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Advance ruling whether NR shareholders liable to pay tax on dividend paid by Indian Co. is admissible: AAR

February 25, 2021[2021] 124 taxmann.com 532 (AAR - New Delhi)
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INTERNATIONAL TAXATION : Application to seek ruling on issue as to whether dividend declared or distributed or paid by applicant-Indian company will be taxable in hands of recipient non-resident shareholders as per article 11 of India-France DTAA is admitted; department has not brought out any evidence on record to establish that there was a design for avoidance of tax by any illegal or improper means

• Applicant, an Indian company and a wholly owned subsidiary of French company, had been paying dividend to its non-resident shareholders and depositing Dividend Distribution Tax (DDT) on such dividend payments as per provisions of section 115-O. Provision of DDT has been amended vide Finance Act, 2020 whereby taxation of dividend has been shifted in hands of shareholders. Dividend distribution or paid with effect from 1-4-2020 shall not be subject to DDT in hands of applicant but will be taxed in hands of respective shareholders at applicable rate. Applicant has filed present application to known as to whether dividend declared or distributed or paid by applicant-Indian company will be taxable in hands of recipient non-resident shareholders as per article 11 of India-France DTAA. Only objection of department is that transaction is designed prima facie for avoidance of tax.

Held that department has not brought out any evidence on record to establish that there was a design for avoidance of tax by any illegal or improper means. Thus, there is no design to prima facie avoid tax in question as raised in present application. Accordingly, objection of department is overruled and application is admitted under section 245R(2).

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