Section 115-O of the Income-tax Act, 1961 (‘IT Act 1961’) states that in addition to the tax payable on the income earned in the hands of a domestic company, an additional income-tax shall be levied upon such company on the dividend paid to its shareholders.  As per the provision, the tax so levied and paid would be considered as a final payment and no credit of such tax paid could be claimed on such amount^[1].

The controversy at hand, as already discussed in our earlier edition of ‘What’s Up in Tax!!, March 2023^[2], is as to whether Dividend Distribution Tax (‘DDT’) is a tax on the income of the shareholder and if yes, whether a non-resident shareholder is eligible to seek the beneficial rates as provided for under the Double Taxation Avoidance Agreement (‘DTAA’). It would be relevant to note that earlier, the Income Tax Appellate Tribunal (‘Tribunal’) Delhi^[3] held the DDT to be a tax on the income of the shareholder, which view was subsequently reversed by the Special Bench of the Tribunal^[4].

Recently, the Panaji Bench of the Bombay High Court in the case of Colorcon Asia Pvt. Ltd. (‘Colorcon’)^[5], effectively overruled the decision of the Special Bench of the Tribunal and held DDT to be tax on the shareholder’s income justifying treaty benefit, thereby seemingly putting the controversy to rest^[6].

What was significant about Colorcon was that it relied upon the Supreme Court (‘SC’) decision in the case of Tata Tea Co. Ltd.^[7], which held DDT to be a charge on dividend income. In doing so, it also distinguished another decision of the SC in Godrej & Boyce Mfg. Co. Ltd. v. DCIT^[8], where DDT was construed to be tax on the distributed profits of the company. Viz-a-viz, the latter decision, distinction was drawn, holding that the case pertained to the issue of applicability of Section 14A of the IT Act 1961 (disallowance of expenditure in earning exempt income) in the context of DDT, hence not applicable to Colorcon’s facts.

In the meanwhile, the Revenue has preferred a separate Special Leave Petition (‘SLP’) before the SC against the Colorcon decision. Taking note of disputes invoking the same challenge before various High Courts, the SC has now directed such matters to be tagged together with the Colorcon SLP^[9].

Considering these developments, it would be crucial to see the approach adopted by the SC in deciding the conflicting views that were canvassed before the Panaji Bench of the Bombay High Court.

[1]  Section 115-O(4) of the Income-tax Act, 1961.

[2]  The earlier edition of ‘What’s Up in Tax!, March, 2023 can be accessed here – https://www.azbpartners.com/bank/dividend-distribution-tax-special-bench-ruling-the-saga-continues/

[3]  Giesecke & Devrient [India] Pvt. Ltd. v. ACIT, [2020] 120 taxmann.com 338 (Delhi – Trib.).

[4]  DCIT v. Total Oil India Pvt. Ltd., [2021] 127 taxmann.com 774 (Mumbai-Trib).

[5]  Colorcon Asia Pvt. Ltd. vs. JCIT, Tax Appeal No. 5 of 2024 (Order dated 08.12.2025) (Bombay High Court).

[6]  The earlier edition of ‘What’s Up in Tax!, February, 2026 can be accessed here –  https://www.azbpartners.com/bank/ddt-tax-on-shareholder-dtaa-applicable/#_ftn4

[7]  Union of India v. Tata Tea Co. Ltd., (2017) 85 taxmann.com 346 (SC).

[8]  Godrej & Boyce Mfg. Co. Ltd. v. DCIT, (2017) 81 Taxmann.com 111 (SC).

[9]  The Joint Commissioner of Income Tax, Panaji & Ors. v. M/s Colorcon Asia Pvt. Ltd., SLP(C) No. 7546 / 2026 (SC).