Case Note & Summary
The appellant, M/s. Colorcon Asia Pvt. Ltd., an Indian company and wholly owned subsidiary of Colorcon Limited, United Kingdom, filed an appeal under Section 245W of the Income Tax Act, 1961 before the High Court of Bombay at Goa. The appeal challenged a ruling dated 27 June 2024 passed by the Board for Advanced Rulings - I, New Delhi (BFAR). The dispute arose from dividend payments made by the appellant to its UK parent during assessment years 2016-17 to 2019-20, on which the appellant paid Dividend Distribution Tax (DDT) under Section 115-O of the Act at the applicable rates. The appellant sought an advance ruling under Section 245Q to determine whether it could restrict the DDT rate to 10% in terms of Article 11 of the India-UK Double Taxation Avoidance Convention (DTAA), and if so, whether that rate needed to be grossed-up. The BFAR rejected the application, holding that DDT is outside the scope of the DTAA and does not fall within the 'Taxes covered' under Article 2 of the Convention. It followed the Mumbai Tribunal Special Bench decision in Total Oil Pvt. Ltd. and concluded that the appellant’s contention had no merit. In the appeal, the appellant argued that DDT is essentially a tax on dividend income, and the India-UK DTAA, particularly Article 11, should govern the rate. It contended that Section 115-O only shifted the collection mechanism from shareholder to company, but the substantial character of the tax remains on dividend income. The appellant also relied on Article 1 (persons covered) and Article 2 (taxes covered) of the Convention, asserting that income tax including surcharge is covered. The respondent revenue authorities maintained that the appellant did not satisfy the conditions of Article 11(1) and (2) of the DTAA and that DDT is not a tax on the shareholder but on the company, thus outside the treaty’s purview. The High Court heard arguments on 13 August 2025 and pronounced its judgment on 28 November 2025, but the provided text ends mid-sentence during the appellant’s submissions, without reaching the court’s analysis, findings, or final decision. Consequently, the ratio and outcome of the appeal are not available from the excerpt.
Headnote
A) Taxation - Dividend Distribution Tax - Scope of India-UK Double Taxation Avoidance Agreement - Income Tax Act, 1961, Section 115-O, Section 90; Articles 2, 11 of India-UK DTAA - Board for Advanced Rulings held that DDT paid by Indian company to UK shareholder is not covered under Article 2 (Taxes covered) and falls outside the scope of the DTAA, relying on Total Oil Pvt. Ltd. - Held that appellant's contention to restrict DDT rate to 10% under Article 11 has no merit (Paras 4, 7-8).
Issue of Consideration
Whether Colorcon India is entitled to restrict the tax rate on dividends distributed to Colorcon UK to 10% under Article 11 of India-UK DTAA; If yes, whether the tax rate of 10% needs to be further grossed-up.
Law Points
- Dividend Distribution Tax is a tax on the company and not the shareholder under Section 115-O
- Article 11 of India-UK DTAA provides for reduced tax rate of 10% on dividends in certain cases
- DDT may be outside scope of taxes covered under Article 2 of the DTAA
- interpretation of 'taxes covered' in tax treaties
- advance ruling under Section 245Q of the Income Tax Act
Case Details
2025 LawText (BOM) (11) 194
Bharati Dangre, Nivedita P. Mehta
Mr. Porus Kaka, Senior Advocate with Manish Kanth and T. Sequira for Appellant; Ms. Amira Razaq for Respondent
M/s. Colorcon Asia Pvt. Ltd.
1 The Joint Commissioner of Income Tax, Special Range; 2 The Principal Commissioner of Income-Tax; 3 The Deputy Commissioner of Income Tax Circle 1(1)
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Nature of Litigation
Appeal under Section 245W of the Income Tax Act, 1961 against a ruling of the Board for Advanced Rulings regarding the applicability of the tax treaty rate on Dividend Distribution Tax.
Remedy Sought
Appellant seeks to restrict the Dividend Distribution Tax rate to 10% under Article 11 of the India-UK DTAA and, if applicable, to determine whether that rate should be grossed-up.
Filing Reason
The Board for Advanced Rulings ruled that Dividend Distribution Tax is outside the scope of the India-UK DTAA and the appellant cannot restrict the tax rate to 10% under the treaty.
Previous Decisions
Board for Advanced Rulings ruling dated 27 June 2024 decided against the appellant, holding that DDT is not covered under Article 2 of the DTAA and is outside the scope of the treaty.
Issues
Whether Colorcon India is entitled to restrict the tax rate on dividends distributed to Colorcon UK to 10% under Article 11 of the India-UK DTAA?
If the answer to the above is affirmative, whether the tax rate of 10% under the tax treaty needs to be further grossed-up?
Submissions/Arguments
Appellant argued that DDT is a tax on dividend income covered by Article 11 of the India-UK DTAA, and the treaty rate of 10% should apply; Section 115-O merely shifts the collection mechanism from shareholder to company.
Appellant submitted that the India-UK DTAA, including Article 2, covers income tax and any identical or substantially similar taxes, and DDT falls within its scope.
Respondent contended that DDT does not fall within the 'Taxes covered' under Article 2 of the DTAA and that the appellant did not satisfy the conditions of Article 11(1) and (2).
Respondent argued that DDT is a tax on the company, not on the shareholder, and therefore is outside the purview of the DTAA.
The Board for Advanced Rulings held that DDT is squarely outside the scope of the DTAA and does not fall within Article 2, following the Mumbai Tribunal Special Bench in Total Oil Pvt. Ltd.
Judgment Excerpts
The Dividend Distribution Tax (DDT) paid by the Appellant to its shareholder is squarely outside the scope of DTAA between India and the United Kingdom.
DDT does not fall within “Taxes covered” under Article 2 of India – UK DTAA.
Concludes that the appellant’s contention to restrict the tax rate of DDT to the extent of withholding tax rate on dividend income under Article 11 of the India-UK DTAA has no merit.
Procedural History
Application for advance ruling filed under Section 245Q of the Income Tax Act on 20 May 2019; application admitted under Section 245R(2) on 18 November 2019; Respondent filed report under Section 245R(4) on 16 January 2020; Board for Advanced Rulings passed impugned ruling on 27 June 2024 deciding against appellant; Appeal filed before High Court (date not mentioned); heard on 13 August 2025; judgment pronounced on 28 November 2025 but lacking final text in provided excerpt.
Acts & Sections
- Income Tax Act, 1961: 245W, 115-O, 2(22), 245Q, 245R(2), 245R(4), 90
- Companies Act, 1956:
