Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(Bom) 3613

HIGH COURT OF BOMBAY
G. S. Kulkarni, Aarti Sathe, JJ
Foseco India Ltd. – Appellant
Versus
Assistant Commissioner of Income Tax Circle1(1) Pune – Respondent
INCOME TAX APPEAL NO. 1123 OF 2025|INCOME TAX APPEAL NO. 1049 OF 2025|INCOME TAX APPEAL NO. 1088 OF 2025|INCOME TAX APPEAL NO. 1055 OF 2025|INCOME TAX APPEAL NO. 1086 OF 2025|INCOME TAX APPEAL NO. 1080 OF 2025|INCOME TAX APPEAL NO. 1029 OF 2025

Advocates:
For the Appellants/Petitioners: Sagar Tilak, Sachin Hande, Preshita Adamane, Saachi Bhiwandkar
For the Respondents: N. Venkataraman, Sushma Nagaraj, Amira Razaq, Krithika Anand, Abhinav Palsikar, Chandrashekara Bharathi, Nakul Madhan, Vinod Tanwani

Division Bench refers to Larger Bench whether DDT on dividends to non-residents is capped by DTAA Article 11 or remains company's additional tax on profits per Section 115-O, due to conflict with prior Supreme Court-affirmed rulings.

Headnote:(A) Income Tax Act, 1961 - Sections 115-O, 90, 237, 10(34) - DTAA India-UK - Article 11 - Dividend Distribution Tax (DDT) - DDT is additional income-tax charged on amount declared, distributed or paid by domestic company by way of dividends, in addition to tax on total income - Tax on distributed profits of company, not tax on dividend income of shareholders - Company liable as distinct taxable entity, not as agent of shareholders - No further credit or deduction allowable to company or shareholders - Dividend exempt in shareholders' hands - DTAA Article 11 on dividends inapplicable as not tax on shareholder income - Lower authorities correctly rejected refund claim of excess DDT over DTAA rate - Recent Division Bench holding DDT as tax on shareholders' dividend income entitled to DTAA cap held contrary to prior Division Bench affirmed by Supreme Court - Questions referred to Larger Bench. (Paras 19-40)

(B) Income Tax Act, 1961 - Section 115-O - Interpretation - Non-obstante clause confers overriding effect - Sub-ss.(4),(5) confirm finality of tax payment by company, no pass-through to shareholders - Legislative history reinforces tax on company profits for administrative convenience to avoid double taxation. (Paras 20-22)

Facts of the case:
Batch of seven appeals under Section 260A challenging common Tribunal order dismissing assessee's appeals against rejection of refund applications under Section 237 for excess DDT paid at domestic rate on dividends distributed to non-resident shareholders claiming cap at 15% under DTAA Article 11 for assessment years 2014-15 to 2020-21.

Findings of Court:
DDT under Section 115-O is tax on company's distributed profits, DTAA inapplicable; recent Division Bench decision inconsistent with binding precedents; questions of law framed for Larger Bench resolution.

Issues: Whether DDT is tax on company profits or shareholders' dividend income; whether DTAA Article 11 caps DDT rate for non-resident shareholders; correctness of recent Division Bench overruling Special Bench and prior High Court/Supreme Court views.

Ratio Decidendi: Plain reading of Section 115-O imposes additional tax on domestic company on distributed profits as distinct from shareholder dividend income; DTAA protects non-resident income taxation, inapplicable to resident company's domestic liability absent specific treaty extension; conflicting Division Bench judgments necessitate Larger Bench reference.

Result: Appeals not decided on merits; proceedings referred to Chief Justice for Larger Bench constitution.

Table of Content
1. appeals challenge tribunal on ddt refund under dtaa. (Para 1 , 2 , 3)
2. assessee paid excess ddt over dtaa rate. (Para 4 , 5 , 6 , 7 , 8)
3. ddt taxes company profits, dtaa inapplicable. (Para 9)
4. cit(a), tribunal deny dtaa benefit citing total oil. (Para 10 , 11)
5. colorcon favors assessee; ddt taxes shareholder dividend. (Para 12 , 13)
6. ddt additional tax on company profits per godrej. (Para 14)
7. section 115-o imposes tax on company distributed profits. (Para 16 , 17 , 18 , 19 , 20 , 21 , 22)
8. godrej holds ddt not shareholder dividend tax. (Para 23 , 24 , 25 , 26 , 27)

Oral Order : (Per G. S. Kulkarni, J.)

1. These are a batch of seven appeals filed under Section 260A of the Income Tax Act, 1961 (for short “IT Act”), challenging a common order dated 11 November 2024 passed by the Income Tax Appellate Tribunal, Bench at Pune, whereby, the appeals filed by the appellant/assessee challenging the orders passed by the Commissioner of Income Tax (Appeal), Pune (CIT)(A) are dismissed. The assessment years in question are assessment year 2014-15 to 2020-21.

2. The assessee has raised the following questions of law:

I. Whether Dividend Distribution Tax (‘DDT’) prescribed under section 115-O of the Income-tax Act, 1961 (‘Act’) is in substance and effect a tax on dividend income of non-resident shareholders and where recipient shareholders are residents of United Kingdom the more beneficial rate of tax of 15% under Article 11 of DTAA between India –UK is applicable?

II. Whether decision of the Special bench of Tribunal in the case of Deputy Commissioner of Income Tax Vs. Total Oil India Pvt. Ltd., ITA 6997/Mum/2019 lays down the correct law?

III. Without prejudice, whether the Tribunal erred in not appreciating that since in view of Article 24(1)(b) of the DTAA between India and UK, levy of DDT was specifically covered within Article 3(1)(c) of the DTAA between India and UK, therefore, the lower rate of tax i.e., 15% (inclusive of surcharge and cess) as provided for under Article 11(2) of the DTAA between India and UK should apply instead of 16.994% (inclusive of surcharge and cess) as provided under section 115-O of the Act?

3. The Tribunal considered the appeal for the Assessment Year 2014-15 as the lead matter. The question of law as involved as also the facts as involved are similar except the difference in the amounts of tax. We accordingly refer to the facts in the lead matter (Income Tax Appeal No.1123 of 2025) which pertain to the Assessment Year 2014-15.

4. The relevant facts are :

The assessee is a company engaged inter alia in the business of manufacture, marketing and trading of foundry chemicals and foundry fluxes for the metallurgical industry, including the steel and foundry industry.

5. On 30 November 2014, the assessee filed its return of income tax for the assessment year in question (A.Y. 2014-15) disclosing a total income of Rs.27,17,03,590/- under the normal provision of the Income Tax Act. In such Assessment Year, the assesssee distributed dividend, amongst its shareholders and to its foreign shareholders, aggregating to Rs.7,66,30,021/- on which the assessee paid Dividend Distribution Tax (“DDT”) amounting to Rs.1,30,23,272/- @16.994%.

6. It is assessee’s case that in terms of Article 11 of the India-UK Double Taxation Avoidance Agreement (DTAA), dividend becomes taxable @15% in the hands of the beneficial owner of the dividend i.e. shareholders. According to the assessee, consequent thereto, dividend of Rs. 7,66,30,021/- being paid to Vesuvius Holdings Limited (VHL), Foseco Overseas Limited (FOL) and Foseco UK Limited (FUL) of UK, was taxable at the beneficial rate of 15% as prescribed under DTAA, being an amount of Rs.1,14,94,503/-. It is the assessee’s contention that instead, the assessee paid the DDT at an amount of Rs. 1,30,23,272/- (@16.994%) which is an amount of tax more than what would be required to be paid applying the provisions of the DTAA. Accordingly, the assessee contended that it had

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