under Article 10 was available only where the recipient was the beneficial owner of the dividend and that such beneficial ownership required verification.
The Tribunal noted that under Section 115-O, resident companies were liable to pay DDT on dividend distributions. It observed that although earlier decisions of the Tribunal and the ITAT Special Bench had held that treaty rates did not apply to DDT, the jurisdictional High Court in Colorcon Asia (P.) Ltd. had reversed the Special Bench decision and held that where the applicable DTAA prescribed a lower rate, that rate would govern the tax on dividends distributed, subject to the treaty conditions. The Tribunal reproduced and relied upon the High Court’s observations that DDT is an additional income tax forming part of the Income-tax Act, is subject to Section 90, and that the beneficial provisions of the DTAA prevail over domestic law. The High Court had further held that DDT is a tax on dividend income of the shareholder, though collected from the distributing company, and that where the treaty restricted the source State’s taxing rights, tax could not exceed the treaty rate.
The Tribunal also noted that the High Court’s decision had subsequently been followed by the Delhi and Pune Benches of the Tribunal in the decisions cited by the assessee. Regarding the Department’s contention on beneficial ownership, the Tribunal found no merit in the submission, observing that neither the Assessing Officer nor the Commissioner (Appeals) had expressed any doubt regarding the beneficial ownership of the dividend recipients.
Following the jurisdictional High Court’s decision, the Tribunal directed the Assessing Officer to refund the DDT paid in excess of the 10% rate prescribed under Article 10(2) of the India–Switzerland DTAA. The appeals in ITA Nos. 1054, 1055, 1067 and 1057/Mum/2026 were allowed. ITA No. 1056/Mum/2026 was dismissed as infructuous. The order was pronounced on 30.06.2026.
Cases Discussed
- Jt. CIT vs. Colorcon Asia (P.) Ltd., [2026] 186 taxmann.com 774 (SC)
- Piaggio Vehicles Private Limited vs. ACIT, ITA No. 3195/Pun/2025, order dated 25.05.2026
- DCIT vs. Total Oil India Ltd., ITA No. 6697/Mum/2019 (A.Y. 2016-17), order dated 20.04.2023
- Mitsui Kinzoku Components India (P.) Ltd. vs. DCIT, 183 com 659
FULL TEXT OF THE ORDER OF ITAT DELHI
Captioned appeals by the assessee, arise out of separate orders of learned Commissioner of Income Tax (Appeals), Mumbai (`ld.CIT(A) for short), pertaining to the assessment years (A.Ys.) 2009-10, 2010-11, 2011-12 & 2012-13.
2. One of the appeals, being ITA No. 1067/Mum/2026, arises out of an order passed u/s. 154 of the Income Tax Act, 1961 (`the Act’ for short). Be that as it may, the only common issue arising in all these appeals is whether the Dividend Distribution Taxation (DDT) is to be paid as per the rate prescribed u/s. 115-0 of the Act or as per the rate of tax for dividend under the respective Double Taxation Avoidance Agreement (`DTAA’ for short).
3. Briefly the facts relating to this issue are, the assessee is a resident corporate entity and is an affiliate company of the Societe Generale de Surveillance Group (SGS Group), which is one of the leading inspections, testing and certification organizations in the world and is an entity incorporated in Switzerland. In the respective assessment years under dispute, the assessee had distributed dividend to its overseas shareholders who are tax residents of Switzerland and paid DDT in terms with section 115-0 of the Act.
4. In course of assessment proceeding, the assessee made a submission before the Assessing Officer (`AO’ for short), claiming part refund of DDT on the ground that as per Article 10 of India-Switzerland DTAA, tax on dividend is 10%. Whereas, the assessee has paid DDT @ 16.99%. The aforesaid contention of the assessee was rejected by the AO on the reasoning that DTAA deals with the taxation of dividend at the hands of the recipient. Whereas, DDT is payable by the payer of the dividend and not by the payee.
