Facts of the Case

The present writ petition was filed by the petitioner challenging the order dated 31 March 2021 passed under Section 264 of the Income Tax Act, 1961 for Assessment Year 2018–19. The petitioner sought a direction for refund of approximately INR 71.41 crores paid as excess Dividend Distribution Tax (DDT).

The petitioner further sought a declaration that Section 115-O of the Income Tax Act should be interpreted harmoniously with Article 10 of the India–Mauritius Double Taxation Avoidance Agreement (DTAA), allowing application of the beneficial tax rate.

Issues Involved

  1. Whether the beneficial tax rate of 5% under Article 10(2) of the India–Mauritius DTAA overrides the higher DDT rate prescribed under Section 115-O.
  2. Whether the petitioner is entitled to refund of excess DDT paid.
  3. Whether the Principal Commissioner was justified in rejecting the revision petition under Section 264 on the ground of prematurity.
  4. Whether failure to follow binding ITAT precedent amounts to violation of judicial discipline.

Petitioner’s Arguments

  • The petitioner contended that the DTAA rate of 5% should prevail over the higher DDT rate of approximately 20.36% (after grossing up).
  • It was argued that the respondent wrongly rejected the refund claim despite acknowledging that the issue was covered by the ITAT decision in Giesecke & Devrient (India) Pvt. Ltd. v. Addl. CIT.
  • The petitioner emphasized that refusal to follow a binding precedent on the ground that the department had not decided to appeal constitutes a gross violation of judicial discipline.
  • Reliance was also placed on Riso India Private Limited v. PCIT, where a similar order under Section 264 was quashed.

Respondent’s Arguments

  • The respondents submitted that during the relevant period, the DDT regime under Section 115-O was applicable, wherein tax liability was on the company distributing dividends.
  • It was argued that dividends received by shareholders were exempt under Section 10, and therefore, the tax structure under the Income Tax Act should prevail.
  • Reliance was placed on the Supreme Court decision in Godrej & Boyce Manufacturing Co. Ltd. v. DCIT (2017) 394 ITR 449 (SC) to justify the applicability of Section 115-O over DTAA provisions.
  • The respondents contended that the issue was not settled as the department still had time to appeal against the ITAT ruling.

Court Order / Findings

  • The Delhi High Court observed that the Principal Commissioner had failed to provide any reasoned order on merits.
  • The rejection of the revision petition solely on the ground that the matter was “premature” was held to be unsustainable.
  • The Court held that the authority did not apply its mind to the issues involved and failed to exercise jurisdiction properly.
  • Accordingly, the impugned order dated 31 March 2021 was set aside, and the matter was remanded back to the Principal Commissioner for fresh consideration within six weeks after granting an opportunity of hearing.

Important Clarification by the Court

  • The Court explicitly clarified that it had not expressed any opinion on the merits of the controversy.
  • All rights and contentions of both parties were kept open.
  • The petitioner was granted liberty to pursue further remedies in accordance with law if aggrieved by the fresh order.

Sections Involved

  • Section 115-O – Dividend Distribution Tax
  • Section 264 – Revision of orders
  • Section 10 – Exemption of dividend income
  • Article 10 of India–Mauritius DTAA

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:3122-DB/MMH30092021CW110832021_190802.pdf

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