SGS INDIA P.LTD, MUMBAI V. ASST CIT 10(3), MUMBAI

ITA 2467/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0178 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 03-07-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 11-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M V RAJGURUSR
• Assessee Lawyers: PRAYAS JAIN
• Keywords: Double taxation relief; Opportunity of being heard; Wholly owned subsidiary
• Section: 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUM BAI , , BEFORE S/SHRI RAJENDRA, A.M. AND SANDEEP GOSAIN,J.M . ./ ././ ./ ITA NO.2467/MUM/2014 / ASSESSMENT YEAR:2005-06 SGS INDIA PRIVATE LIMITED SGS HOUSE, 4B, ADI SHANKARACHARYA MARG, VIKHROLI (W),MUMBAI-400 083. PAN: AAACS 5514 Q VS. THE ACIT-10(3) MUMBAI. ( / // / APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI M.V. RAJGURU-SR.DR ASSESSEE BY: SHRI PRAYAS JAIN / // / DATE OF HEARING: 03.07.2017 / DATE OF PRONOUNCEMENT: 03.07.2017 , ,, , 1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , ,, , -PER RAJENDRA,AM: CHALLENGING THE ORDER DATED 30-01-2014 OF CIT(A)-11 ,MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAGED IN THE BUSI NESS OF QUALITY INSPECTION, CONTROL TESTING AND VERIFICATION,FILED ITS RETURN OF INCOME ,ON 31/10/2005,DECLARING TOTAL INCOME OF RS.44.52 CRORES.THE ASSESSING OFFICER(AO)COMPLETED ASSESSMENT U/S. 143 (3)OF THE ACT,ON 22/12/2008 AND DETERMINED ITS INCOME AT RS.48.05 CR ORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT RATE OF DIVIDE ND DISTRIBUTION TAX (DDT) PAID BY THE ASSESSEE,DURING THE PERIOD UNDER CONSIDERATION.THE MATTER TRAVELLED UP TO THE TRIBUNAL. IN ITS ORDER,DATED 22/05/2013 ,THE TRIBUNAL, OBSERVED THAT THE FIRST APPELLATE AURHORITY (FAA) HAD NOT ADJUDICATED THE GROUND RELATED TO DDT W.R.T ART ICLE-10 OF THE RELEVANT INDO SWISS DTAA.IT RESTORED BACK THE MATTER TO THE FILE OF THE FAA TO DECIDE THE ISSUE ON MERITS. IN PURSUANCE OF DIRECTIONS OF THE TRIBUNAL,THE FAA CAL LED FOR SUBMISSIONS OF THE ASSESSEE. AFTER CONSIDERING ELABORATE SUBMISSION THE FAA REFE RRED TO PROVISIONS OF SECTION 115-O AND ARTICLE-10 OF THE DTAA ENTERED INTO BY INDIA AND HU NGARY. HE HELD THAT DDT WAS NOT A TAX PAID BY THE RECIPIENT FOREIGN PRINCIPAL OF THE ASSE SSEE, THAT IT WAS A TAX CHARGED ON THE ASSESSEE ITSELF IN THE STATUS OF DOMESTIC COMPANY, THAT FOREIGN PRINCIPAL HAD NO TAX LIABILITY AS FAR AS DDT WAS CONCERNED,THAT FOREIGN PRINCIPAL WAS NOT ENTITLED TO CLAIM ANY BENEFICIAL TREATMENT IN TERMS OF PROVISIONS OF ARTICLE-10(2) O F THE RELEVANT TAX TREATY, THAT THE ASSESSEE ALSO WAS ALSO NO ENTITLED TO CLAIM SUCH BENEFICIAL TREATMENT INDEPENDENTLY, THAT A TAX LIABILITY UNDER THE ACT IMPOSED ON DOMESTIC TRANSACTION OF A DOMESTIC ENTITY WAS OUT OF THE PURVIEW OF THE DTAA PROVISIONS. FINALLY, HE DISMISSED THE APPE AL OF THE ASSESSEE. 