Facts of the Case

The Petitioner, a Netherlands-based company engaged in strategic investment activities, held 58.39% shareholding in Deccan Fine Chemicals (India) Pvt. Ltd. During FY 2021–22, it was entitled to receive a dividend of ₹65.68 crores.

The Petitioner applied under Section 197 of the Income Tax Act, 1961 seeking issuance of a certificate for lower withholding tax at 5%, relying on the India–Netherlands DTAA read with the Protocol and Most Favoured Nation (MFN) clause.

However, the Assessing Officer rejected the application and issued a certificate prescribing 10% TDS, leading to the filing of the present writ petition challenging the order and certificate dated 29 September 2021.

Issues Involved

  1. Whether the Petitioner is entitled to a lower withholding tax rate of 5% on dividend income under the MFN clause of the India–Netherlands DTAA.
  2. Whether the Assessing Officer can disregard binding judicial precedents while issuing a certificate under Section 197.
  3. Whether the impugned order prescribing 10% TDS is legally sustainable.

Petitioner’s Arguments

  • The Petitioner contended that under the MFN clause, if India enters into a DTAA with another OECD country granting a lower tax rate, the same benefit extends to the India–Netherlands DTAA.
  • India has entered into DTAAs with countries like Slovenia, Lithuania, and Colombia, prescribing 5% tax on dividends, hence the same rate should apply.
  • The issue is already settled by Delhi High Court in:
    • Concentrix Services Netherlands B.V. v. ITO (TDS)
    • Nestle SA v. Assessing Officer
  • The Assessing Officer cannot ignore binding precedents merely because an appeal may be filed.

Respondent’s Arguments

  • The Revenue initially issued the certificate at 10% withholding tax as per its interpretation of the DTAA.
  • However, during proceedings, the Respondent fairly conceded that the issue is covered by existing judgments of the Delhi High Court, particularly in Concentrix Services Netherlands B.V.

Court Findings / Order

  • The Delhi High Court held that the issue is no longer res integra and is squarely covered by earlier judgments.
  • The impugned order and certificate prescribing 10% TDS were set aside.
  • The Court directed issuance of a fresh certificate under Section 197 specifying 5% tax rate on dividend income in accordance with the India–Netherlands DTAA and MFN clause.
  • The writ petition was disposed of in favour of the Petitioner.

Important Clarification

  • The Court reaffirmed that MFN clause benefits are automatically applicable when conditions are satisfied.
  • Tax authorities cannot ignore binding precedents on the ground of pending appeals.
  • Section 197 certificates must align with settled legal principles and DTAA interpretation.

Sections Involved

  • Section 197, Income Tax Act, 1961
  • Double Taxation Avoidance Agreement (India–Netherlands DTAA)
  • Protocol & Most Favoured Nation (MFN) Clause

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:3356-DB/MMH25102021CW119212021_210807.pdf

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