DDT on dividends to non-resident shareholders under India-UK DTAA restricted to 10%; excess refundable as it constitutes tax on dividend income. No interest u/s 234B/C on unforeseeable APA incremental income.

आदेश/ORDER

PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-

This appeal is filed by the Assessee as against the appellate order dated 30-12-2024 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment order passed under section 143(3) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2016-17.

2. Brief facts of the case is that the assessee is a Private Limited Company provides Network Security Solutions, Contract Software Development and Contract Support Services. For the Assessment Year 2016-17 assessee filed its original Return of Income on 30-11-2016 declaring total income of Rs.148,86,82,230/- and revised return on 27-03-2018 declaring total income of Rs.149,22,97,140/-. The assessee company entered into an Advance Pricing Agreement (hereinafter referred as APA) with Central Board of Direct Taxes on 19- 08-2019 under section 92CC of the Act for the Asst. Years 2016-17 to 2020-21. Therefore, a modified Return of Income under section 92CD was filed by the assessee company on 14-11-2019 declaring total income of Rs.157,70,06,240/- and paid the additional tax on the said income.

3. In the meanwhile, the return was taken for scrutiny assessment. During the course of assessment proceedings, the assessee requested for refund of excess Dividend Distribution Tax (DDT) paid by it contending that the rate of DDT paid on the dividends remitted to the shareholders (residents of United Kingdom), should not exceed the rate of 10% as prescribed in the Double Taxation Avoidance Agreement (DTAA) entered between India and United Kingdom. A reference was also made to the Transfer Pricing Officer for determining Arms’ Length Price of the International Transaction undertaken by the assessee company and the TPO accepted the price at which International Transaction were recorded and no adverse inference was drawn by passing order dated 28-10-2019 under section 92CA(3) of the Act. Following the same, the Ld AO accepted the returned income filed by the assessee and no addition made by passing Assessment Order dated 31-08-2021 u/s. 143(3) r.w.s. 144B of the Act. However the Ld. A.O. did not grant any relief in respect of the claim relating to refund of excess DDT paid by the assessee.

4. Aggrieved against the assessment order, assessee filed an appeal before Ld. CIT(A) challenging the non-grant refund of excess DDT as well as levy of interest u/s. 234B and 234C of the Act. Ld. CIT(A) directed the Ld A.O to verify the claim of refund of DDT paid in excess of the rate of tax on dividends as prescribed under Article 10 of the DTAA between India and U.K. and also consequential interest u/s. 234B and 234C of the Act. However, the Ld. A.O. still rejected the claim of the assessee relying on the decision of Hon’ble Supreme Court in Goetze India Ltd. thereby the assessee is in appeal before us raising the following Grounds of Appeal:

Each of the grounds of the appeal are independent and without prejudice to the others.

1. Applicability of tax rate on dividends paid to non-resident shareholders

On the facts and circumstances of the case and in law, the Hon'ble CIT(A)/Ld. AO erred in not appreciating that the Dividend Distribution Tax (DDT) prescribed under Section 115-0 of the Act is in substance and effect a tax on dividend income of non-resident shareholders and therefore, the DDT paid to the shareholders which are a resident of the United Kingdom, should be restricted to the more beneficial rate of 10% under Article 11 of India - United Kingdom tax treaty.

It is prayed that the Appellant be grante