Introduction:

In terms of Article 141 of the Constitution, law declared by the Supreme Court is binding on all Courts within the territory of India.  Such law, in the form of “precedents”, are stands for future similar events and encompass the core mechanism by way of which outcomes are reached.  The principle that exposition of law should be applied unreservedly, is an essential feature of rule of law and administration of justice, since it paves way to certainty, predictability and finality.  Where the Supreme Court sets the rules of the game, the perennial question is, what is the function that a precedent should fulfil so as to qualify as good law?  It is important that a precedent gets the law right.  If, in the process, an interpretation of law by a High Court is being overturned, it is incumbent that there should be reasoned justification to the effect that such interpretation was misguided.  Further, a precedent should not rely on an earlier precedent of the Supreme Court to intend what was never intended.  That apart, precedent should not be a declaration of what law could be, but rather, an interpretation of the language of law or the black letter of the law.

Given the above, the authors will analyse the recent judgment of the Supreme Court in Assessing Officer vs. M/s Nestle SA^[1].  In the considered opinion of the authors, the said judgment is retrograde in the interpretation of Double Taxation Avoidance Agreements (“DTAAs”).  It has the potential of disrupting expectations, by virtue of it being unreasoned, incoherent and contrary to the plain language of the law.  The said judgment also falls short of expectations because in a very perfunctory manner, the Supreme Court disregarded the different language used in different DTAAs and without sound rationale, brought them under the same category.  Further, there is an apparent contradiction in the judgment of the Supreme Court, where, while relying on earlier judgments of the Supreme Court, it observed that law should be read as it is and without any intendment, but then, proceeded to base its conclusions on intendments.

Supreme Court’s decision in M/s Nestle SA (Supra) and author’s analysis thereof:

In M/s Nestle SA (Supra), the Supreme Court interpreted the Most Favoured Nation (“MFN”) clause contained in the Protocol to the DTAA between India and Netherlands (“India – Netherlands DTAA”), India and France (“India – France DTAA”) and India and Swiss Confederation (“India – Swiss DTAA”), which countries are all members of Organisation for Economic Cooperation and Development (“OECD”).  The MFN clause provides for withholding tax on dividends, interest, royalties or fees for technical services (“FTS”) at a lower rate or restricted scope, similar to a concession subsequently provided to a third country, which is also a member of OECD.  Relevant third countries considered by the Supreme Court, with which India entered into DTAAs limiting its withholding tax at a lower rate or scope are Lithuania, Columbia and Slovenia.  The DTAA between India and Lithuania (“India – Lithuania DTAA”) was signed on 26.07.2011 and thereafter, notified on 25.07.2012^[2].  However, Lithuania became a member of OECD on 05.07.2018.  The DTAA between India and Colombia (“India – Colombia DTAA”) was signed on 13.05.2011 and thereafter, notified on 23.09.2014^[3].  However, Columbia became a member of OECD on 28.04.2020.  The DTAA between India and Slovenia (“India – Slovenia DTAA”) was signed on 13.01.2003 and thereafter, notified on 31.05.2005^[4].  However, Slovenia became a member of OECD on 21.07.2010.

In the case before it, the Supreme Court framed the following two issues:

• Whether the MFN clause is required to be given effect to automatically or pursuant to a Notification issued under section 90(1) of the Income-tax Act, 1961 (“ITA”)?^[5]
• Whether there is any right to invoke the MFN clause when a third country with which India entered into a DTAA was not a member of OECD at the time of entry into force of the DTAA between India and the said third country?^[6]

Issue at (i) above 

Supreme Court’s decision

With respect to the issue at (i) above, the Supreme Court held that entering into a DTAA or a Protocol to a DTAA does not result in automatic enforceability thereof, till such time an appropriate Notification under section 90(1) of the ITA is issued.^[7]  At the outset, the Supreme Court drew from the prevailing principle that when International Treaties and Conventions restrict or affect the rights of citizens or modify the law of India, law making by the Parliament is mandatory to effectuate the same vis-à-vis the citizens.^[8]  Thereafter, the Supreme Court expounded on the Notifications issued under section 90(1) of the ITA to give effect to specific benefits, in the nature of lower rates and/ or restricted scope, in the Protocol to the India – Netherlands DTAA^[9], India – France DTAA^[10] and DTAA between India and Canada (“India – Canada DTAA”)^[11].  In view thereof, it observed that the fact of lower rate and/ or restricted scope of taxation having been agreed upon with other OECD countries subsequently did not result in automatic extension or penetration thereof into the India – Netherlands DTAA, the India – France DTAA or the India – Canada DTAA, absent an express Notification under section 90(1) of the ITA.  The Supreme Court opined that these are established and clear precedents of behaviour in relation to treaty practise and interpretation, warranting issuance of Notification under section 90(1) of the ITA, as a condition precedent to grant of benefit of lower rate or restricted scope of withholding.  As regards the afore-stated, the Supreme Court also took categorical note of the change in language of the Protocol to the India – Swiss DTAA.  While recognising that entering into negotiations was no longer a pre-requisite for availing the benefit conferred on a third country OECD member,^[12] it nonetheless read the requirement of Notification and amending Protocol as necessary, owing to operation of section 90 of the ITA and in view of “compelling legalities” required to be satisfied before benefits of International Treaties and Conventions are integrated within domestic regime.

