Bombay High Court Upholds Assessee's Right to Invoke Section 264 for Unclaimed DTAA Benefits

The intersection of domestic tax laws and international tax treaties frequently presents complex procedural challenges, particularly when an assessee inadvertently omits a legitimate claim during the standard return filing process. A pivotal legal question arises in such scenarios: Can an assessee invoke the revisional jurisdiction of the tax authorities to claim a treaty benefit that was never asserted in the original or revised income tax returns?

The Bombay High Court addressed this exact legal conundrum in the matter of Hapag Lloyd India Pvt. Ltd., delivering a significant ruling on 09/02/2022. The Court scrutinized the boundaries of the revisional powers vested in the Principal Commissioner of Income Tax under Section 264 of the Income-tax Act, 1961. The judgment underscores the fundamental principle that the revisional authority possesses the mandate to correct errors and prevent undue hardship to the assessee, even when the initial omission originated from the assessee's own failure to claim a benefit.

Factual Matrix of the Dispute

The legal proceedings were initiated by Hapag Lloyd India Pvt. Ltd., acting as the successor entity to United Arab Shipping Agency India Company Pvt. Limited (UASAC). The predecessor company, UASAC, had been amalgamated into the petitioner company effective from 1 April 2019, following the sanction of the National Company Law Tribunal.

During the Financial Year 2015-16, corresponding to Assessment Year 2016-17, the predecessor entity (UASAC) declared and distributed a dividend amounting to Rs.10,16,75,641/- to its holding enterprise, United Arab Shipping Company Limited, which is a corporate entity incorporated under the jurisdiction of Kuwait.

In compliance with the prevailing domestic tax regulations at the time, UASAC discharged its Dividend Distribution Tax (DDT) obligations. The tax was remitted at a composite rate of 16.91%, which included the applicable surcharge and cess. This resulted in a total DDT outflow of Rs.2,06,99,127/-.

Subsequently, the assessee fulfilled its statutory filing obligations by submitting the original return of income on 30 November 2016. A revised return was later filed on 23 December 2016. However, a critical omission occurred during both these filings. The assessee failed to invoke the beneficial provisions outlined in Article 10 of the India-Kuwait Double Taxation Avoidance Agreement (DTAA).

Under the specific stipulations of Article 10 of the said DTAA, the dividend distributed to the Kuwaiti holding company was eligible to be taxed at a concessional rate of 10%. Because the assessee had paid taxes at the higher domestic rate of 16.91%, it had effectively overpaid the exchequer. The differential amount, which the assessee was legally entitled to claim as a refund, stood at Rs.84,61,650/-.