Court orders tax commissioner to decide dividend tax refund case on merits, not dismiss as “premature”

Get the full picture - access the original judgement of the court order here

Case Name

Riso India Private Limited vs. Principal Commissioner of Income Tax, (High Court of Delhi)

W.P.(C) 6809/2021

Date: 22nd July 2021

Key Takeaways

• Tax authorities cannot dismiss revision petitions as “premature” without examining the merits
• Commissioners must provide reasoned orders when deciding revision petitions under Section 264 (of Income Tax Act, 1961)
• The court emphasized procedural fairness - even if the final decision goes against the taxpayer, they deserve a proper hearing
• This reinforces that tax authorities must apply their mind to each case rather than avoiding decisions based on pending appeals elsewhere

Issue

The central legal question was: Can a tax commissioner dismiss a revision petition under Section 264 (of Income Tax Act, 1961) as “premature” without examining the merits, simply because a similar case is pending appeal?

Facts

Riso India Private Limited is a wholly owned subsidiary of Riso Corporation Japan. When they paid dividends to their Japanese parent company, they deducted tax at 20.35% under Section 115-O (of Income Tax Act, 1961). However, they later realized that under the India-Japan Double Taxation Avoidance Agreement (DTAA), they should have only deducted 10% tax.

To fix this mistake, they filed a revision petition seeking a refund of the excess tax paid. The Principal Commissioner of Income Tax, Delhi-7, dismissed their petition on March 31, 2021, not because the claim was wrong, but because he considered it “premature.” His reasoning was that the Income Tax Department still had time to appeal a similar ITAT judgment in another case (M/s Giesecke and Devrient India Pvt. Ltd.), so the legal position wasn’t settled yet.

Arguments

Petitioner’s Arguments (Riso India):

The company argued that the commissioner was legally obligated to examine their case on merits. They said you can’t just dismiss a revision petition because similar issues are pending elsewhere. They relied on several court decisions to support their position that each case deserves individual consideration.

Respondent’s Arguments (Tax Department):

The tax department argued that during the relevant period, the Dividend Distribution Tax regime under Section 115-O (of Income Tax Act, 1961) was in effect. Under this system, companies pay tax on distributed profits, and shareholders receive dividends tax-free under Section 10 (of Income Tax Act, 1961). They cited the Supreme Court case Godrej & Boyce Manufacturing Co. Ltd. v. DCIT to argue that the Indian tax rate applies, not the DTAA rate, because the overall tax treatment is more beneficial under Indian law.

Key Legal Precedents

The court referenced several important cases:

1. M/s Giesecke and Devrient India Pvt. Ltd. Vs. Additional Commissioner of Income Tax, Special Range-04, ITA No. 7075/Del/2017 - This ITAT decision dealt with similar dividend tax issues
2. Vijay Gupta vs. Commissioner of Income Tax, Delhi-III, (2016) 386 ITR 643 - Referenced by the petitioner to support their argument
3. M/s Epcos Electronic Components SA Vs. Union of India, WP© 10417/2018 dated 10th July, 2019 - Another Delhi High Court case cited by the petitioner
4. Union Of India And Others vs Kamlakshi Finance Corporation, AIR 1992 SC 711 - Supreme Court precedent cited by the petitioner
5. Godrej & Boyce Manufacturing Co. Ltd. v. DCIT [(2017) 394 ITR 449 (SC)] - Supreme Court case on dividend distribution tax cited by the respondent

Judgement

The Delhi High Court ruled in favor of Riso India, but not on the tax merits - rather on procedural grounds. Here’s what the court decided:

The court found that the commissioner failed to apply his mind to the actual controversy and didn’t pass a reasoned order. Simply dismissing a case as “premature” because similar issues are pending elsewhere is not acceptable.

Court’s Orders:

1. Set aside the impugned order dated March 31, 2021
2. Remanded the matter back to the Principal Commissioner of Income Tax, Delhi-7
3. Directed the commissioner to pass a reasoned order within six weeks
4. Ordered that the petitioner must be given a proper hearing opportunity
5. Clarified that the court expressed no opinion on the actual tax merits
6. Left all rights and contentions of both parties open

FAQs

Q1: Did the court decide whether Riso India was entitled to the tax refund?

A: No, the court specifically clarified that it didn’t express any opinion on the merits of the tax controversy. They only decided that the commissioner must properly examine the case.

Q2: What happens next for Riso India?

A: The tax commissioner must now decide their revision petition on merits within six weeks, giving them a proper hearing. If Riso India is still unhappy with that decision, they can file appropriate legal proceedings.

Q3: Can tax authorities dismiss cases as “premature” in similar situations?

A: This judgment suggests they cannot. Tax authorities must examine each case on its individual merits rather than avoiding decisions because similar issues are pending elsewhere.

Q4: What was the core procedural issue here?

A: The commissioner dismissed the case without applying his mind to the actual legal and factual issues. The court emphasized that even if the final decision goes against the taxpayer, they deserve a reasoned order explaining why.

Q5: Does this affect the broader dividend tax law?

A: Not directly. This case is more about procedural fairness in tax administration rather than establishing new substantive tax principles.

