M/S TRICON GLOBAL SERVICES PRIVATE LIMITED, MUMBAI V. DY. COMMISSIONER OF INCOME TAX, CPC,BENGALURU, BENGALURU

ITA 2985/MUM/2022

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M/s Tricon Global Services Pvt. Ltd., a subsidiary of Tricon International Ltd., USA, appealed against the order of the CIT(A) which denied their claim for a reduced DDT rate of 15% on dividends paid to their parent company, citing the DTAA between India and the USA. The assessee argued that the excess DDT paid over the DTAA rate should be refunded. The CIT(A) and the Tribunal both rejected this claim, emphasizing that the DDT is a tax on the company, not on behalf of the shareholders, and is governed by the domestic tax law, specifically Section 115-O of the Income Tax Act. The Tribunal also dismissed other grounds related to the non-allowance of education cess as a business expenditure, following the Supreme Court's decision in Chambal Fertilizer.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123432 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 05-06-2023
• Assessment Year: misc
• Appeal Filed On: 22-11-2022
• Other Referred Cases: Oil India Pvt. Ltd. vs. ITA No. 6997/Mum/2019, Chambal Fertilizer vs. 7091/2019, Joint Commissioner of Income-tax vs. Chemical P Ltd in SLP
• Laws Referred To: Income Tax Act, India-USA Double Tax Avoidance Agreement
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business expenditure; Double taxation relief
• Section: 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND MS. KAVITHA RAJAGOPAL (JUDICIAL MEMBER) ITA No. 2985/MUM/2022 Assessment Year: 2020-2021 M/s Tricon Global Services Private Limited, 701, DLH Park, S.V. Road, Off MTNL, Goregaon (West), Mumbai-400062. Vs. Dy. CIT, CPC Bengaluru-560100 PAN No. AABCO 0321 L Appellant Respondent Assessee by : Mr. Madhur Agrawal, AR Revenue by : Ms. Richa Gulati, DR Date of Hearing : 06/06/2023 Date of pronouncement : 13/06/2023 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 27.09.2022 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2020-21, raising following grounds: 1. On facts and circumstances of the case and in law, Learned CIT(A) erred in rejecting the claim of appellant to consider lower rate of dividend distribution tax [Type here] (DDT) in respect of dividend paid by Appellant to its parent company, Tricon International Limited, who is a tax resident of Un view of the beneficial provisions of Article 10 of India USA Double Tax Avoidance Agreement (DTAA) and rejecting the claim of the Appellant that the excess of DDT paid over and above the rate as per article 10 of India- 2. On facts and circumstances of the case and in law, Learned CIT (A) failed to appreciate that in terms provisions of section 90(2) read with section 10(34) of the Act the income being taxable in hands of non resident could not be subjected a rate in excess of the rate prescribed under DTA and hence erred in subjecting appellant to additional tax in terms of section 115 3. On the facts and circumstances of the case, the Ld. CIT(A) has erred in not allowing education cess amounting to IN 3,99,629 as a business expenditure. 4. Without prejudice to Ground No. 5 above and on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating that education cess is n thenature of tax or surcharge covered under section 40(a)(ji) of the Act and hence shall be allowed as business expenditure for the year under consideration. 5. Without prejudice to Ground No. 5 & the facts and circumstances of the case, the Ld. CIT(A) has failed to appreciate that the provisions of Explanation 3C in the section 40(1)(ji) of the Act should be made applicable from April 1, 2022 and therefore shall be applicable for th after April 1, 2022. 2. Briefly stated, facts of the case are that the assessee is a subsidiary of ‘Tricon International Ltd. USA consideration, the assessee filed return of income on 13.02.2021 declaring total income of Rs.4,16,83,660/ revised on 11.03.2021 refund of Rs.23,33,264/ M/s Tricon Global Services Pvt. Ltd. (DDT) in respect of dividend paid by Appellant to its parent company, Tricon International Limited, who is a tax resident of United States America('USA' to 15%, in view of the beneficial provisions of Article 10 of India USA Double Tax Avoidance Agreement (DTAA) and rejecting the claim of the Appellant that the excess of DDT paid over and above the rate as per article 10 of USA DTAA should be refunded to the Appellant. On facts and circumstances of the case and in law, Learned CIT (A) failed to appreciate that in terms provisions of section 90(2) read with section 10(34) of the Act the income being taxable in hands of non sident could not be subjected a rate in excess of