MFN clause will prevail over TDS rates mentioned in DTAA: Delhi HC

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MFN clause will prevail over TDS rates mentioned in DTAA: Delhi HC

Deccan Holdings B V ([2021] 133 taxmann. com 94 (Delhi)
Short Overview of the case:
Facts:
1. The petitioner, a Netherland based company, holds 58.39% of the shares of Deccan Fine Chemicals (India) Private Limited [DFCPL]. During the current FY i.e. 2021-22, DFCPL proposes to distribute a dividend of INR 65.68 cr. to the Petitioner.
2. Double taxation Avoidance Agreement (DTAA) between India and Netherlands prescribe a withholding tax of 10% on dividend. However the protocol to India Netherlands DTAA provides for “Most Favoured Nation” (“MFN”) clause.
3. Note: According to the MFN clause, one nation commits to providing another country with tax treatment that is no less favourable than that which it provides to other or third countries. Since DTAA between India and some countries like Slovenia/ Lithuania/ Colombia provide for a lower withholding of 5% on dividend, withholding for Netherlands should also be 5% and not 10%.
4. However the AO disregarded the MFN and issued lower deduction certificate U/S 197 of 10%.
Hon. Delhi HC held as below:
1. The issues raised in the petition is squarely covered by Concentrix Services Netherlands B. V. v. ITO [2021] 127 taxmann. com 43/434 ITR 516 (Delhi)
2. Dividend paid by Netherland company to Indian resident will bear a lower withholding tax rate of 5 per cent instead of 10 per cent, in view of MFN clause in DTAA between India and Netherland.
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