My company paid dividend distribution tax on dividend to a French shareholder. Can I pay at the lower treaty rate on dividends instead of the section 115-O rate?
This question is now before the Supreme Court and must not be treated as closed. What follows is what this Special Bench decided in April 2023; for where the point stands today, read the validity note. No, on the reasoning of this Special Bench. It treated dividend distribution tax under section 115-O as a charge on the domestic company on its own distributed profits, not a tax paid on behalf of the shareholder, following the Bombay High Court in Godrej & Boyce that the company does not act as the shareholder's agent and the charge is not on dividend in the shareholder's hands. It held that Tata Tea, which upheld the constitutional validity of section 115-O, does not support the taxpayer, a precedent being an authority only for what it actually decides. On that footing the shareholder's treaty rate does not limit the section 115-O rate.
Decided by the ITAT (Income Tax Appellate Tribunal, Mumbai, Special Bench - G.S. Pannu, President, N.V. Vasudevan, Vice President, and Vikas Awasthy, Judicial Member; order authored by G.S. Pannu) on 2023-04-20, reported as ITA No. 6997/Mum/2019 with C.O. No. 57/Mum/2019 (assessment year 2016-17), Special Bench, Mumbai; heard 22 February 2023, pronounced 20 April 2023. It bears on section 115-O, section 90(2), section 2(43), section 10(33), section 4 of the Income Tax Act 1961, in Capital Gains Exemptions and How Tax Law Is Read matters.
This is the Special Bench constituted precisely to resolve a conflict, and it displaces the two coordinate bench decisions that had been driving refund claims - Giesecke & Devrient India (Delhi) and Indian Oil Petronas (Kolkata), both of which had held the treaty dividend rate must prevail over section 115-O. Those decisions rested on two steps: that dividend distribution tax is tax within section 2(43), traceable to the charging section 4 and so subject to section 90; and that the domestic company pays it for and on behalf of the shareholder. The Special Bench accepts the first and breaks the second. The distinction it draws matters beyond this issue: the incidence of a levy on a company's own profits is not converted into the shareholder's liability merely because the shareholder is the economic sufferer. Anyone still holding an open claim for the period when section 115-O applied needs to read this before pressing it. Since this order the line has moved three times: the Bombay High Court at Goa declined to follow it in Colorcon Asia (28 November 2025), a coordinate Bombay Division Bench doubted Colorcon Asia and referred the question to a Larger Bench in Foseco India (27 April 2026), and the Revenue's petition against Colorcon Asia is listed for final hearing in the Supreme Court on 29 September 2026. Anyone still holding an open claim should preserve it rather than abandon it on the strength of this order.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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Total Oil India Private Limited, a domestic company, declared and paid dividend in the previous year relevant to assessment year 2016-17. Among its shareholders were Total Marketing Services and Total Holdings Asie, tax residents of France. In its cross objection the company asked that the tax payable under section 115-O be computed at the rate prescribed in the India-France treaty rather than the rate in section 115-O, which with grossing up is higher than the ten per cent cap found in most Indian treaties. It relied on the Delhi Bench decision in Giesecke & Devrient India Pvt Ltd v ACIT and the Kolkata Bench decision in DCIT v Indian Oil Petronas Pvt Ltd, both of which had held that the treaty rate prevails. The Division Bench hearing the cross objection doubted those decisions, principally because the Supreme Court in Godrej & Boyce had said that tax paid under section 115-O cannot be understood as paid on behalf of the recipient assessee, a precedent the Delhi Bench had not had occasion to consider. A Special Bench was constituted to answer whether, on dividend declared, distributed or paid by a domestic company to a non-resident shareholder, the additional income-tax is payable at the section 115-O rate or at the rate applicable to the non-resident shareholder on that dividend. Appeals of Maruti Suzuki India Limited and Gujarat Gas Co. Ltd. were heard with it, along with six interveners.