In reaching at its conclusions, the Supreme Court disregarded the Decree, Bulletin and Publication of the Directorate General of Fiscal Affairs, International Fiscal Affairs, Netherlands, Swiss Federation and Republic of France respectively.  Whereas in each of the said countries, International Treaties and Conventions entered into by the Executive are required to be ratified and are assimilated into domestic law after intercession of the Parliament, in India, International Treaties and Conventions are required to be Legislatively embodied in law through a separate statue or Legislative device basis enacted law.  Basis a difference in the manner each country assimilates International Treaties and Conventions into domestic law, absent a Notification under section 90(1) of the ITA, DTAAs and Protocols thereunder were declared to be per se unenforceable by the Supreme Court.  Immediately thereafter, the Supreme Court relied on the Draft Conclusions on Subsequent Agreements and Subsequent Practice in relation to Interpretation of Treaties (“ILC Draft Conclusions”), adopted by the International Law Commission (“ILC”) in 2018.  The ILC Draft Conclusions note that under the Vienna Convention on Law of Treaties (“VCLT”)^[13], inter-alia, subsequent practices encompass objective evidence of the understanding of parties to International Treaties or Conventions and are as such, authentic and influential means of interpretation thereof.  It was noted that the practice in India is a consistent pattern of behaviour, viz., the event of a third country entering OECD membership is pointed out and thereafter, the trigger event kicks in, i.e., beneficial treatment given to such third party is notified in the existing DTAAs, in the form of a consequential amendment preceded by exchange of communication and acceptance of such position by India.  In view thereof, it was concluded that the essential requirement of Notification under section 90(1) of the ITA, by virtue of being the trigger or causative event, cannot be undermined.

Besides the foregoing, the Supreme Court held that omission of certain benefits available to third country members of OECD in a Notification under section 90(1) of the ITA is indicative of India’s intention to per se not grant all benefits available to such third country members to every other country.  In this regard, it noted that the “make available” condition” in the DTAA between India and Portugal (“India – Portugal DTAA”)^[14] and DTAA between India and United Kingdom (“India- UK DTAA”)[^15] has consciously been omitted from Notification No. S.O. 650(E) dated 10.07.2000 issued to bring into effect Clause 7 to the Protocol to the India – France DTAA and therefore, it was held that the same may not be read into the India – France DTAA.  On this basis, the well-reasoned judgment in Steria (India) Ltd. (Supra) was overruled.

Author’s analysis

At the very outset, a bare perusal of the judgment in M/s Nestle SA (Supra) will indicate that the Supreme Court first reached at the conclusion that Notification under section 90(1) of the ITA is mandatory for giving effect to MFN clauses contained in Protocols to DTAAs, basis reliance being placed by it on the judgment in Azadi Bachao Andolan (Supra) and thereafter, it dwelled into specific instances to substantiate the stance taken by it.  In Azadi Bachao Andolan (Supra), it was held that the Executive is empowered to issue Notifications under section 90 of the ITA for implementation of DTAAs, which would automatically override the provisions of the ITA in matters of ascertainment of chargeability to tax and scope of total income, to the extent the same are more beneficial to the corresponding provisions contained in the ITA.  Therefore, there exists an unequivocal statutory requirement to issue a Notification under section 90(1) of the ITA, to bring into force a DTAA.^[16]  However, this statutory requirement does not stretch itself to require issuance of a mandatory Notification for bringing into effect specific provisions of a Protocol to a DTAA, which already stands notified along with a DTAA.^[17]  For the sake of completeness, a Protocol forms an integral part and is a part and parcel of a DTAA.^[18]  Once a DTAA and/ or Protocol thereto has been appropriately notified in terms of section 90(1) of the ITA, benefits thereunder bestow automatically.  In conclusion, there ought to be no further requirement to issue a Notification to give effect to MFN clause contained in a Protocol to a DTAA, when such Protocol has been duly notified.  One wonders whether this condition can be read into the DTAAs by any Court, where it is not envisaged under the clause pertaining to “Entry into Force” in such DTAAs.

That apart, the Supreme Court prioritised subsequent state practice in certain scenarios so as to infer an obligation to issue Notifications under section 90(1) of the ITA, for bringing in force MFN clauses.  In doing so, the Supreme Court gave the explicit language of varied MFN clauses a “deliberate” go by.  At this juncture, it would be apt to take note of the MFN clauses contained in the India – Swiss DTAA and DTAA between India and Finland (“India – Finland DTAA”), relevant portions whereof are respectively reproduced as under:

India – Swiss DTAA:^[19]

“4. If after the signature of the Protocol of 16th February, 2000 under any Convention, Agreement or Protocol between India and a third State which is a member of the OECD India should limit its taxation at source on dividends, interest, royalties or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in this Agreement on the said items of income, then, Switzerland and India shall enter into negotiations without undue delay in order to provide the same treatment to Switzerland as that provided to the third State.”