5. The aforesaid decision of the AO was contested before learned first appellate authority. Relying upon the decision of the Income Tax Appellate Tribunal (ITAT) in assessee’s case, as also the decision of ITAT Special bench in case of DCIT vs. Total Oil India Ltd. (in ITA No.6697/Mum/2019 (A.Y. 2016-17) vide order dated 20.04.2023), ld. first appellate authority rejected the claim of the assessee.
6. Before us, ld. Counsel appearing for the assessee submitted that while adjudicating the appeal of Jt. CIT vs. Colorcon Asia (P.) Ltd. [2026] 186 taxmann.com774 (SC), the Hon’ble Bombay High Court in Tax Appeal No. 5 of 2024 vide judgement dated 23.11.2025 has not only reversed the decision of ITAT Special bench in case of Total Oil India Ltd. (supra), but has held that the rate of DDT cannot exceed the rate at which dividend distributed to the shareholders as per the respective treaty provision is taxable. Thus, he submitted, the issue stands covered in favour of the assessee by the decision of the Hon’ble jurisdictional High Court.
7. Proceeding further, he submitted, following the aforesaid decision of Hon’ble Jurisdictional High Court, various benches of the Tribunal have held that DDT has to be paid at the beneficial rate provided under the DTAA. He submitted, since the rate of tax on dividend under Article 10 of India-Switzerland DTAA is 10%, the rate of DDT should be restricted to 10%, and the excess amount paid by the assessee should be refunded. In support, he relied upon the following decisions:
1. Mitsui Kinzoku Components India (P) Ltd vs DCIT (183 com 659).
2. Piaggio Vehicles Private Limited vs. ACIT (in ITA No. 3195/Pun/2025 vide order dated 25.05.2026)
8. Learned Departmental Representative (`ld. DR’ for short), though, agreed that the issue is covered by the decision of Hon’ble Jurisdictional High Court, however, he submitted that the beneficial rate of 10% under Article 10 of India-Switzerland DTAA is applicable only in case of beneficial owner of the dividend. Thus, he submitted, whether the recipient of dividend is the beneficial owner has to be established.
9. We have considered rival submission and perused the materials available on record. The short issue arising for consideration is, what should be the rate of tax on the DDT payable by the payer of the dividend to the shareholders? Undisputedly, u/s.115-0 of the Act, a liability has been fastened on all resident corporate entities to pay DDT @ 15% on distribution of dividend to the shareholders. It is the say of the assessee that since the recipients of dividend are tax residents of various countries and covered under the respective DTAAs between India and those countries, the beneficial rate of tax on dividend as per the terms of the respective DTAAs will apply. No doubt, in assessee’s own case, as well as in case of Total Oil India Ltd. (supra), the co-ordinate bench and ITAT (SB) have decided the issue against the assessee by holding that the rate of tax on dividend as per the treaty provision would not apply to DDT paid u/s. 115-0 of the Act. However, in case of Colorcon Asia (P.) Ltd. (supra), the Hon’ble Jurisdictional High Court, while reversing the decision of ITAT (SB) in case of Total Oil India Ltd. (supra) has held that the rate of tax as provided under the respective DTAAs of the country of residence of recipient of dividend would apply, if it is less than the rate provided u/s. 115-0 of the Act. In this context, we may reproduce the following observations of Hon’ble Jurisdictional High Court:
D: CONCLUSION
55. We find ourself fortified by the observation of Delhi Tribunal in Giesecke & Devrient Ltd. (supra), where with reference to the legislative history of Section 115-0, it emerges with clarity, that DDT, is a levy on the dividend distributed by payer company. being an additional tax is covered within “Tax’ as defined in Section 2(43) of Act and, hence, is chargeable as per Section 4, which is subject to other provisions, which include Section 90 and sub-clause (2) thereof then specially in case of Avoidance of Double Tax, the provisions more beneficial to assessee must be preferred. Considering that the international treaties involve extensive negotiations between two nations, and definitely being conscious of the respective Nation’s power to tax, the benefits and detriments of a treaty and particularly a double tax treaty and its avoidance, can only be reciprocal when the flow of trade and investment between treaty partners rests on balance and it is not allowed for one treaty partner to secure benefit to detriment of other. When a treaty is entered into, it is expected to have considered its