January 28, 2019:
The Division Bench of Justices Sanjiv Khanna and Anup Jairam Bhambhani of the Hon’ble Delhi High Court on 17th January, 2019 decided a matter titled Rajan Bhatia Vs Central Board Of Direct Taxes & Anr.
The petitioner in this case filed a writ petition seeking appropriate order or direction for quashing the proviso to Section 10(34) of the Income Tax Act, 1961 read along-with the provisions of Section 115BBDA of the Act.
Another prayer made in the writ petition is for staying operation of the aforesaid provisions generally and in particular in relation to the Assessment Year 2017-2018. It is submitted that the provisions under challenge are arbitrary, ultra vires and violative of Article 14 of the Constitution of India. Section 115BBDA is a non-obstante provision that would apply and prevail over Section 10(34) of the Act.
Challenge to the constitutional validity of the aforesaid provisions is primarily on two grounds. The first ground is that Section 115BBDA of the Act does not have any ‘base’. The second ground is that the provision makes hostile discrimination between a resident assessee and a non-resident assessee, as the provision only applies to a resident assessee. It is also pointed-out that the provision excludes from its ambit any domestic company.
The Bench observed, “Pertinently, the companies have to pay dividend tax whenever they pay dividend to the shareholders. This would explain and justify the reason why companies have be en left out from the purview of Section 115BBDA. If companies were liable to pay tax under this section, it would have led to cascading effect when dividend is finally paid to the shareholders, be it, an individual, HUF or a firm i.e. the ‘specified assessee’ who are liable to pay tax under Clause (a) to Section 115BBDA of the Act.
Similarly, the argument that non-residents have been left-out is an argument of under-classification. Non-residents who invest in India contribute and help in growth of industrialization, job creation and economic progress. Non-residents have options to invest in different countries. Consequently, the Legislature/Executive as a matter of policy decide how and in what manner non-residents should be taxed.
Non-residents can be treated differently for the reason that they are residents of foreign states and not residents of India. Taxation at source principle may not be applied to non-residents. Non-residents are liable to pay tax in the country of their residence. Taxation regime applicable to non-residents need not identical to that applicable to residents.”
On the basis of above mentioned grounds, the Bench did not find any merit in the writ petition and accordingly dismissed the same.
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