Lower withholding shall be made owing to the Most Favoured Nation “MFN” Clause

The Assessee is a company incorporated under the laws of Netherlands and is engaged in the business of acquiring strategic ownership interests, owning and disposing ownership interests in other companies and enterprises, both in Netherlands and abroad.
The Assessee holds 58.39% of the shares of Deccan Fine Chemicals (India) Private Limited [DFCPL] for which the Assessee was entitled to receive dividend of INR 65.68 Cr. for the F.Y. 2021-22.
The Assessee filed an application under section 197 of the Act before the Assessing Officer (AO) requesting him to issue a certificate authorizing him to receive dividend income from DFCPL at a lower withholding tax rate of 5% wherein the Double Taxation Avoidance Agreement (“DTAA”) between India and Netherlands prescribes a withholding rate of 10%.

The assessee contended that the Protocol of the India Netherlands DTAA provides for “Most Favored Nation” (“MFN”) clause wherein it states that when India enters into a DTAA with another member country of the Organization for Economic Cooperation and Development (“OECD”) India wherein India has limited its Tax deducted at source( TDS) to a lower rate than the one agreed upon in this DTAA, then such lower TDS rate i.e., 5% in case of dividend distribution shall also be applicable under the India-Netherlands. This contention has been squarely supported in the decision of Concentrix Services Netherlands B.V. v. ITO [2021].
The assessee further contended that the assessing officer cannot disregard the binding judgments of this Court on the ground that the revenue proposes to file an appeal against such decisions.

The court set aside the impugned order and certificate which has been passed earlier and directed the assessing officer to issue a new certificate under section 197 of the Act in favor of the Assessee, that the rate of tax, on dividend, as applicable qua the Assessee is 5% under India Netherlands DTAA.

Case Law: Deccan Holdings B V v. ITO, High Court of Delhi, W.P.(C) NO. 11921 OF 2021

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