This update is in furtherance to the earlier edition of ‘What’s Up in Tax!’, March, 2023^[1] analysing the decision of the Income Tax Appellate Tribunal (‘ITAT’), Special Bench in the case of Total Oil India Pvt. Ltd.^[2]. The present update focuses on the recent development on this issue i.e., whether the beneficial rate of tax as prescribed under the Double Tax Avoidance Agreement (‘DTAA’) would override the higher rate of tax (‘DDT’) stipulated under Section 115-O of the Income-tax Act, 1961 (‘IT Act’), on distribution of dividends by an Indian company to non-resident shareholders.

To recapitulate, the Special Bench of the ITAT held that since DDT is a tax on the ‘distributed profits of the company’ being taxable in the hands of the Indian company, the beneficial rate of tax prescribed under Article 11 of the India-France DTAA^[3] (dividends) could not be applied on such distribution of profits by an Indian company.

Recently, this issue came up for consideration before the Bombay High Court in the case of Colorcon Asia Pvt. Ltd.^[4], wherein the decision passed by the Board for Advance Ruling (‘BFAR’) was challenged, which denied treaty benefits whilst relying on the decision of the Special Bench.

The Bombay High Court, whilst reversing the decision of the BFAR, held that the ‘distributed profits of the company’ are nothing but dividends taxable in the hands of the non-resident shareholders. Hence, it was held that since dividends distributed by an Indian company are income taxable in the hands of the non-resident shareholders, in terms of Section 90 of the IT Act, the beneficial rate of tax as prescribed under the DTAA would override the provisions of Section 115-O of the IT Act.

It is noteworthy to mention that a decision of the High Court, even if from a non-jurisdictional High Court, is placed well above the decision of a coordinate bench of the ITAT, including a Special Bench, in terms of its precedential value. In fact, the Delhi Bench of the ITAT whilst following the law as laid down by the Bombay High Court has ruled in favour of the Assessee^[5], thereby disregarding the decision of the Special Bench. Hence, in the absence of any contrary view, the decision of the Bombay High Court holds water and the beneficial rate as prescribed under the DTAA would take precedence over the rate of tax as stipulated under Section 115-O of the IT Act.

[1]              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/.

[2]              Deputy Commissioner of Income-tax v. Total Oil India Pvt. Ltd, ITA No. 6997/Mum/2021 (Order Dated 23.06.2021) (Mum. Trib.).

[3]              Article 11(2) of India-France DTAA.

[4]              Colorcon Asia Pvt. Ltd. v. Joint Commissioner of Income-tax, Tax Appeal No. 5 of 2024 (Order Dated 08.12.2025) (Bombay High Court).

[5]              Mitsui Kinzoku Components India Pvt. Ltd. v. Commissioner of Income-tax (Appeals), Order dated 31.12.2025 in ITA No. 3910/Del/2024 (Del. Trib.).