| Headnote |
Issue for consideration: Whether there is any right to invoke the Most Favoured Nation (MFN) clause when the third country with which India has entered into a Double Tax Avoidance Agreement (DTAA) was not an Organisation for Economic Cooperation and Development (OECD) member yet (at the time of entering into such DTAA); and whether the MFN clause is to be given effect to automatically or if it is to only come into effect after a notification is issued. Income Tax Act, 1961– s.90– Agreement with foreign countries or specified territories – Double Tax Avoidance Agreement (DTAA)– Notification u/s.90, if mandatory to give effect to a DTAA or any Protocol changing its terms/conditions– “is” occurring in the DTAAs – Interpretation – Bilat-eral treaties between India and Netherlands, France, and Switzerland, respectively– Plea of as-sessee that having regard to the Protocol to the India-Franwce DTAA, the more restrictive defini-tion of ‘fees for technical services’ appearing in the India-UK DTAA, must be read as forming part of the IndiaFrance DTAA as well– Disagreed by Authority for Advance Ruling– Reversed by High Court– In another appeal, relating to the India-Netherlands DTAA, the assessees contended that regard being had to the phraseology of the DTAA and the subsequent Protocol, the relevant event relied upon- the provisions of the DTAA and the Protocol, obliged the revenue to extend the lower rate of withholding tax at 5%– In case of Nestle, the provisions of the India-Switzerland DTAA and its three protocols considered– Writ petitions allowed by High Court:Held: A notification u/s.90(1) is necessary and a mandatory condition for a court, authority, or tribunal to give effect to a DTAA, or any protocol changing its terms or conditions, which has the effect of altering the existing provisions of law – The fact that a stipulation in a DTAA or a Protocol with one nation, requires same treatment in respect to a matter covered by its terms, subsequent to its being entered into when another nation (which is member of a multilateral organization such as OECD), is given better treatment, does not automatically lead to integration of such term extending the same benefit in regard to a matter covered in the DTAA of the first nation, which entered into DTAA with India – In such event, the terms of the earlier DTAA require to be amended through a separate notification u/s.90 – Further, the interpretation of the expression “is” has present signification and it derives meaning from the context – Therefore, for a party to claim benefit of a “same treatment” clause, based on entry of DTAA between India and another state which is member of OECD, the relevant date is entering into treaty with India, and not a later date, when, after entering into DTAA with India, such country be-comes an OECD member, in terms of India’s practice – Impugned orders set aside – International Convention/Treaties. [Paras 88, 51]International Convention/Treaties – Constitution of India – Article 253, 73 – Treaty making power: Held: The terms of a treaty ratified by the Union do not ipso facto acquire enforceability – The Union has exclusive executive power to enter into international treaties and conventions under Article 73 r/w corresponding Entries- Nos. 10, 13 and 14 of List I of the VIIth Schedule to the Constitution of India and Parliament, holds the exclusive power to legislate upon such conventions or treaties; Parliament can refuse to perform or give effect to such treaties – In such event, though such treaties bind the Union, vis-a-vis the other contracting state(s), leaving the Union in default – The application of such trea-ties is binding upon the Union – Yet, they “are not by their own force binding upon Indian nationals” – Law making by Parliament in respect of such treaties is required if the treaty or agreement restricts or affects the rights of citizens or others or modifies the law of India – If citizens’ rights or others’ rights are not unaffected, or the laws of India are not modified, no legislative measure is necessary to give effect to treaties – In the event of any ambiguity in the provision or law, which brings into force the treaty or obligation, the court is entitled to look into the international instrument, to clear the ambiguity or seek clarity – Income Tax Act, 1961– s.90. [Para 44]International Law – International Convention/Treaties – Treaty practice of India, in relation to Double Tax Avoidance Agreements and their Protocol – Practices of Netherlands, France and Switzerland – International perspectives and practices – Discussed. International Law – International Convention/Treaties – Vienna Convention on Law of Treaties – Articles 31 and 32 – International Law Commission Draft Conclusions on Subsequent Agreements and Subsequent Practice in relation to the Interpretation of Treaties – ILC Draft Conclusions – Discussed. |