2467/M/14(05-06) SGS INDIA PRIVATE LIMITED 2 2. DURING THE COURSE OF HEARING BEFORE US, THE AUTHOR ISED REPRESENTATIVE (AR) STATED THAT THE TRIBUNAL,WHILE DECIDING THE APPEALS FOR THE AY 2008 -09 (ITA/6974&7311/MUM/2010, AY08-09 DT.12/4/17) IN ASSESSEES OWN CASE HAD DEAL T WITH THE IDENTICAL ISSUE. HE REFERRED TO PAGE 11-15 OF THE ORDER WHEREIN IT WAS HELD THAT AR TICLE -10 OF THE DTAA WOULD BE APPLICABLE EVEN IF DIVIDEND WAS PAYABLE BY DOMESTI C COMPANY . THE DEPARTMENTAL REPRESEN -TATIVE(DR)LEFT THE ISSUE TO THE DISCRETION OF THE BENCH 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE.WE FIND THAT WHILE ADJUDICATING APPEALS FOR 2008-09 IN THE CASE OF THE ASSESSEE ,THE TRIBUNAL HAD OBSERVED AS UNDER :- 10.BRIEF FACTS ARE, BEFORE THE FIRST APPELLATE AUT HORITY THE ASSESSEE URGED AN ADDITIONAL GROUND RAISING THE ISSUE OF TAXABILITY OF DDT AT 10%. IT W AS SUBMITTED BY THE ASSESSEE THAT AS PER ARTICLE10 OF THE INDIA SWITZERLAND DTAA, THE TAX ON DIVIDEND DISTRIBUTED SHOULD HAVE BEEN RESTRICTED TO MAXIMUM OF 10% INSTEAD OF THE RATE PRESCRIBED UNDER SECTION 115O OF THE ACT. IT WAS SUBMITTED BY THE ASSESSEE THAT AS A WHOLLY OWNED SUBSIDIARY OF S GS, SWITZERLAND, IT HAD DECLARED DIVIDEND OF ` 35.93 CRORE DURING THE YEAR AND HAS DEDUCTED TAX AS PER THE RATE PRESCRIBED UNDER SECTION 115O. IT WAS SUBMITTED, SINCE THE PROVISIONS OF DTAA ARE MOR E BENEFICIAL TO THE ASSESSEE IN TERMS OF SECTION 90 OF THE ACT, THE PROVISIONS OF DTAA WILL BE APPLI CABLE. 11.THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDE RING THE SUBMISSIONS OF THE ASSESSEE AND ANALYSING THE PROVISIONS OF THE DTAA AS WELL AS SEC TION 90 OF THE ACT, OBSERVED THAT DDT IS A TAX IMPOSED UNDER THE DOMESTIC LAW ON A DOMESTIC COMPAN Y ON A TRANSACTION ARISING WITHIN THE TERRITORIAL JURISDICTION OF INDIA. THEREFORE, THE D TAA WOULD NOT APPLY TO SUCH TRANSACTIONS. THE LEARNED COMMISSIONER (APPEALS) OBSERVED, ARTICLE 10 (2) OF DTAA RELATES TO TAX ON DIVIDEND INCOME AND NOT RELATING TO TAX ON DISTRIBUTION OF PROFIT B Y WAY OF DIVIDEND BY A COMPANY. HE FURTHER OBSERVED THAT ON ANALYSIS OF SECTION 115O, IT WOULD APPEAR T HAT DDT IS LEVIED ON THE COMPANY DISTRIBUTING DIVIDEND AND NOT ON THE SHAREHOLDERS WHO RECEIVE TH E DIVIDEND. REFERRING TO THE PROVISIONS OF SUB SECTION (4) AND (5) OF SECTION 115O, THE LEARNED CO MMISSIONER (APPEALS) OBSERVED THAT DDT CHARGED UNDER SECTION 115O IS A TAX ON DISTRIBUTED PROFIT A ND IS CHARGED ON THE COMPANY DISTRIBUTING THE DIVIDEND AND HAS NO ELEMENT OF BEING A WITHHOLDING TAX PAYABLE ON BEHALF OF ANY OTHER ENTITY, SHAREHOLDERS OR OTHERWISE. THUS, THE LEARNED COMMIS SIONER (APPEALS) ULTIMATELY HELD THAT THE PROVISIONS OF DTAA ARE NOT APPLICABLE. 