EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.
Recent Searches
Mumbai Tribunal upholds application of special tax rate of 15% on foreign dividends after set off of losses/deductions
In the case of Tata Industries Ltd. [1] (Taxpayer), the issue before Mumbai Tribunal was whether lower tax rate of 15% under Section115BBD of the Income Tax Act, 1961 (ITA) on gross dividend from specified foreign company[2] was to be applied before or after setting off of the current year and brought forward business loss and deduction toward donation to charity. It was undisputed that the said provision does not permit deduction of any expenditure or allowance in respect of foreign dividend income.
The Taxpayer, an Indian investment company, received foreign dividend income from its wholly owned subsidiary company. In its return of income, the Taxpayer set off business losses and claimed a deduction of donation made to charity against the foreign dividend income while applying 15% tax rate. The tax authority rejected this approach and computed 15% tax on gross foreign dividend before setting off of business loss and donation deduction. The tax authority asserted that the said provision contains a non-obstante clause and hence, no deduction of any amount can be claimed against the foreign dividend income. The first appellate authority upheld the tax authority’s action. Being aggrieved, the Taxpayer appealed to the Tribunal.
The Tribunal ruled in favor of the Taxpayer and held that 15% tax rate is to be applied on that part of “total income” of the Taxpayer which comprises foreign dividend. While a non-obstante clause in the provision denies deduction of any expenditure or allowance against the foreign dividend, the “total income” is to be computed after setting off of business loss and donation deduction. Hence, 15% tax rate is to be applied on gross foreign dividend income but only after setting off of current and brought forward business loss and deduction for charity.
The Tribunal followed the ruling of the co-ordinate bench of Mumbai Tribunal in case of DCIT. VS. Essar Shipping Ltd.[3] for the above proposition.
[1] TS-935-ITAT-2022(Mum) [2] Where taxpayer Indian company holds > 26% of nominal value of equity share capital of such foreign company [3] ITA no. 821/Mum/2022