On the portion of the order available to me, the Special Bench decided the anterior question - whether dividend distribution tax is a tax on the company or on the shareholder - against the assessees. It held that the argument that the Supreme Court in Tata Tea had laid down that section 115-O is in truth a tax in the shareholder's hands is devoid of merit: that Court was dealing with the constitutional validity of the provision, holding that dividend is income under section 2(24)(ii) and so within Entry 82 of List I, and was not dealing with the nature of the levy, a precedent being an authority only for what it actually decides. It adopted the Bombay High Court's analysis in Godrej & Boyce that the charge under section 115-O(1) is on that part of the company's profits which is declared, distributed or paid as dividend, and not on dividend income in the shareholder's hands; that the company does not pay on behalf of, or as agent for, the shareholder; and that Parliament did not re-enact in the 1961 Act the deeming fiction that section 49B of the 1922 Act had contained.
The Bench first set out the two coordinate bench decisions it was asked to review. Their reasoning had two limbs: that dividend distribution tax, being additional income-tax, falls within the definition of tax in section 2(43) and has its genesis in the charging section 4, which is itself subject to the provisions of the Act including section 90; and that the domestic company pays it for and on behalf of the shareholder in discharge of the shareholder's liability, so the treaty rate on dividends applies. It then set out the framework: source and residence based taxation under sections 5, 6 and 9; the function of treaties in striking a compromise between them; section 90(2), by which treaty provisions apply to the extent more beneficial; and Article 10 of the OECD model, which permits the source state to tax dividends but caps the rate, typically at ten per cent in Indian treaties against fifteen per cent plus grossing up under section 115-O. Turning to the nature of the levy, it traced the Calcutta and Gauhati challenges to section 115-O by tea companies, and the Supreme Court's decision in Tata Tea upholding its validity, and distinguished that decision as one on legislative competence rather than on incidence - noting that the Court there had relied on Bacha F. Guzdar and Nalin Behari Lal for the proposition that dividend in the shareholder's hands is not impressed with the character of the profits from which it comes. It then relied on Godrej & Boyce, where the Bombay High Court, dealing with section 14A, held that the company is chargeable on its profits as a distinct taxable entity, does not act as agent of the shareholder in paying under section 115-O, and that the general law position stated in Purushottamdas Thakurdas - a company pays tax in discharge of its own liability and not on behalf of its shareholders - was overridden in the 1922 Act only by the deeming fiction in section 49B, which the 1961 Act does not contain.
a judicial precedent is only an authority for what it actually decides and not what may come to follow from some observations which find place therein
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Handle my notice → Ask a CA on WhatsAppThis question is now before the Supreme Court and must not be treated as closed. What follows is what this Special Bench decided in April 2023; for where the point stands today, read the validity note. No, on the reasoning of this Special Bench. It treated dividend distribution tax under section 115-O as a charge on the domestic company on its own distributed profits, not a tax paid on behalf of the shareholder, following the Bombay High Court in Godrej & Boyce that the company does not act as the shareholder's agent and the charge is not on dividend in the shareholder's hands. It held that Tata Tea, which upheld the constitutional validity of section 115-O, does not support the taxpayer, a precedent being an authority only for what it actually decides. On that footing the shareholder's treaty rate does not limit the section 115-O rate. This was decided by the ITAT (Income Tax Appellate Tribunal, Mumbai, Special Bench - G.S. Pannu, President, N.V. Vasudevan, Vice President, and Vikas Awasthy, Judicial Member; order authored by G.S. Pannu) and bears on section 115-O, section 90(2), section 2(43), section 10(33), section 4 of the Income Tax Act 1961. It is reported as ITA No. 6997/Mum/2019 with C.O. No. 57/Mum/2019 (assessment year 2016-17), Special Bench, Mumbai; heard 22 February 2023, pronounced 20 April 2023. This is the Special Bench constituted precisely to resolve a conflict, and it displaces the two coordinate bench decisions that had been driving refund claims - Giesecke & Devrient India (Delhi) and Indian Oil Petronas (Kolkata), both of which had held the treaty dividend rate must prevail over section 115-O. Those decisions rested on two steps: that dividend distribution tax is tax within section 2(43), traceable to the charging section 4 and so subject to section 90; and that the domestic company pays it for and on behalf of the shareholder. The Special Bench accepts the first and breaks the second. The distinction it draws matters beyond this issue: the incidence of a levy on a company's own profits is not converted into the shareholder's liability merely because the shareholder is the economic sufferer. Anyone still holding an open claim for the period when section 115-O applied needs to read this before pressing it. Since this order the line has moved three times: the Bombay High Court at Goa declined to follow it in Colorcon Asia (28 November 2025), a coordinate Bombay Division Bench doubted Colorcon Asia and referred the question to a Larger Bench in Foseco India (27 April 2026), and the Revenue's petition against Colorcon Asia is listed for final hearing in the Supreme Court on 29 September 2026. Anyone still holding an open claim should preserve it rather than abandon it on the strength of this order. If it applies to you, the first step is this: Do not assume a treaty rate caps dividend distribution tax for distributions made while section 115-O was in force; on this decision the treaty rate governs tax on the shareholder, and section 115-O taxes the company.
