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"(f) Wherever the Contracting States to a tax treaty intended to extend the treaty protection to the dividend distribution tax, it has been so specifically provided in the tax treaty itself. For example, in India Hungary Double Taxation Avoidance Agreement [(2005) 274 ITR (Stet) 74; Indo Hungarian tax treaty, in short], it is specifically provided, In the protocol to the Indo Hungarian tax treaty it is specifically stated that "When the company paying the dividends is a resident of India the tax on distributed profits shall be deemed to be taxed in the hands of the shareholders and it shall not exceed 10 per cent of the gross amount of dividend". That is a provision in the protocol, which is essentially an integral part of the treaty, and the protocol to a treaty is as binding as the provisions in the main treaty itself. In the absence of such a provision in other tax treaties, it cannot be inferred as such because a protocol does not explain, but rather lays down, a treaty provision. No matter how desirable be such provisions in the other tax treaties, these provisions cannot be inferred on the basis of a rather aggressively creative process of interpretation of tax treaties. The tax treaties are agreements between the treaty partner jurisdictions, an agreements are to be interpreted as they exist and not on the basis of what ideally these agreements should have been.

82. We are of the view that the above exposition of law is correct and we agree with the same. Therefore, the DTAA does not get triggered at all when a domestic company pays DDT u/s. 115-O of the Act.

CONCLUSION:

83. For the reasons give above, we hold that where dividend is declared, distributed or paid by a domestic company to a non-resident shareholder(s), which attracts Additional Income Tax (Tax on Distributed Profits) referred to in Sec.115-O of the Act, such additional income tax payable by the domestic company shall be at the rate mentioned in Section 115-O of the Act and not at the rate of tax applicable to the non-resident shareholder(s) as specified in the relevant DTAA with reference to such dividend income. Nevertheless, we are conscious of the sovereign's prerogative to extend the treaty protection to domestic companies paying dividend distribution tax through the mechanism of DTAAs. Thus, wherever the Contracting States to a tax treaty intend to extend the treaty protection to the domestic company paying dividend distribution tax, only then, the domestic company can claim benefit of the DTAA, if any. Thus, the question before the Special Bench is answered, accordingly. UNQUOTE"

21. Thus on a plain reading of the provision, it is abundantly clear that the provision provides for a dividend distribution tax payable by a domestic company under a domestic law. In this context, sub-section (4) of Section 115 is significant 31-ITXA-1029-2025.DOC which provides that the tax on distributed profits so paid by the company shall be treated as the final payment of tax in respect of the amount declared, distributed or paid as dividend and no further credit therefore shall be claimed by the company or by any other person in respect of the amount of tax so paid. Also sub-section (5) is pertinent in the present context, which provides that no deduction under any provision of the Income Tax Act shall be allowed to the company or a shareholder in respect of the amount which has been charged to tax under sub-section (1) or the tax thereon. Thus, on a plain applicability of the provision, it is clear that dividend distribution tax ("DDT") is a tax on the company and not on a shareholder. It is also not a tax which is paid by the company on behalf of the shareholders, nor does the company acts as an agent of the shareholder in paying the tax as provided for in these special provisions as contained in Chapter XII-D, which provides for tax on distributed profits of domestic companies.

33. The department resisted the aforesaid contention of Colorcon and supported the impugned ruling of the BFAR inter alia contending that Colorcon had paid dividend to Colorcon UK as also paid Dividend Distribution Tax (DDT) at the rate specified under Section 115-O of the IT Act for FYs in question. It was contended that in the context of DTAA in question, the dividend distribution tax was explicitly excluded from the scope of taxes covered under the 31-ITXA-1029-2025.DOC agreement. It was contended that since DDT is not classified under the heading "Tax", and hence the 10% withholding tax rates stipulated under Article 11(2) would not apply and the dividend would be governed by Indian Tax Laws. In supporting such contention, reliance was placed in the case of Total Oil India Private Ltd. (supra), in which after the analysis of the relevant statutory provisions, and treaties, the Special Bench of the Tribunal had reached to a conclusion that the tax paid under Section 115-O is an "additional tax" on the Domestic Company and it is not a tax in respect of non-residence income in India. It was categorically contended that on reading of Section 115-O of the Income Tax Act, it was evident that the incidence as well as charge in respect of DDT is only on the domestic company that declares, distributes or has paid the dividend. It was contended that the tax under section 115-O is an additional income tax, on the domestic company and by no stretch of imagination, DDT could be construed to mean as a tax on non resident dividend income, which is collected by domestic company. Revenue also placed reliance on the decision of this Court in Godrej & Boyce Mfg. Co. Ltd. (supra) as also the decision of the Supreme Court arising from such decision in Godrej & Boyce Mfg. Co. Ltd. (supra). The Division Bench analyzing the provisions of Section 115-O and its antecedents held that Dividend Distribution Tax (DDT) is not the tax on income of the dividend declaring company, however, ultimately it was a tax on the dividend income of the shareholders. The relevant observations in that regard are found in paragraph 26, which read thus: