The tribunal said that in the case involving an Indian subsidiary of German company Giesecke & Devrient GmbH, the DDT rate will be at 10% as an amendment to domestic tax provisions cannot override tax treaties, including the Double Taxation Avoidance Agreement (DTAA) between India and Germany.
“We are of the considered view that tax rates specified in DTAA in respect of dividend must prevail over DDT,” the ITAT bench comprising NK Billaiya and Suchitra Kamble said in an order issued on Tuesday. “The DDT levied by the appellant should not exceed the rate specified in Article 10 in India Germany DTAA.”
However, the tribunal remitted the matter back to the assessing officer for verifying the supporting documents for assessment year 2012-13, such that the rate should not exceed the levels mentioned in Article 10 of DTAA, since concessional DTAA rate is subject to “beneficial ownership” condition and permanent establishment examination, among other factors.
Experts said that while the decision will help Indian companies make similar claims before assessing officers and appellate authorities for past years, the revenue department is likely to challenge the ruling given its potential ramifications.
“This is a path-breaking ruling according to a treaty benefit to the foreign companies that have invested in India,” said Rakesh Nangia, chairman of Nangia Andersen India, while noting that the benefit would have been more if the DDT levy had not been abolished earlier this year in the Union Budget. “Analogy may be drawn to extend the interpretation of law in this ruling on buyback tax,” he said.
The order said that DDT was a tax on the company or not on a shareholder and that in case of inconsistency between the DTAA and the Act, the DTAA shall prevail.
Several of India’s vital DTAAs, such as with Mauritius, Singapore and the Netherlands, were entered into before the introduction of DDT and Indian companies with shareholders domiciled in such countries are likely to benefit from this decision, said analysts at Dhruva Advisors.
“Several companies may apply for refunds for the DDT already paid, based on this judgment,” said Amit Maheshwari, partner at AKM Global. “However given the repercussions involved the tax department is expected to file an appeal.”