1. Introduction

A recent landmark judicial precedent involved a ‘very high-stakes’ issue: could the Dividends articles in the applicable tax treaties restrict the rate of the Indian Dividend Distribution Tax (DDT) imposed under Sec. 115-O of the Indian Income Tax Act, 1961? The Indian tax authorities have persistently adopted the position that the DDT is a tax imposed on the dividend-paying company and not on the income of the shareholders. On that basis, the Indian tax authorities have denied applicability of the dividend withholding tax rates stipulated in the applicable tax treaties. The aforesaid judicial precedent rejects the Indian tax authorities’ view.

This article covers in-depth analysis of the above-mentioned judicial precedent that is expected to have significant implications for a rather large number of Indian companies.