In Principal CIT v. Krishak Bharati Cooperative Ltd, the division bench of the Delhi High Court held that where the assessee society would be entitled to tax credit in respect of deemed dividend tax received from an Omani Company on which it was not liable to pay any tax in Oman by virtue of exemption granted as per Omani Tax laws.
The division bench observed that the purpose of exemption being to promote economic developments, assessee should not be denied of the benefit of tax credit by virtue of provisions of DTAA read with section 90 together with clarifications issued by Sultanate of Oman and assessment made under Omani Laws.
Assessee, a multi state co-operative society registered in India, under the administrative control of the Department of Fertilizers, Ministry of Agriculture and Co-operation, Central Government, engaged in the business of manufacturing fertilizers such as urea and ammonia. Assessee entered into a joint venture with Oman Oil Company to form the Oman Fertilizer Company SAOC, holding 25% of the shares in the JV.
The fertilizers manufactured by OMIFCO are purchased by the Central Government. The assessee established a branch office in Oman to oversee its investments in OMIFCO. The branch office which is independently registered as company under the Omani laws, claims Permanent Establishment (PE) status in Oman in terms of Article 25 of the DTAA between India and Oman. Assessee received dividend income from an Omani Company on which it was not liable to pay any tax in Oman by virtue of exemption granted as per Omani Tax laws.
On appeal, the Tribunal held that the benefit of the DTAA must be allowed to the assessee and it allowed tax credit on dividend received from the Omani Company even if it was exempted under the Omani law.
The bench noticed that as per Article 25 (2) of the treaty, assessee is entitled to benefit of whatever was the tax treatment it received in Oman. The bench further concurred with the findings of the Tribunal that the relevant Omani law was amended so as to promote Omani economic development and to encourage investment in Omani companies.
Concluding the matter in favour of the assessee, the division bench comprising of Justice S. Ravindra Bhat and Justice Najimi Waziri said that “if the tax authorities had any doubts, they could not have proceeded to elevate them into findings, but rather addressed them to Omani authorities- if not directly, then through Indian diplomatic channels. In not doing so, but proceeding to interpret the laws and certificate of Omani authorities, the revenue, especially the Commissioner fell into error.”
Read the full text of the Judgment below.