Facts of the Case

The Petitioner, a Netherlands-based company engaged in manufacturing and sale of confectionery and providing operational support services, held 99.999% shareholding in its Indian subsidiary, Perfetti Van Melle India Pvt. Ltd.

During FY 2021–22, the Indian subsidiary proposed to distribute a dividend of approximately INR 30 crores, out of which nearly the entire amount was payable to the Petitioner.

The Petitioner applied under Section 197 of the Income Tax Act, 1961 seeking a lower withholding tax rate of 5% on dividend income under the India–Netherlands DTAA, invoking the Most Favoured Nation (MFN) clause.

However, the Assessing Officer rejected the request and issued a certificate prescribing a 10% withholding tax rate. Aggrieved, the Petitioner filed a revision application under Section 264 of the Act, which remained undecided, leading to the present writ petition.

Issues Involved

  • Whether the Respondent authority is obligated to dispose of the Petitioner’s revision application under Section 264 within a reasonable time.
  • Applicability of the MFN clause under the India–Netherlands DTAA for availing a reduced withholding tax rate of 5% on dividend income.
  • Whether delay in adjudication of statutory remedy warrants judicial intervention.

Petitioner’s Arguments

  • The Petitioner contended that under the MFN clause, the lower tax rate of 5% should apply since India entered into DTAAs with OECD countries (Slovenia, Lithuania, Colombia) prescribing lower dividend tax rates.
  • It was argued that denial of such benefit by the Assessing Officer was erroneous.
  • The Petitioner emphasized that the issue had already been decided in its favour in:
    • Concentrix Services Netherlands B.V. v. ITO (TDS)
    • Nestle SA v. Assessing Officer (International Taxation)
  • The primary grievance was non-disposal of the revision application under Section 264 despite repeated reminders.

Respondent’s Arguments

  • The Respondent did not oppose the limited relief sought by the Petitioner.
  • It was submitted that there was no objection to a direction for time-bound disposal of the application under Section 264.

Court’s Findings / Order

The Delhi High Court observed that the petition was limited to seeking expeditious disposal of the pending application under Section 264.

Accordingly, the Court disposed of the writ petition with the following directions:

  • The Respondent shall decide the Petitioner’s application dated 18 August 2021 under Section 264.
  • The decision must be reasoned and in accordance with law.
  • The same shall be completed within eight weeks.

Important Clarification

  • The Court did not adjudicate on the merits of the MFN clause applicability or tax rate.
  • The order is confined strictly to ensuring procedural fairness and timely disposal of statutory remedies.
  • Substantive tax issues remain open for determination by the competent authority.

Sections Involved

  • Section 197, Income Tax Act, 1961 – Certificate for lower/nil TDS
  • Section 264, Income Tax Act, 1961 – Revision of orders
  • Double Taxation Avoidance Agreement (India–Netherlands DTAA)
  • MFN (Most Favoured Nation) Clause under DTAA

 Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:3249-DB/MMH11102021CW116182021_162027.pdf

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