The Delhi High Court ruled that the Dividend Distribution Tax (DDT) is payable by a company which declared, distributed or paid a dividend.
The court held that Dividend Distribution Tax is liable to be paid by the company which declares, distributes or pays the same. The petitioner/assessee was merely the recipient of the interest income and it was thus, clearly not the entity which had either declared or paid the dividend. Even if the payment were to be assumed to be dividend, the liability to pay tax thereon could have only been foisted upon the company which had declared, distributed or paid the same.
Section 115-O of the Income Tax Act relates to the tax on distributed profits of domestic companies. As per the provision the in addition to the income tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003, whether out of current or accumulated profits shall be charged to additional income tax at the rate of 15%.
Facts
The petitioner is stated to be a company incorporated under the laws of Luxembourg and a tax resident. In evidence of the above, it has also placed for our consideration a valid Tax Residency Certificate. In the concerned AY, the petitioner who is also a registered Foreign Portfolio Investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 subscribed to 4600 rated NCDs‟ of a face value of INR 100,00,000/- each aggregating INR 4600 crores issued by GIPL. These NCDs were to carry a coupon rate of 11% per annum and were also listed on the Bombay Stock Exchange.
The petitioner has challenged the initiation of reassessment pertaining to Assessment Year1 2018-19 and which has been commenced in terms of the order under Section 148A(d) the Income Tax Act, 1961 read along with the consequential notice dated 30 March 2022 under Section 148.
The department had taken the position that on perusal of the information that interest income derived from Non-convertible Debentures floated by Genpact India Private Limited had not been appropriately offered to tax due to mischaracterization of income. The petitioner was consequently called upon to show cause why an amount of INR 5,06,00,00,000 should not be treated as income having escaped assessment.
The department contended that the transaction, although allegedly structured as an interest pay out on a NCD, in fact constituted remittances arising from the reserves and surplus of the Indian entity post-merger under the garb of principal and interest payments. The respondents further allege that since both Headstrong Consulting Singapore Pte. Ltd. and Genpact Luxembourg S.A.R.L. have common holding companies, the funds though taken out in the form of interest payment, in fact constitute dividend. It resulted in the recharacterization of what should have actually been payment of dividend to principal payments resulting in the evasion of tax. According to them, the remittances could not have been made without payment of a Dividend Distribution Tax.
Conclusion
The court held that the proceedings are liable to be quashed on a more fundamental ground. Undisputedly, the petitioner had offered the interest income to tax in terms of the provisions contained in Section 194LD of the Income Tax Act. The ultimate order under Section 148A(d), however, alleges that the remittance in fact constituted dividend and which was liable to be taxed in terms of Section 115-O of the Act.
Case Details
Case Name: Genpact Luxembourg S.A.R.L. Versus ACIT
Citation: W.P.(C) 7784/2022
Court: Delhi High Court
Judge: Justice Yashwant Varma, Justice Ravinder Dudeja
Decision Date: 08/08/2024