1. The petition has been heard by way of video conferencing.

2. Present writ petition has been filed challenging the order dated

31st March, 2021 passed by the respondent-PCIT, Delhi-7, for assessment

year 2016-17, under Section 264 (of Income Tax Act, 1961) [for short ‘the

Act’], whereby the respondent refrained from giving any finding on merits

and declined to entertain the petitioner’s revision petition. Petitioner also seeks a direction to the respondent to decide the petitioner’s revision petition on merits.

3. Learned counsel for the petitioner-assessee states that the petitioner, a

wholly owned subsidiary of Riso Corporation Japan, had remitted dividend

to its holding company on which tax was deducted @ 20.35% under Section

115-O of the Act, even though as per the beneficial provisions of India-

Japan Double Taxation Avoidance Agreement (DTAA), the tax was

required to be deducted @ 10%. He points out that to rectify the said

inadvertent error, petitioner filed the revision petition seeking refund of

excess tax.

4. He submits that the respondent was statutorily obliged to give a

finding on merits, with respect to excess deposit of tax, while deciding the

revision petition. In support of his submission, learned counsel for the

petitioner relies upon the judgment of the ITAT in M/s Giesecke and

Devrient India Pvt. Ltd. Vs. Additional Commissioner of Income Tax,

Special Range-04, ITA No. 7075/Del/2017 as well as judgments of this

Court in Vijay Gupta vs. Commissioner of Income Tax, Delhi-III, (2016)

386 ITR 643, M/s Epcos Electronic Components SA Vs. Union of India,

WP(C) 10417/2018 dated 10th July, 2019 and judgment of the Supreme

Court in Union Of India And Others vs Kamlakshi Finance Corporation,

AIR 1992 SC 711.

5. Issue notice. Mr. Sunil Agrawal, learned counsel for respondent,

accepts notice. He submits that the matter pertains to the period during

which Dividend Distribution Tax regime under Section 115-O (of Income Tax Act, 1961) was

prevalent. Under this system, the tax on distributed profits was to be borne

by the Company distributing the dividends, and subsequently the dividends

received by shareholders post payment of Dividend Distribution Tax by the

Company wasstatutorily exempt from tax under Section 10 (of Income Tax Act, 1961). He

states that this scheme of Dividend Distribution Tax has been construed by

Hon’ble Supreme Court in the case of Godrej & Boyce Manufacturing Co.

Ltd. v. DCIT [(2017) 394 ITR 449 (SC)]. In view of the same, he further

submits that the rate of tax on distributed profitsthat is applicable is the one stipulated under section 115-O (of Income Tax Act, 1961) and not the one

prescribed under Article 10 of the DTAA, because the rate of tax in the

hands of the shareholders is more beneficial under the Income Tax Act as

compared to the DTAA.

6. However, upon hearing the counsel for the parties, this Court finds

that the respondent has dismissed the petitioner’s revision petition without

giving any reason on merits, except stating that the petition was premature,

as according to the learned Commissioner, the Revenue still had time to file

an appeal against the ITAT judgment in the case of M/s Giesecke and

Devrient India Pvt. Ltd. Vs. Additional Commissioner of Income Tax,

Special Range-04 (Supra). The relevant portion of the impugned order is

reproduced here in below:-

“3. I find that the submissions of the assessee in the

present petition substantially draw from and are based on

the discussion in the aforesaid order of ITAT in the case of

M/s Giesecke & Devrient (India) Pvt. vs. Addl. CIT, Special

Range-04, New Delhi (ITA No. 7075/DEL/2017). However,

I note that this judgment was delivered on 13.10.2020 and

the Income Tax Department still has time to take a decision

on filing of appeal, if any, against the said judgment. As

such, it cannot be said that the Department has accepted or

acquiesced in the judgment of ITAT on the above issues on

merit, and the legal position of the questions involved is not

yet settled. Hence a remedy under Section 264 (of Income Tax Act, 1961), as

requested, is pre-mature.

4. As such, without going into the merits of the grounds

raised by the assessee, I , in view of the above facts and

legal position, decline to entertain this petition under

section 264 (of Income Tax Act, 1961), and to intervene for revising the

assessment order for the captioned year passed by

Assessing Officer on 19.12.2018 accepting the returned

income.”

7. Consequently, from the aforesaid, it is apparent that the learned

Commissioner has neither applied its mind to the controversy at hand nor

passed a reasoned order. Accordingly, the impugned order dated 31st March,

2021 is set aside and the matter is remanded back to the respondent-PCIT,

Delhi-7 for passing a reasoned order within six weeks after giving an

opportunity of hearing to the petitioner. This Court clarifies that it has not expressed any opinion on merits of the controversy. All rights and

contentions of the parties are left open. In the event the petitioner is

aggrieved by the decision of the respondent, it shall be open to the petitioner to file appropriate proceedings in accordance with law, if permissible.

8. Accordingly, the present writ petition stands disposed of.

9. The order be uploaded on the website forthwith. Copy of the order be

also forwarded to the learned counsel through e-mail.

MANMOHAN, J

NAVIN CHAWLA, J

JULY 22, 2021