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2023 Supreme(SC) 1151
SUPREME COURT OF INDIA
B.V. NAGARATHNA, PRASHANT KUMAR MISHRA, JJ.
Principal Commissioner Of Income Tax-10 - Appellant
Versus
M/s. Krishak Bharti Cooperative Ltd. - Respondent
Civil Appeal No. 836 Of 2018
With Civil appeal no. 3369 of 2019, Civil Appeal No(s). 2256 Of 2018, Civil Appeal No(s). Of 2023 @ SLP(C)NO(s). Of 2023 @ SLP (C) Diary No(s). 4647 of 2018, Civil Appeal No(s). Of 2023 @ SLP(C) No(s). 11204 Of 2023 & Civil Appeal No(s). Of 2023 @ SLP (C) No(s). Of 2023 @ SLP (C) Diary No(s). 15333 of 2023.
Decided On : 15-09-2023
For the Appellant(s) : Mr. Balbir Singh, A.S.G. Mr. Arijit Prasad, Sr. Adv. Mr. Raj Bahadur Yadav, AOR Mr. Rupesh Kumar, Adv. Mr. Rukhmani Bobde, Adv. Mr. Annirudh Sharma Ii, Adv.
For the Respondent(s): M/S. K J John And Co, AOR Mr. Pratap Venugopal, Adv. Ms. Surekha Raman, Adv. Mr. Prashant Kumar Nair, Adv. Mr. Abhishek Anand, Adv. Mr. Shreyash Kumar, Adv. Ms. Kavita Jha, AOR Mr. Ajay Vohra, Sr. Adv. Ms. Kavita Jha, Adv. Mr. Vaibhav Kulkarni, Adv. Mr. Udit Naresh, Adv.
The assessee is entitled to claim tax credit for the dividend income received from its joint venture in Oman, as it is exempted under Omani tax laws. The provisions of the DTAA between India and Oman, specifically Article 25, allow for the tax credit.
Headnote:
DTAA - Article 25 - The law in force in either of the Contracting States will continue to govern the taxation of the income in the respective Contracting States. Where a resident of India derives income which may be taxed in the Sultanate of Oman, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income tax paid in the Sultanate of Oman. The tax payable in a Contracting State mentioned in clause 2 and clause 3 of this Article shall be deemed to include the tax which would have been payable but for the tax incentive granted under the laws of the Contracting State and which are designed to promote development. Omani Tax Laws - Article 8 (bis) - Dividends received by the company against equity shares, portions or stocks in the capital of any other company are exempt from tax.
Fact of the Case:
The assessee, a multi-State Co-operative Society, entered into a joint venture with Oman Oil Company. The assessee claimed tax credit for the dividend income received from the joint venture, which was exempted under Omani tax laws. The Principal Commissioner of Income Tax issued a show cause notice challenging the tax credit. The Income Tax Appellate Tribunal allowed the appeal of the assessee, but the Delhi High Court dismissed the appeal. The Supreme Court held that the assessee is entitled to claim the tax credit under the DTAA between India and Oman.
Finding of the Court:
The court analyzed the relevant provisions of the DTAA and Omani tax laws. It examined Article 7 (business profits), Article 11 (dividends), and Article 25 (avoidance of double taxation) of the DTAA. It also considered Article 8 (bis) of the Omani tax laws, which exempts dividend income received by companies from their ownership of shares in other companies. The court relied on a clarification letter issued by the Omani Finance Ministry, which confirmed the tax exemption for dividend income received by the assessee's permanent establishment in Oman. The court concluded that the assessee is entitled to the tax credit under the DTAA and dismissed the appeals.
Ratio Decidendi: The assessee is entitled to claim tax credit for the dividend income received from its joint venture in Oman, as it is exempted under Omani tax laws. The provisions of the DTAA between India and Oman, specifically Article 25, allow for the tax credit. The clarification letter issued by the Omani Finance Ministry supports the tax exemption and is valid for interpreting the relevant clauses of the DTAA.
Result: The appeals have no substance and are dismissed.
JUDGMENT :
(Prashant Kumar Mishra, J.)
Delay condoned in SLP (C) Diary No. 4647 of 2018 and SLP (C) Diary No. 15333 of 2023.
2. Leave granted in SLP (C) No. _____ @ Diary No. 4647 of 2018, SLP(C) No. 11204 of 2023 and SLP (C) No. _____ @ Diary No. 15333 of 2023.
3. This judgment governs the disposal of Civil Appeal No. 836 of 2018, C.A. No. 3369 of 2019, Civil Appeal No. 2256 of 2018 and the appeals arising out of SLP (C) Diary No. 4647 of 2018, SLP(C) No. 11204 of 2023 and SLP (C) @ Diary No. 15333 of 2023.
BACKGROUND FACTS:
4. 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 (for short ’OMIFCO’ or ‘the JV’), 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.
5. The assessment for the relevant year was completed under Section 143 (3) of the Income Tax Act, 1961 (for short, ‘the Act’). The Assessing Officer 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.
6. The Assessing Officer allowed credit for the said tax, which would have been payable in Oman, but exemption was granted. Thereafter, the Principal Commissioner of Income Tax (for short, ‘PCIT’) issued a show cause notice under Section 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 under Section 90 of the Act. This notice was duly replied to by the assessee. However, 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.
7. Questioning the order of PCIT, the assessee preferred an appeal before the Income Tax Appellate Tribunal (for short, ‘ITAT’), which allowed the appeal holding that the order passed by the PCIT under Section 263 of the Act is without jurisdiction and is not sustainable in law.
8. The order passed by the ITAT was challenged before the Delhi High Court by preferring an Income Tax Appeal, which has been dismissed by the High Court by the impugned judgment holding that as per the relevant terms of the DTAA between India and Oman, the assessee is entitled to claim the tax credit, which has been rightly allowed by the Assessing Officer.
CONTENTIONS RAISED BY THE PARTIES:
9. Shri Arijit Prasad, learned senior counsel would submit that Article 11(4) would only apply in a case where the Permanent Establishment (for short, ‘PE’) of the assessee was carrying on business in Oman, whereas, in the case in hand, the PE is only doing preparatory and auxiliary work and is not having any tangible expenses. Therefore, the dividend income of the assessee is not related to its PE. It is also argued that the exemption letter dated 11.12.2000 issued by the Sultanate of Oman, Ministry of Finance under the signatures of Secretary General for Taxation, has no statutory force as per Omani Tax Laws, therefore, the same cannot be relied u