impact on trade and investment and since it is mutual arrangement, it must be given full effect to and merely because there are unilateral amendments made on domestic front, the treaty cannot be made ineffective by construing the same in light of domestic law. The Parliament, is not within its power to change the terms of a bilateral treaty, which is a result of negotiated economic bargain between India and UK A party may not follow the treaty, it may choose to renege from its obligations thereunder, but it cannot amend the treaty on the guise of its domestic law, having undergone change. Amendments to domestic law, cannot be read into treaty provisions, without amending Treaty itself Since it is necessary for the contracting party to fulfill their obligations under a Treaty in good faith and this includes its accountability under it and act in a manner, not to defeat its purpose and object, we find that the benefit accruing under the DTAA, and Article 11 thereof cannot be denied as Revenue is of the opinion that the Treaty do not cover ‘Dividend’ or it is not applicable to a domestic company.
56. In Tata Tea Company (supra), while pronouncing upon the constitutional validity of Section 115-0 of the Act of 1961, which is a provision for declaration, distribution or payment of dividend by domestic company and imposition of additional tax on dividend, it is held by the Apex Court that the source of the income may be agriculture, but when dividend is declared to be distributed and paid to shareholder of a company, its source is not relevant, as it remains dividend income. Nor does the fact that it is share of the company’s profit, is held to be interfere with character of profit, from which it reaches hands of shareholder.
57. BFAR has based its decision on the definitional and conceptual framework of DDT holding that if it paid by the petitioner to its shareholder, it falls outside scope of DTAA as, (a) Dividend is an amount declared, distributed or paid by the Domestic Company out of the current or accumulated profits; (b) Dividend is additional income tax payable over and above the income tax chargeable in respect in total income of such company. BFAR has concluded that incidence of tax under Section 115-0 is only upon domestic company and not shareholder Le. Colorcon U.K and DTAA is not triggered and, therefore, there is no question of its being taxed @ 10% as per DTAA. It also render a finding that Article 11(2) is not triggered at all, as there is no mutual agreement settling the mode of application of tax rates.
On perusal of the impugned Ruling by BFAR and on its detail analysis, according to us BFAR has failed to appreciate that section 4 of the Act of 1961 levies income-tax, including additional income tax, in respect of the ‘total income’ of the previous year of every person. Thus, it is the earning of the ‘income’ that attracts the charge. ‘Income’ has been defined under Section 2(24) of the Act to include ‘dividend’. Therefore, the Authority has erred in not appreciating that Section 115-0 levies additional tax on the company on the “amounts declared, distributed or paid by way of dividends”. According to us, the declaration, distribution or payment of dividend by company cannot in any manner be regarded as ‘income of the company distributing the dividend. Even Section 2(24) has not been amended by the Legislature inasmuch as regarding the “amounts declared, distributed or paid by way of dividends” as “income” of the company distributing dividends. Moreover, the Hon’ble Supreme Court in UOI v. Tata Tea Co. Ltd. (supra), has, in no uncertain words, held that “income as defined in Section 2(24) of the 1961, Act is the inclusive definition including specifically ‘dividend’ and that “section 115-0 pertain to declaration, distribution or payment of dividend by company and imposition of additional tax on dividend is thus clearly covered by subject as embraced by Entry 82 Once the Honible Supreme Court has held that dividend connotes income, the natural corollary is that as per section 4, the said income should be chargeable to tax in the hands of the person earning such income. However, from a combined reading of Section 115-0 and 10(34), alongwith the legislative history narrated earlier, it is evident that DDT is a tax on the dividend income of the shareholder, though the incidence of tax has shifted from the shareholder to the company paying the dividend. Any other interpretation of the provisions will render the section 115-0 of the Act unconstitutional as it will fall foul of Entry 82, since what is sought to be taxed by the Respondent is not ‘income’ of the company.