Total Oil India Private Limited, a domestic company, declared and paid dividend in the previous year relevant to assessment year 2016-17. Among its shareholders were Total Marketing Services and Total Holdings Asie, tax residents of France. In its cross objection the company asked that the tax payable under section 115-O be computed at the rate prescribed in the India-France treaty rather than the rate in section 115-O, which with grossing up is higher than the ten per cent cap found in most Indian treaties. It relied on the Delhi Bench decision in Giesecke & Devrient India Pvt Ltd v ACIT and the Kolkata Bench decision in DCIT v Indian Oil Petronas Pvt Ltd, both of which had held that the treaty rate prevails. The Division Bench hearing the cross objection doubted those decisions, principally because the Supreme Court in Godrej & Boyce had said that tax paid under section 115-O cannot be understood as paid on behalf of the recipient assessee, a precedent the Delhi Bench had not had occasion to consider. A Special Bench was constituted to answer whether, on dividend declared, distributed or paid by a domestic company to a non-resident shareholder, the additional income-tax is payable at the section 115-O rate or at the rate applicable to the non-resident shareholder on that dividend. Appeals of Maruti Suzuki India Limited and Gujarat Gas Co. Ltd. were heard with it, along with six interveners. The matter was decided on 2023-04-20 by the ITAT (Income Tax Appellate Tribunal, Mumbai, Special Bench - G.S. Pannu, President, N.V. Vasudevan, Vice President, and Vikas Awasthy, Judicial Member; order authored by G.S. Pannu). On those facts the ITAT held as follows. On the portion of the order available to me, the Special Bench decided the anterior question - whether dividend distribution tax is a tax on the company or on the shareholder - against the assessees. It held that the argument that the Supreme Court in Tata Tea had laid down that section 115-O is in truth a tax in the shareholder's hands is devoid of merit: that Court was dealing with the constitutional validity of the provision, holding that dividend is income under section 2(24)(ii) and so within Entry 82 of List I, and was not dealing with the nature of the levy, a precedent being an authority only for what it actually decides. It adopted the Bombay High Court's analysis in Godrej & Boyce that the charge under section 115-O(1) is on that part of the company's profits which is declared, distributed or paid as dividend, and not on dividend income in the shareholder's hands; that the company does not pay on behalf of, or as agent for, the shareholder; and that Parliament did not re-enact in the 1961 Act the deeming fiction that section 49B of the 1922 Act had contained.
