INDIA BUSINESS WORLD SEPTEMBER (16^th - 30^th) 2007
The Month that was ...

SUPREME COURT ADMITS I-T PLEA ON DIVIDEND INCOME

The Supreme Court has admitted a petition moved by revenue department levy of tax on the dividend income of assessee on which no tax was paid in the contracting country which has signed Double Tax Aviodance Agreement with India.

A bench comprising Justice SH Kapadia and Justice B Sudarshan Reddy after hearing the preliminary plea admitted revunue department's petition.

Solicitor general GE Vahanavati appearing for income-tax department said that a substantial question of law is involved here. Whether the dividend income on which no tax is paid by the assessee in the country which are part of the Double Taxation Avoidance Agreement could not be taxed here on the ground that the agreement applies only when tax is paid in other contracting country and identical tax is payable in India also, said Mr Vahanavati.

It is humbly submitted that the provisions of Double Taxation Aviodance Agreement is attracted only where identical tax is imposed on the same article in both the countries and a situation where tax is exempted does not fall into the ambit of the agreement, argued Mr SG.

Mr Vahanavati further said that this issue is a virgin area which is required to be settled by the apex court. However, in an earlier judgment, the apex court had dealt with the issue of tax liability relating to the immovable property situated in Malaysia. It was mainly on the application of Section 4 and 5 of the Income-Tax Act with reference to the economic relations between Indian and Malaysia, said SG.

In this case, the assessee M/S Torqouise Investment &Finance which had received dividend income from Malaysian company located there filed return declaring the profit of Rs 5,27,860 claiming refund of Rs 14,71,663 by showing its business as investments and finance.