12.LEARNED AUTHORISED REPRESENTATIVE SUBMITTED BEFO RE US THAT THE DDT IS A TAX ON DIVIDEND. REFERRING TO THE PROVISIONS OF SECTION 115O, HE SUB MITTED THAT, IT IS A TAX ON DIVIDEND AND NOT A TAX ON THE INCOME OF THE COMPANY PAYING DIVIDEND. REFERRIN G TO THE CBDT CIRCULAR NO.763 DATED 18 TH FEBRUARY 1998, THE LEARNED AUTHORISED REPRESENTATIV E SUBMITTED, DDT IS ADMINISTRATIVELY CONVENIENT METHOD FOR COLLECTION OF TAX ON DIVIDEND INCOME. HE SUBMITTED, ALTHOUGH, DDT IS A TAX CHARGED AND PAID BY THE COMPANY PAYING DIVIDEND TO SHAREHOLDERS IT WOULD NOT MEAN THAT DDT IS NOT A TAX ON DIVIDEND INCOME. HE SUBMITTED, MERELY BECAUSE TAX O N DIVIDEND WAS PAID EARLIER BY THE SHAREHOLDERS THEMSELVES AND NOW COMPANY IS REQUIRED TO PAY THE T AX ON DIVIDEND, IT WOULD NOT INDICATE THAT THE DDT IS NOT A TAX ON DIVIDEND. FURTHER, THE LEARNED AUTHORISED REPRESENTATIVE IN A WRITTEN NOTE HAS PROPOUNDED VARIOUS THEORIES TO IMPRESS UPON THE FAC T THAT DDT IS NOTHING BUT A TAX ON DIVIDEND, HENCE, COVERED UNDER ARTICLE10 OF THE INDIA SWITZE RLAND DTAA. THEREFORE, AS PER ARTICLE10(2), THE MAXIMUM RATE AT WHICH THE TAX CAN BE CHARGED IS 10% OF THE GROSS AMOUNT OF DIVIDEND. 13.LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND STRONGLY RELIED UPON THE OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS). 14.WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. UNDISPUTEDLY, IN THE RETURN OF INCOME FILED ASSESSEE HAS COMPUTED DDT @ 15% ON THE DIVIDEND OF ` 35.95 CRORE PAYABLE TO SGS, SWITZERLAND, IN TERMS OF PROVISIONS CONTAINED UNDER SECTION 115O OF THE ACT. IT IS ALSO RELEVANT TO OBSERVE, IN THE COURSE OF ASSESSME NT PROCEEDINGS, THE ASSESSEE HAS NOT RAISED ANY ISSUE WITH REGARD TO THE APPLICABLE RATE OF DDT. IN THE COURSE OF HEARING BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE HAD RAISED AN ADDITIONAL GR OUND CLAIMING THAT THE DDT PAID UNDER SECTION 115O IS EXCESS OF THE AMOUNT ACTUALLY PAYABLE BY TH E ASSESSEE ON THE DIVIDEND DECLARED IN TERMS OF 2467/M/14(05-06) SGS INDIA PRIVATE LIMITED 3 ARTICLE10 OF THE INDIA SWITZERLAND DTAA. AS COULD BE SEEN FROM THE SUBMISSIONS OF THE ASSESSEE, THE PREMISES ON WHICH SUCH CLAIM HAS BEEN MADE IS DDT I S NOTHING BUT A TAX ON DIVIDEND, THEREFORE, THE PROVISIONS CONTAINED UNDER ARTICLE10 OF INDIA SWIT ZERLAND DTAA WOULD APPLY. IT IS THE CONTENTION OF THE ASSESSEE THAT SINCE AS PER THE ARTICLE10(2) OF THE DTAA, ON DIVIDEND IS CHARGEABLE AT THE MAXIMUM RATE OF 10% OF THE DIVIDEND INCOME, THE ASS ESSEE SHOULD GET BENEFIT OF THE DTAA IN TERMS OF SECTION 90 OF THE ACT. BEFORE WE PROCEED TO EXAMINE THE VALIDITY OF ASSESSEES CLAIM, IT IS NECESSARY TO OBSERVE THAT SECTION 115O, PROVIDES THAT IF A DOMES TIC COMPANY IN ANY ASSESSMENT YEAR DECLARES DIVIDEND OR PAYS ANY AMOUNT BY WAY OF DIVIDEND OUT