the rate prescribed under DTA and hence erred in subjecting appellant to additional tax in terms of section 115-0 of the Act amounting to Rs. 23,33,224. On the facts and circumstances of the case, the Ld. IT(A) has erred in not allowing education cess amounting to IN 3,99,629 as a business expenditure. Without prejudice to Ground No. 5 above and on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating that education cess is n thenature of tax or surcharge covered under section 40(a)(ji) of the Act and hence shall be allowed as business expenditure for the year under consideration. Without prejudice to Ground No. 5 & 6 above and on the facts and circumstances of the case, the Ld. CIT(A) has failed to appreciate that the provisions of Explanation 3C in the section 40(1)(ji) of the Act should be made applicable from April 1, 2022 and therefore shall be applicable for the relevant AYs beginning on or after April 1, 2022. Briefly stated, facts of the case are that the assessee is a Tricon International Ltd. USA’. For the year under consideration, the assessee filed return of income on 13.02.2021 total income of Rs.4,16,83,660/-, which was subsequently revised on 11.03.2021, retaining same income, however claiming a refund of Rs.23,33,264/- as against refund of Rs.50 claimed in the M/s Tricon Global Services Pvt. Ltd. 2 ITA No. 2985/Mum/2022 (DDT) in respect of dividend paid by Appellant to its parent company, Tricon International Limited, who is a ited States America('USA' to 15%, in view of the beneficial provisions of Article 10 of India USA Double Tax Avoidance Agreement (DTAA) and rejecting the claim of the Appellant that the excess of DDT paid over and above the rate as per article 10 of USA DTAA should be refunded to the Appellant. On facts and circumstances of the case and in law, Learned CIT (A) failed to appreciate that in terms provisions of section 90(2) read with section 10(34) of the Act the income being taxable in hands of non- sident could not be subjected a rate in excess of the rate prescribed under DTA and hence erred in subjecting appellant to additional tax in terms of 0 of the Act amounting to Rs. 23,33,224. On the facts and circumstances of the case, the Ld. IT(A) has erred in not allowing education cess amounting to IN 3,99,629 as a business expenditure. Without prejudice to Ground No. 5 above and on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating that education cess is not in thenature of tax or surcharge covered under section 40(a)(ji) of the Act and hence shall be allowed as business expenditure for the year under consideration. 6 above and on the facts and circumstances of the case, the Ld. CIT(A) has failed to appreciate that the provisions of Explanation 3C in the section 40(1)(ji) of the Act should be made applicable from April 1, 2022 and therefore e relevant AYs beginning on or Briefly stated, facts of the case are that the assessee is a . For the year under consideration, the assessee filed return of income on 13.02.2021 hich was subsequently however claiming a as against refund of Rs.50 claimed in the [Type here] original return of income. The claim of refund of dividend distribution tax made in revised return Central Processing Centre, Bangalore (CPC) return of income u/s 143(1) of the Act On further appeal, this claim of distribution tax (DDT) assessee claimed that it paid dividend of Rs.4,20,00,000/ the year to parent company. The assessee further claimed that the original return of income filed, (DDT) of Rs.80,33,224/ inclusive of surcharge and education cess at an effective distribution tax rate of 26.56%. income, the assessee Taxation Avoidance Agreement (DTAA) rate of 15% was only applicable. The claim of the assessee has been rejected by the Ld. CIT(A) observing as under: “5.2 There is no merit in the c provisions of section 115 amount declared, distributed or paid by a domestic company by way of dividends shall be charged to additional income tax @ 15%. The sub even provides any dividend is received from the foreign subsidiary. The provisions of section 115 any other provision of the Act shall be allowed to the company or shareholder in respect of t been charged to tax under sub In view of these clear provisions, the claim that the DDT is a tax collected by the company on behalf of the shareholders has no legal basis. Therefore the said tax being pay M/s Tricon Global Services Pvt. Ltd. original return of income. The claim of refund of dividend made in revised return was rejected by the Ld. Central Processing Centre, Bangalore (CPC), while processing the return of income u/s 143(1) of the Act vide order dated 18.12.2021. this claim of refund of alleged (DDT) paid was rejected by