PRINCIPAL COMMISSIONER OF INCOME TAX v/s M/S KRISHAK BHARTI COOPERATIVE LTD. [CIVIL APPEAL NO. 836 OF 2018]
The Supreme Court Allowed the Tax-credit on dividend exempt under Oman’s domestic law.
The division bench of Justice B.V. Nagarathna And Justice Prashant Kumar Mishra observed that under Article 8 of DTAA, dividend is taxable, whereas, Article 8 exempts dividend received by a company from its ownership of shares, portions, or shareholding in the share capital in any other company. Thus, Article 8 exempts dividend tax received by the assessee from its PE in Oman and by virtue of Article 25, the assessee is entitled to the same tax treatment in India as it received in Oman.
The court said that it is apparent that the assessee’s establishment in Oman has been treated as PE from the very inception up to the year 2011. There is no reason as to why all of a sudden, the assessee’s establishment in Oman would not be treated as PE when for about 10 years it was so treated, and tax exemption was granted basing upon the provisions contained in Article 25 read with Article 8 of the Omani Tax Laws.
The bench denied the issue raised by the senior counsel for the appellant to the effect that the letter dated 11.12.2000 issued by the Secretary General for Taxation, Ministry of Finance, Sultanate of Oman has no statutory force as per Omani Tax Laws, hence, the same cannot be relied upon to claim exemption.
“In our view, the above letter, as has been reproduced in the preceding paragraph of this judgment, is only a clarificatory communication interpreting the provisions contained in Article 8 and Article 8 (bis) of the Omani Tax Laws. The letter itself has not introduced any new provision in the Omani Tax Laws. In this view of the matter, the argument raised by the learned senior counsel would not convince us to deny exemption to the assessee”, the bench said.
The assessee is a multi-State Co-operative Society registered in India, under the administrative control of the Department of Fertilizers, Ministry of Agriculture and Co-operation, Government of India. In the course of its business of manufacturing fertilizers, it entered into a joint venture with Oman Oil Company to form the Oman Fertilizer Company SAOC, a registered company in Oman under the Omani laws.
The Assessing Officer allowed credit for the tax, which would have been payable in Oman, but exemption was granted. Thereafter, the Principal Commissioner of Income Tax issued a show cause notice under Section 263 of the Act on the ground that the reliance placed on Article 25(4) of DTAA was erroneous in this case and no tax credit was due to the assessee under Section 90 of the Act.
Questioning the order of PCIT, the assessee preferred an appeal before the Income Tax Appellate Tribunal, which allowed the appeal holding that the order passed by the PCIT under Section 263 of the Act is without jurisdiction and is not sustainable in law.
The order passed by the ITAT was challenged before the Delhi High Court by preferring an Income Tax Appeal, which has been dismissed by the High Court by the impugned judgment holding that as per the relevant terms of the DTAA between India and Oman, the assessee is entitled to claim the tax credit, which has been rightly allowed by the Assessing Officer.
Arijit Prasad, senior counsel submitted that Article 11(4) would only apply in a case where the Permanent Establishment of the assessee was carrying on business in Oman, whereas, in the case in hand, the PE is only doing preparatory and auxiliary work and is not having any tangible expenses. Therefore, the dividend income of the assessee is not related to its PE.
Per contra, Arvind P. Dattar, senior counsel appearing for the assessee contended that the provisions of DTAA fully exempt the assessee from payment of tax on dividend in Oman which, in turn, would exempt the assessee from taxation in India.
The court held that the appellant has not been able to demonstrate as to why the provisions contained in Article 25 of DTAA and Article 8 (bis) of the Omani Tax Laws would not be applicable and, consequently, the appeals have no substance and deserve to be dismissed.
The ruling was delivered by the Division Bench of the Supreme Court of India comprising Justice B.V. Nagarathna And Justice Prashant Kumar Mishra.
Advocates: Senior Advocate Arijit Prasad for the Petitioner and K J John and Co and Senior Advocate Arvind P. Dattar for the Respondent