DCIT Vs Total Oil India Pvt Ltd (ITAT Mumbai)
The Hon’ble Mumbai ITAT in the matter of Deputy CIT vs. Total Oil India Pvt. Ltd. has expressed doubts on the correctness of the decisions of the coordinate benches on the dividend distribution tax (DDT) rate being restricted by the treaty provision dealing with taxation of dividends in the hands of the shareholders. In those decisions, Delhi ITAT (in the case of Giesecke & Devrient India Pvt Ltd Vs ACIT) held that tax rates specified in DTAA in respect of dividend must prevail over DDT and the similar stand was adopted by Kolkata Tribunal in the case of DCIT vs Indian Oil Petronas Pvt Ltd. In this regard, Mumbai Tribunal has listed out numerous of reasons for doubting correctness of the decisions and directed for the constitution of a special bench so that all the aspects relating to this issue can be considered.
Tribunal’s Finding
Hon’ble Tribunal gave the following reasons for doubting the correctness of the aforesaid decisions of the coordinate benches-
Dividend distribution tax (DDT) cannot be treated as a tax on behalf of the recipient of dividends
Hon’ble supreme court in the matter of Godrej & Boyce Mfg Co Ltd Vs DCIT observed that the payment of dividend distribution tax under section 115 ‘O’ does not discharge the tax liability of the shareholders. It is a liability of the company and discharged by the company. Whatever be the conceptual foundation of such a tax, it is not a tax paid by, or on behalf of, the shareholder.
No tax credit in DDT paid in the hands of shareholder
Under Tax treaties, no tax credits are envisaged in the hands of the shareholder in respect of the DDT paid by the company. Thus DDT cannot be equated with a tax paid by, or on behalf of, a shareholder in receipt of a such dividend.
DDT is a tax on “a company declaring the dividends not on the dividends”
In the case of Volkswagen of South Africa (Pty) Ltd Vs Commissioner of South African Revenue Service (Case no. 24201/2007) Hon’ble South African High Court has observed that a similar dividend distribution tax, known as Secondary Tax on Companies (STC) paid on the distribution of dividends, is a tax on “a company declaring the dividends and not on dividends” and Hon’ble South African High Court noted as follows-
