ITAT Remands TDS Demand; Allows DTAA Relief Verification Opportunity

The assessee, Shri Ram Krupa Medicare Private Limited, had paid a dividend of Rs 21.15 lakh to its Mauritius-based shareholder, Basswood Holdings Limited, during FY 2020-21 and deducted TDS at 5% under Section 195 by applying the India–Mauritius DTAA. The TDS return in Form 27Q was initially processed but later rectified under Section 154, raising a demand for short deduction by applying a 20% rate under the Act.

The assessee contended that it had correctly applied the beneficial DTAA rate and had also obtained the Tax Residency Certificate (TRC) and Form 10F. However, the lower authorities rejected the claim on the grounds that such documents were not furnished for the relevant period. Before the Tribunal, the assessee produced these documents, though the TRC pertained to a later period and not the relevant quarter in which the dividend was paid.

Issue Raised: Whether TDS on a dividend paid to a Mauritius resident can be taxed at a higher domestic rate when a DTAA benefit is claimed, but supporting documents like TRC and Form 10F are not furnished for the relevant period.

Tribunal Held: The Tribunal observed that there was no dispute regarding the eligibility of the Mauritius-based shareholder to claim benefits under the India-Mauritius DTAA, under which dividend income is taxable at 5%. However, it noted that the Tax Residency Certificate placed on record did not pertain to the relevant period of payment.

Considering this factual gap, the Tribunal held that the matter required fresh verification. It set aside the issue to the file of the TDS Assessing Officer, granting the assessee another opportunity to furnish the correct TRC and Form 10F for the relevant period. The AO was directed to re-adjudicate the issue in accordance with the law after examining the documents.

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