Dividend received by company having PE in Oman is not taxable in India

PCIT Vs Krishak Bharti Cooperative Ltd (Supreme Court of India)

Supreme Court held that dividend received by the Indian company having permanent establishment (PE) in Oman is not taxable in India in terms of Article 25 read with Article 8 (bis) of the Omani Tax Laws

Facts- The assessee 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, 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.

AO 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 Indian tax laws. However, under the Omani tax laws, exemption was granted to the dividend income by virtue of the amendments made in the Omani tax laws w.e.f the year 2000. AO allowed credit for the said tax, which would have been payable in Oman, but exemption was granted.

Thereafter, PCIT issued a show cause notice u/s. 263 of the Act on the ground that the reliance placed on Article 25(4) of DTAA was erroneous in this case and no tax credit was due to the assessee u/s. 90 of the Act. The PCIT rejected all the contentions raised by the assessee inter alia holding that Article 25 of Omani tax laws is not applicable in the instant case because there is tax payable on dividend in Oman and, accordingly, no tax has been paid and that assessee is not covered under the exemption.

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