58. The Board of Advanced Ruling has further failed to appreciate that in view of the statutory provisions and legislative background of Section 115-0 of the Act, DDT paid by a company distributing dividend is not an income tax on profits or income of the company, but, is a tax on the dividend, which is income of the shareholder of the company. Hence, DDT is tax on the dividend income of the shareholder, which is merely, for administrative convenience, charged in the hands of and recovered from the company distributing dividend. There is no denying that dividend income is not chargeable to tax and is exempt in the hands of the shareholders in light of the provisions of Section 10(34) of the Act, since the burden of taxation has been shifted to the company distributing the dividend, from the shareholder. While the DDT is a tax payable by the company, and not the shareholders, in pith and substance, it is a tax on dividends that is income of the shareholders.
59. The We must also note that BFAR has grossly erred in rejecting the distinction and has failed to consider the binding dictum of the Apex Court in Tata Tea (supra) and on the other hand its reliance upon Godrej and Boyce (supra) is misplaced. decision in Godrej & Boyce was rendered on an issue as to whether expenses incurred in relation to earning an exempt income by way of dividend was to be disallowed under Section 14A pf the Act. The Assessee argued that dividend income could not be treated as ‘exempt’ as the income suffered tax under Section 115-0 in hands of the company distributing dividend. It was argued that DDT under Section 115-0 was nothing but tax paid on behalf of the shareholder and such income which had attracted tax could not be said to be ‘exempt’. The conclusion was therefore arrived that Section 14-A of the Act would apply to dividend income on which tax is payable under Section 115-0 of the Act. The decision in Godrej & Boyce is, therefore, in a completely different context as the issue before the Court was whether the dividend income not forming part of shareholders income attract Section 14-A qua the shareholder, but the issue before the BFAR was as to what could be taxed under Section 115-0 and the answer is to be found in Tata Tea Company Ltd. (supra), where it is held that DDT is a tax on dividend Income of shareholder and it would fall in Entry 82 of the Union List.
Further reliance on decision by special bench in Tata Oil is also not well founded as the Apex Court in Godrej & Boyce observed that even if it assumed that the additional income tax under the aforesaid provision is on the dividend and not on the distributed profits of the dividend paying company, it would not have made any material difference to the applicability of Section 14A.
The BFAR also erred in not appreciating that as per Section 90(2) of the Income Tax, the provision of DTAA would prevail over the domestic law to the extent they are more beneficial to the assessee who is subjected to tax in India and as per Article 1 of the DTAA, it shall apply to the persons who are residents of one or both of the Contracting States. Further, Article 2 of the Treaty apply in respect of income tax and also to any identical or substantially similar taxes which are imposed after DTAA is brought into force.
Since DDT is an ‘Income Tax’ as per the provisions of the Act, it definitely fall within ambit of Article 2 of DTAA as income tax includes surcharge and dividend and Article 2 (2) clearly apply to any identical or substantially similar tax in addition to or in place of tax. DDT is squarely covered under Article 11 of the DTAA. On its plain reading the payment being covered under definition of dividend under Article 11(3) which is paid by the Company, resident of India to a resident of UK and therefore, in our view, Article 11(1) is automatically triggered, consequently triggering the restriction in rate of tax under Article 11(2).
60. Thus, the BFAR erred in not appreciating that the tax under Section 115-0 is an additional tax under its sub section (4) which in turn is a part of the Income tax statute and legislation subject to section 90 read with the relevant DTAA. Therefore, levy of tax on dividend paid/distributed by the Appellant in excess of 10% would squarely be contrary to the provision of India- UK DTAA.