The Bench first set out the two coordinate bench decisions it was asked to review. Their reasoning had two limbs: that dividend distribution tax, being additional income-tax, falls within the definition of tax in section 2(43) and has its genesis in the charging section 4, which is itself subject to the provisions of the Act including section 90; and that the domestic company pays it for and on behalf of the shareholder in discharge of the shareholder's liability, so the treaty rate on dividends applies. It then set out the framework: source and residence based taxation under sections 5, 6 and 9; the function of treaties in striking a compromise between them; section 90(2), by which treaty provisions apply to the extent more beneficial; and Article 10 of the OECD model, which permits the source state to tax dividends but caps the rate, typically at ten per cent in Indian treaties against fifteen per cent plus grossing up under section 115-O. Turning to the nature of the levy, it traced the Calcutta and Gauhati challenges to section 115-O by tea companies, and the Supreme Court's decision in Tata Tea upholding its validity, and distinguished that decision as one on legislative competence rather than on incidence - noting that the Court there had relied on Bacha F. Guzdar and Nalin Behari Lal for the proposition that dividend in the shareholder's hands is not impressed with the character of the profits from which it comes. It then relied on Godrej & Boyce, where the Bombay High Court, dealing with section 14A, held that the company is chargeable on its profits as a distinct taxable entity, does not act as agent of the shareholder in paying under section 115-O, and that the general law position stated in Purushottamdas Thakurdas - a company pays tax in discharge of its own liability and not on behalf of its shareholders - was overridden in the 1922 Act only by the deeming fiction in section 49B, which the 1961 Act does not contain. In the words reproduced by the source cited on this page: "a judicial precedent is only an authority for what it actually decides and not what may come to follow from some observations which find place therein"
It was decided by the ITAT on 2023-04-20 and is reported as ITA No. 6997/Mum/2019 with C.O. No. 57/Mum/2019 (assessment year 2016-17), Special Bench, Mumbai; heard 22 February 2023, pronounced 20 April 2023. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 115-O, section 90(2), section 2(43), section 10(33), section 4, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. On the portion of the order available to me, the Special Bench decided the anterior question - whether dividend distribution tax is a tax on the company or on the shareholder - against the assessees. It held that the argument that the Supreme Court in Tata Tea had laid down that section 115-O is in truth a tax in the shareholder's hands is devoid of merit: that Court was dealing with the constitutional validity of the provision, holding that dividend is income under section 2(24)(ii) and so within Entry 82 of List I, and was not dealing with the nature of the levy, a precedent being an authority only for what it actually decides. It adopted the Bombay High Court's analysis in Godrej & Boyce that the charge under section 115-O(1) is on that part of the company's profits which is declared, distributed or paid as dividend, and not on dividend income in the shareholder's hands; that the company does not pay on behalf of, or as agent for, the shareholder; and that Parliament did not re-enact in the 1961 Act the deeming fiction that section 49B of the 1922 Act had contained. It arises in Capital Gains Exemptions and How Tax Law Is Read matters, on section 115-O, section 90(2), section 2(43), section 10(33), section 4 of the Income Tax Act 1961, and was decided by Income Tax Appellate Tribunal, Mumbai, Special Bench - G.S. Pannu, President, N.V. Vasudevan, Vice President, and Vikas Awasthy, Judicial Member; order authored by G.S. Pannu. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If you are pressing such a claim, identify a provision in the particular treaty that extends by its own terms to a tax on distributed profits, rather than relying on the general dividend article. Check the period. Section 115-O ceased to apply to dividends declared, distributed or paid on or after 1 April 2020, when dividend became taxable in the shareholder's hands with tax deduction at source, where the treaty rate does apply directly. Where a claim was made following Giesecke & Devrient or Indian Oil Petronas, review the position now that a Special Bench has taken the contrary view, and consider the interest and penalty exposure of maintaining it.
