DDT paid on dividends by taxpayer to non-resident parent company subject to concessional DTAA rate — Bombay High Court

In brief

The Bombay High Court¹ set aside the ruling of the Board for Advance Rulings (BFAR) and held that dividend distribution tax (DDT) paid by an Indian company on dividends distributed to its UK parent is subject to the concessional tax rate of 10% prescribed under Article 11 of the India-UK Double Taxation Avoidance Agreement (DTAA). The court reaffirmed that, pursuant to section 90(2) of the Income-tax Act, 1961 (the Act), the provisions of an applicable DTAA prevail over conflicting domestic law, and that unilateral amendments to Indian tax legislation cannot curtail or diminish DTAA benefits. Accordingly, the court held that any DDT collected in excess of the 10% DTAA cap would be contrary to Article 265 of the Constitution of India.