OF CURRENT OR ACCUMULATED PROFITS, THEN, IN SUCH CASE IN ADDITION TO INCOME TAX CHARGEABLE IN RESPEC T OF THE INCOME OF THE DOMESTIC COMPANY, AN ADDITIONAL INCOME TAX COMPUTED @ 15% OF THE DIVIDEN D AMOUNT SHALL ALSO BE CHARGED. THUS, ON A PLAIN READING OF THE AFORESAID PROVISIONS, IT APPEA RS THAT THE DDT IS A LIABILITY OF THE DOMESTIC COMPANY DECLARING DIVIDEND AND NOT LIABILITY OF THE SHAREHOLDER RECEIVING SUCH DIVIDEND INCOME. WHEREAS, CAREFUL READING OF ARTICLE10 OF INDIA SWI TZERLAND TREATY PRIMAFACIE GIVES AN IMPRESSION THAT IT SPEAKS OF TAXABILITY OF THE DIVIDEND AT THE HANDS OF THE RECIPIENT OF SUCH DIVIDEND WHICH IS A RESIDENT OF THE OTHER CONTRACTING STATE. THEREFORE, KEEPING IN PERSPECTIVE THE PROVISIONS CONTAINED UNDER SECTION 115O VISAVIS ARTICLE10 OF DTAA IT NEEDS TO BE EXAMINED WHETHER THE BENEFIT OF TAX TREATY CAN BE EXTENDED TO THE DDT PAID / PAYABLE BY THE ASSESSEE. WE HAVE NOTED, THE VARIOUS PROPOSITION ADVANCED BY THE ASSESSEE CLAIMING BENEF IT UNDER ARTICLE10 OF INDIA SWITZERLAND DTAA AS CONTAINED IN THE WRITTEN NOTES ARE NOTHING BUT R EPETITION OF SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER (APPEALS) ON 20 TH FEBRUARY 2014, A COPY OF WHICH IS AT PAGE112 OF T HE PAPER BOOK. THOUGH, READING OF ARTICLE10 OF INDIA SWITZERLAND DTAA PRIMAFACIE GIVES AN IMPRESSION THAT IT WILL ONLY APPLY TO NONRESIDENT SHAREHOLDER RECEIVI NG THE DIVIDEND, HOWEVER, STILL IT LEAVES A SCOPE F OR EXAMINING THE CLAIM OF THE ASSESSEE THAT DDT BEING A TAX ON DIVIDEND, ARTICLE10 OF THE DTAA WOULD BE APPLICABLE EVEN IF SUCH DIVIDEND IS PAYABLE BY T HE DOMESTIC COMPANY. IN OUR VIEW, IT WILL BE TOO SIMPLISTIC TO REJECT THE CONTENTION OF THE ASSESSEE ON THE PLEA THAT IT WILL ONLY APPLY WHERE THE NON RESIDENT RECIPIENT OF DIVIDEND INCURS THE LIABILITY IN RESPECT OF DIVIDEND. IN OUR CONSIDERED OPINION, THE LEARNED COMMISSIONER (APPEALS), THOUGH, WAS REQUIRE D TO DEAL WITH ALL PROPOSITIONS ADVANCED BY THE ASSESSEE, HE HAS NOT DONE SO. THEREFORE, WE ARE INC LINED TO RESTORE THE MATTER BACK TO THE FILE OF THE LEARNED COMMISSIONER (APPEALS) FOR FRESH CONSIDERAT ION AFTER REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE ORDER,WE DIRECT FA A TO DEAL WITH ALL THE PREPOSITIONS ADVANCED BY THE ASSESSEE.WE ARE RESTORING BACK THE MATTER TO THE FILE OF FAA FOR FRESH CONSIDERATION,WHO WOULD AFFORD A REASONABLE OPPORTU NITY OF HEARING TO THE ASSESSEE . AS A RESULT, APPEAL FILED BY THE ASSESSEE IS PARTL Y ALLOWED. ! '#$% & ' ()*+, . ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD , JULY, 2017. 3, , 2017 SD/- SD/- ( /SANDEEP GOSAIN) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 03.07.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR L BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.