the Ld. CIT(A). The assessee claimed that it paid dividend of Rs.4,20,00,000/ company. The assessee further claimed that the original return of income filed, it paid dividend Rs.80,33,224/- on the entire dividend of Rs.4,20,00,000/ inclusive of surcharge and education cess at an effective distribution tax rate of 26.56%. But, in the revised return of the assessee claimed that in view of India USA Double Taxation Avoidance Agreement (DTAA), the dividend distribution rate of 15% was only applicable. The claim of the assessee has been rejected by the Ld. CIT(A) observing as under: 5.2 There is no merit in the claim of the appellant. The provisions of section 115-O clearly state that the tax on the amount declared, distributed or paid by a domestic company by way of dividends shall be charged to additional income tax @ 15%. The sub-section 115 even provides for levy of tax on the domestic company if any dividend is received from the foreign subsidiary. The provisions of section 115-O(5) state that no deduction under any other provision of the Act shall be allowed to the company or shareholder in respect of the amount which has been charged to tax under sub-section (1) or the tax thereon. In view of these clear provisions, the claim that the DDT is a tax collected by the company on behalf of the shareholders has no legal basis. Therefore the said tax being pay M/s Tricon Global Services Pvt. Ltd. 3 ITA No. 2985/Mum/2022 original return of income. The claim of refund of dividend was rejected by the Ld. while processing the dated 18.12.2021. refund of alleged excess dividend paid was rejected by the Ld. CIT(A). The assessee claimed that it paid dividend of Rs.4,20,00,000/- during company. The assessee further claimed that in it paid dividend distribution tax on the entire dividend of Rs.4,20,00,000/- inclusive of surcharge and education cess at an effective the revised return of claimed that in view of India USA Double he dividend distribution tax rate of 15% was only applicable. The claim of the assessee has been laim of the appellant. The O clearly state that the tax on the amount declared, distributed or paid by a domestic company by way of dividends shall be charged to section 115-0(1A) for levy of tax on the domestic company if any dividend is received from the foreign subsidiary. The O(5) state that no deduction under any other provision of the Act shall be allowed to the he amount which has section (1) or the tax thereon. In view of these clear provisions, the claim that the DDT is a tax collected by the company on behalf of the shareholders has no legal basis. Therefore the said tax being payable as [Type here] additional income tax, the beneficial provisions of DTAA are not applicable. Therefore this ground is dismissed. 2.1 Aggrieved, the assessee is in appeal before the Tribunal by way of raising grounds as reproduced above. 3. Before us, the Ld. Cou assessee was not interest in prosecuting in ground No. 3 to 5 of the appeal, in view of the decision of the Hon’ble Supreme Court 14/12/2022 in the case of Chambal Fertilizer 7091/2019and therefore, these grounds are dismissed as infructuous. 4. Regarding ground No. 1 and 2 of the appeal challenging the finding of the Ld. CIT(A) that dividend distribution tax be levied as per the domes provisions of the DTAA conceded that issue is dispute the decision of the Special Bench of the Tribunal in the case of Oil India Pvt. Ltd. in ITA No. 6997.Mum/2019 for AY 2016 relevant finding of the Special Bench of the Tribunal is reproduced as under: CONCLUSION: 83. For the reasons give above, we hold that where dividend is declared, distributed or paid by a domestic company to a non M/s Tricon Global Services Pvt. Ltd. additional income tax, the beneficial provisions of DTAA are not applicable. Therefore this ground is dismissed. Aggrieved, the assessee is in appeal before the Tribunal by way of raising grounds as reproduced above. Before us, the Ld. Counsel of the assessee submitted that assessee was not interest in prosecuting in ground No. 3 to 5 of the n view of the decision of the Hon’ble Supreme Court in the case of Joint Commissioner of Income Fertilizer and Chemical P ltd in SLP© and therefore, these grounds are dismissed as Regarding ground No. 1 and 2 of the appeal challenging the finding of the Ld. CIT(A) that dividend distribution tax as per the domestic law without any benefit of the provisions of the DTAA, the Ld. Counsel of the assessee fairly conceded that issue is dispute is covered against the assessee by the decision of the Special Bench of the Tribunal in the case of in ITA No. 6997.Mum/2019 for AY 2016 relevant finding of the Special Bench of the Tribunal is reproduced 83. For