Double Taxation Avoidance Agreement — India and Malaysia — Dividend income received from Malaysian company is not liable to be taxed in India in the hands of the recipient assessee

[Dy. CIT v. Torqouise Investments and Finance Ltd., (2008) 300 ITR 1
(SC)]

The assessee-respondent, filed its return of income for the
A.Y. 1992-93, declaring an income of Rs.4,30,06,580 by showing its business as
investment and finance, which was processed u/s.143(1)(a) of the Income-tax Act,
1961, on January 18, 1996, on the same income. Along with the return the
assessee claimed refund amounting to Rs.29,16,660 on the basis of credit of
deemed TDS on dividend received from a Malaysian company i.e., Pan
Century Edible Oils SND.BHD, Malaysia. The Assessing Officer raised a demand of
Rs.1,07,370 after rejecting the credit claimed by the assessee on the basis of
deemed credit on dividend received from the aforesaid Malaysia company. Being
aggrieved, the assessee filed an appeal before the Commissioner of Income-tax
(Appeals), which was accepted. The Revenue thereafter filed an appeal before the
Income-tax Appellate Tribunal. The Tribunal disposed of the appeal with the
observation that the Double Taxation Avoidance Agreement entered into by the
Government of India with Government of Malaysia would override the provision of
the Act if they are at variance with the provisions of the Act. It was held that
from a plain reading of Article XI of the DTAA, it was clear that dividend
income would be taxed only in the Contracting State where such income accrued.
On further appeal, the High Court, following the decision of the Madras High
Court in the case of CIT v. Vr. S.R.M. Firm reported in (1994) 208
ITR 400, which was affirmed by the Supreme Court in the case of CIT v.
P.V.A.L. Kulandagan Chettiar reported in (2004) 267 ITR 654, held that the
Tribunal was justified in holding that the dividend income derived by the
assessee from a company in Malaysia is not liable to be taxed in the hands of
the assessee in India under any of the provisions of the Act. On an appeal to
the Supreme Court, the Supreme Court after going through the judgment of the
Madras High Court in CIT v. Vr. S.R.M. Firm (1994) 208 ITR 400 and its
judgment in CIT v. P.V.A.L. Kulandagan Chettiar (2004) 267 ITR 654 held
that the point involved in the appeals stood concluded in favour of the assessee
and against the Revenue by the decision of the Madras High Court in CIT v. Vr.
S.R.M. Firm (1994) 208 ITR 400, which was duly affirmed by it in the case of
CIT v. P.V.A.L. Kulandagan Chettiar (2004) 267 ITR 654. The Supreme Court
further observed that the review petition filed against the decision of this
Court in CIT v. P.V.A.L. Kulandagan Chettiar (2004) 267 ITR 654 was also
dismissed on November 1, 2007.

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