The BFAR therefore erred in overlooking the settled legal principle that with respect to taxability of dividend income tax under India-UK DTAA, Article 11 allocates the taxing rights between the two contracting states. Para 1 thereof gives the primary right to tax dividend income to the state of residence. However, para 2 entitles the source state to tax the dividend paid in accordance with its domestic laws, but imposes a fetter viz. the tax so charged cannot exceed the rate of 10% under Article 11(2) (b) if the resident of UK is the beneficial owner of the dividend in all cases other than the case falling under Article 11(2)(a) where dividend is being paid out of income derived directly or indirectly from immovable properties, subject to such income from immovable property being exempt from tax. Article 11 therefore, restricts the right of India, as a source State, to levy tax in accordance with its domestic laws, that is, Section 115-0, but instead of the rate prescribed for therein, the tax has to be levied at the minimum rate of 10% to the extent the dividend is paid to a resident of UK The BFAR erred in holding the respondent’s submission by merely following the special bench’s ruling stating that in order to invoke Article 11, the shareholder has to be taxed in India on the dividend earned from India. On a plain reading of the said Article, it is evident that the person on whom the tax on dividend is levied is an irrelevant and extraneous consideration for its application. There is nothing in the Article which suggests that the income has to be taxed in India in the hands of the shareholders. It merely deals with the nature of income, viz. dividend, which cannot be taxed in India at a rate exceeding 10%, if other stipulated conditions are met. The nature of income is a apropos element to invoke the said Article, and not the person who is subjected to tax, in whose hands the tax is levied, is not relevant for application of Article 11, as DDT is a ‘tax on dividend income of the shareholder’. The entire legislative history of Section 115-0 corroborates this. More importantly, the Apex Court in the case of Tata Tea (supra) too has confirmed the nature of income being dividend income, which is subject to DDT and under Section 115-0 the dividend income is sought to be taxed at a rate of 20.36%.
Section 90(2) of the Act of 1961 allow the appellant to apply the lower rate under the DTAA and Article 11(2) restrict tax rate of such dividend income to 10% and there is no embargo in Article 11 of the DTAA on the Appellant to apply the lower tax rate stipulated in Article 11(2).
61. In the wake of the above, the Authority has erred in not appreciating that DDT erroneously collected in excess of 10% as provided by India-UK DTAA is erroneous and contrary to law and retention of excess tax would be contrary to Article 265 of the Constitution of India.
As a result of the above, the Appeal is allowed by setting aside the Ruling dated 27/06/2024 passed by the Board For Advanced Rulings, New Delhi, by declaring that, on the facts and circumstances of the case and in law, Colorcon Asia Pvt. Ltd (“Colorcon India” or “the Applicant” or “Company’) is entitled to restrict the tax rate on dividends distributed by it to Colorcon Ltd, United Kingdom (UK), at 10% under Article 11 of the India -UK Tax Treaty.
Upon the said question being answered the Department is at liberty to gross up the tax rate in an appropriate manner.
10. The aforesaid decision of Hon’ble Jurisdictional High Court has subsequently been followed by the ITAT Delhi Bench and ITAT Pune Bench, in the orders cited before us by ld. Counsel for the assessee, while holding that DDT cannot exceed the rate prescribed under the respective DTAAs. Insofar as, the contention of ld. DR that the fact whether the recipient of dividend is a beneficial owner of the dividend, needs to be established, we do not find merit in such submission, as neither the A.O. nor ld. First appellate authority has expressed any doubt regarding the beneficial ownership of the shareholders. In view of the aforesaid, respectfully following the decision of Hon’ble Jurisdictional High Court, we direct the A.O. to refund the DDT paid in excess of 10% of the rate of dividend as per Article 10(2) of India-Switzerland DTAA.
11. In the result, the appeals in ITA Nos.1054, 1055, 1067 & 1057/Mum/2026 are allowed. Whereas, as submitted by ld. Counsel for the assessee, ITA No.1056/Mum/2026 having become infructuous is dismissed.
Order pronounced in the open court on 30.06.2026
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