the reasons give above, we hold that where dividend is declared, distributed or paid by a domestic non-resident shareholder(s), which attracts M/s Tricon Global Services Pvt. Ltd. 4 ITA No. 2985/Mum/2022 additional income tax, the beneficial provisions of DTAA are not applicable. Therefore this ground is dismissed.” Aggrieved, the assessee is in appeal before the Tribunal by way nsel of the assessee submitted that assessee was not interest in prosecuting in ground No. 3 to 5 of the n view of the decision of the Hon’ble Supreme Court dated Joint Commissioner of Income-tax Vs Chemical P ltd in SLP© No. and therefore, these grounds are dismissed as Regarding ground No. 1 and 2 of the appeal challenging the finding of the Ld. CIT(A) that dividend distribution tax (DDT) has to tic law without any benefit of the he Ld. Counsel of the assessee fairly covered against the assessee by the decision of the Special Bench of the Tribunal in the case of Total in ITA No. 6997.Mum/2019 for AY 2016-17 . The relevant finding of the Special Bench of the Tribunal is reproduced 83. For the reasons give above, we hold that where dividend is declared, distributed or paid by a domestic resident shareholder(s), which attracts [Type here] Additional Income Tax (Tax on Distributed Profits) referred to in Sec.115-O of the Act, such additional income tax payable by the domestic company shall be at the rate mentioned in Section 115 O of the Act and no of tax applicable to the non specified in the relevant DTAA with reference to such dividend income. Nevertheless, we are conscious of the sovereign's prerogative to extend the treaty protection to domestic companies through the mechanism of Pvt. Ltd. DTAAs. Thus, wherever the Contracting States to a tax treaty intend to extend the treaty protection to the domestic company paying dividend distribution ta then, the domestic company can claim benefit of the DTAA, if any. Thus, the question before the Special Bench is answered, accordingly. 4.1 The issue in dispute being squarely covered by the decision of the Special Bench (supra), the ground No the assessee are dismissed. 5. In the result, the appeal of the assessee is dismissed. Order pronounced in the open Court on Sd/ (KAVITHA RAJAGOPAL JUDICIAL MEMBER Mumbai; Dated: 13/06/2023 Rahul Sharma, Sr. P.S. M/s Tricon Global Services Pvt. Ltd. Additional Income Tax (Tax on Distributed Profits) referred O of the Act, such additional income tax payable by the domestic company shall be at the rate mentioned in Section 115 O of the Act and not at the rate of tax applicable to the non-resident shareholder(s) as specified in the relevant DTAA with reference to such dividend income. Nevertheless, we are conscious of the sovereign's prerogative to extend the treaty protection to domestic companies paying dividend distribution tax through the mechanism of Special Bench - Total Oil India DTAAs. Thus, wherever the Contracting States to a tax treaty intend to extend the treaty protection to the domestic company paying dividend distribution ta then, the domestic company can claim benefit of the DTAA, if any. Thus, the question before the Special Bench is answered, accordingly. The issue in dispute being squarely covered by the decision of the Special Bench (supra), the ground Nos. 1 and 2 of the appeal of dismissed. In the result, the appeal of the assessee is dismissed. nounced in the open Court on 13/0 Sd/- Sd/ KAVITHA RAJAGOPAL) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER M/s Tricon Global Services Pvt. Ltd. 5 ITA No. 2985/Mum/2022 Additional Income Tax (Tax on Distributed Profits) referred O of the Act, such additional income tax payable by the domestic company shall be at the rate t at the rate resident shareholder(s) as specified in the relevant DTAA with reference to such dividend income. Nevertheless, we are conscious of the sovereign's prerogative to extend the treaty protection to paying dividend distribution tax Total Oil India DTAAs. Thus, wherever the Contracting States to a tax treaty intend to extend the treaty protection to the domestic company paying dividend distribution tax, only then, the domestic company can claim benefit of the DTAA, if any. Thus, the question before the Special Bench is The issue in dispute being squarely covered by the decision of and 2 of the appeal of In the result, the appeal of the assessee is dismissed. /06/2023. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER [Type here] Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// M/s Tricon Global Services Pvt. Ltd. Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai M/s Tricon Global Services Pvt. Ltd. 6 ITA No. 2985/Mum/2022 BY ORDER, (Assistant Registrar) ITAT, Mumbai