Validity check could not be completed. This decision no longer states the last word and must not be offered as settling the point. The Bombay High Court at Goa in M/s. Colorcon Asia Pvt. Ltd. v. Joint Commissioner of Income Tax, Tax Appeal No. 5 of 2024, neutral citation 2025:BHC-GOA:2418-DB, decided 28 November 2025, declined to follow this decision and held that a domestic company is entitled to restrict the rate on dividend distributed to its UK parent to ten per cent under Article 11 of the India-UK treaty, on the ground that DDT is not an income tax on the company's profits but a tax on the shareholder's dividend charged in the company's hands for administrative convenience. A coordinate Division Bench of the Bombay High Court in Foseco India Ltd. Company v. ACIT, Income Tax Appeal No. 1123 of 2025 and six companion appeals, decided 27 April 2026, then doubted Colorcon Asia and referred to a Larger Bench (i) whether it lays down the correct position in law and (ii) whether, considering the Supreme Court's decision in Godrej & Boyce, it is per incuriam, directing the Registry to place the proceedings before the Chief Justice. The Revenue's petition against Colorcon Asia is pending in the Supreme Court - JCIT, Panji & Ors. v. M/s. Colorcon Asia Pvt. Ltd., S.L.P. (C) No. 7546 of 2026 - where, by order dated 13 May 2026, the Court framed three questions including whether s.115-O is in the nature of a tax on distributed profits or a tax on dividend, allowed four intervention applications, directed the Registry to circulate the order to all High Courts for publication in their cause lists, and observed that "the High Courts may consider staying the further proceedings of any matter involving similar issues"; leave has not been granted and no stay of Colorcon Asia has been made, and on 12 August 2026 the petition was listed for final hearing on 29 September 2026. Tribunals have gone both ways since: the Delhi Bench followed Colorcon Asia in Mitsui Kinzoku Components India Pvt. Ltd. (31 December 2025), while the Mumbai Bench in Kansai Nerolac Paints Ltd. (2 June 2026) and the Kolkata Bench in Bata India Ltd. (8 June 2026) restored the issue rather than decide it. The Madras High Court adjourned a similar appeal sine die by reference to the Supreme Court petition (Durr India Private Limited v. ACIT, T.C.A. No. 77 of 2026, 12 June 2026). Checked on 8 September 2026; whether the Larger Bench has been constituted or has answered was not established. The Bench's own concluding answer has since been obtained verbatim: "Thus, wherever the Contracting States to a tax treaty intend to extend the treaty protection to the domestic company paying dividend distribution tax, only then, the domestic company can claim benefit of the DTAA, if any. Thus, the question before the Special Bench is answered, accordingly." The order is ITA No. 6997/MUM/2019 with C.O. No. 57/MUM/2019, AY 2016-17, heard 22 February 2023. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The harvested page is incomplete in two ways. About 65,000 characters from the middle of the order are not reproduced, and what remains is cut off at 110,000 characters part-way through the discussion of Godrej & Boyce - so the Special Bench's own concluding paragraphs, its formal answer to the question referred, any qualification it attached to that answer, and its disposal of the individual appeals and cross objection are not before me. What is recorded above as held and as reasoning is taken from the portions that are present, in which the Bench rejects the assessees' reading of Tata Tea and adopts the Bombay High Court's view that the levy is on the company. A practitioner must read the concluding portion of the order in the original before relying on it, in particular for any rider about treaties whose own terms extend to a tax on distributed profits. The batch line gave no reporter citations, so the Tribunal's own case numbers are used. The batch line also listed sections 90 and 10(34); the order as harvested discusses section 90(2) and section 10(33), the exemption as it then stood. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
On the portion of the order available to me, the Special Bench decided the anterior question - whether dividend distribution tax is a tax on the company or on the shareholder - against the assessees. It held that the argument that the Supreme Court in Tata Tea had laid down that section 115-O is in truth a tax in the shareholder's hands is devoid of merit: that Court was dealing with the constitutional validity of the provision, holding that dividend is income under section 2(24)(ii) and so within Entry 82 of List I, and was not dealing with the nature of the levy, a precedent being an authority only for what it actually decides. It adopted the Bombay High Court's analysis in Godrej & Boyce that the charge under section 115-O(1) is on that part of the company's profits which is declared, distributed or paid as dividend, and not on dividend income in the shareholder's hands; that the company does not pay on behalf of, or as agent for, the shareholder; and that Parliament did not re-enact in the 1961 Act the deeming fiction that section 49B of the 1922 Act had contained.
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