The Income Tax Department has sought a ruling from the Supreme Court on a High Court decision that dividend income was non-taxable if it came from an entity from a country that has a double taxation avoidance agreement (DTAA) with India.
The department challenged the Madhya Pradesh High Court order exempting Turqouise Investment and Finance Ltd, an Aditya Birla Group promoter firm, from paying tax on dividend received from Pan Century Edible Oil Sdn Bhd, the Group's erstwhile Malaysian unit which it sold in December last year.
An apex court bench headed by Justice S H Kapadia has issued notices on the department's special leave petition.
The High Court had passed the order on a batch of petitions, including that of Turqouise Investment, which challenged the taxability of dividend income received by it in Malaysia.
The tax department challenged the High Court order which held that income accrued or arising outside India was part of the total income of the resident assessee. The department said Turqouise was not entitled to credit of deemed tax deducted at source (TDS) and tax liability in India could not be treated as tax paid by it in view of DTAA between India and Malaysia.
Tax authorities argued that the provisions of DTAA were applicable only where identical tax liability was imposed on the same article in both the countries and where tax exemption does not fall into the ambit of agreement.
The high court was not justified in holding that dividend income earned by Turqouise to the tune of Rs 21.35 lakh from Pan Century was exempted in India, it said. More IB RHP UPD 09021327 DEL According to the tax deparment's petition, the credit of deemed TDS was not admissible under DTAA on the dividend income received by Turquoise from a Malaysian company.
Further, there was no actual deduction at source and as such the question of allowing credit did not arise in this case, the petition said.
The department had rejected its credit claim on the basis of deemed credit on dividend received from Pan Century.
According to the department, Turquoise had filed its tax returns declaring income of Rs 4.30 crore by showing its business as investment and finance.