India – Finland DTAA:

“II. Ad Articles 10, 11 and 12

…The competent authority of India shall inform the competent authority of Finland without delay that the conditions for the application of this paragraph have been met and issue a notification to this effect for application of such exemption or lower rate.”

There was in the case of India – Swiss DTAA and there is in the case of India – Finland DTAA, an unequivocal mandate to enter into negotiations and/ or issue appropriate Notifications to bring in force MFN clauses.  Apposite to this, it would now be apt to take note of the MFN clauses contained in certain other DTAAs, which operationalise MFN clauses automatically, from the point in time when the relevant DTAA or DTAA with the relevant third country is entered into, whichever is later.  Relevant portions of the same are reproduced as under:

India – France DTAA: 

“7…the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items income shall also apply under this Convention, with effect from the date on which the present Convention or the relevant Indian Convention, Agreement or Protocol enters into force, whichever enters into force later.”

India – Netherlands DTAA:

“IV. Ad Articles 10, 11 and 12

 … 

2.…then as from the date on which the relevant Indian Convention or Agreement enters into force the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention.”

DTAA between India and Belgium (“India – Belgium DTAA”): 

“1. Ad Articles 5, 7 and 12

…the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under the present Agreement with effect from the date from which the present Agreement or the said Convention or Agreement is effective, whichever date is later.”

DTAA between India and Israel DTAA: 

“2…the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention with effect from the date on which the present Convention comes into force or the relevant Indian Convention or Agreement, whichever enters into force later.”

DTAA between India and Spain DTAA:

“7…the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention with effect from the date on which the present Convention comes into force or the relevant Indian Convention or Agreement, whichever enters into force later.”

The India – Swiss DTAA post amendment, operationalises the MFN clause automatically, from the date at which DTAA with the relevant third country is entered into.  Relevant portion of the MFN clause contained in the India – Swiss DTAA is reproduced as under:

India – Swiss DTAA:

“…the same rate as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply between both Contracting States under this Agreement as from the date on which such Convention, Agreement or Protocol enters into force.”

Certain DTAAs operationalise the MFN clauses automatically, without providing for a specific date.  Relevant portions of MFN clauses of such DTAAs are also reproduced as under:

DTAA between India and Hungary:

“With reference to Articles 10, 11 and 12

…the same rate or scope as provided for in that Convention. Agreement or Protocol on the said items of income shall also apply under this Convention.”

DTAA between India and Sweden:

“With reference to Articles 10, 11 and 12:

…the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply under this Convention.”

DTAA between India and Kazakhstan:^[20]

“With reference to Articles 10, 11 and 12;

…the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply under this Convention.”

DTAA between India and Nepal:

“2. With reference to Article 12:

…the same rate of scope as provided for in that Agreement or Convention or Protocol on Royalties shall also apply under this Agreement.”

What follows from the above is that India consciously entered into varied MFN clauses with different Contracting States.  Such MFN clauses are testimonial of concessions and compromises agreed upon by India with each Contracting State at an individual level.  The Executive has Legislative backing to enter into and to implement DTAAs and/ or Protocols containing MFN clauses, by issuing Notifications.^[21]  Where notified MFN clauses in Protocols or “Entry into Force” clauses do not contain any requirement of entering into further negotiations or issuing any further Notifications, reading this condition for applicability of all MFN clauses will invariably undermine the literal or strict language.  In the opinion of the authors, such notified MFN clauses have the force of law in India, in view of Notifications under section 90(1) of the ITA, specific Protocols^[22] and “Entry into Force” clauses.  Consequently, general principles governing interpretation of Legislations ought to also govern interpretation of notified MFN clauses.  That said, each MFN clause ought to be viewed as an independent piece of Legislation and only where such MFN clause itself requires further negotiations and/ or any further Notification to effectuate the same, should such requirement be held to be mandatory.  Imposing such a condition in all other cases would tantamount to a violation of India’s domestic law itself.  What has been completely missed by the Supreme Court is that once a DTAA and the appended Protocol have been notified and form part of India’s domestic law, nothing short of Legislative interference can negate the effect of DTAA and the appended Protocol.^[23] This approach would be consistent with the black letter approach, which the Supreme Court has sought to champion in M/s Nestle SA (Supra).

In light of the legal position canvassed by the authors, the entire basis of the Supreme Court disregarding the Decree, Bulletin and Publication of the Directorate General of Fiscal Affairs, International Fiscal Affairs, Netherlands^[24], Swiss Federation^[25] and Republic of France^[26] respectively, viz., absence of a separate statue or Legislative devise for integrating the MFN clause into India’s domestic legal system, does not hold water.  Be that as it may, the Supreme Court missed the context in which the said Decree, Bulletin and Publication were relied upon by the Respondents before it.  The same were relied upon to make the point that Contracting States, viz., Netherlands, Swiss Federation and France, have adopted the MFN clause when a third country with which India entered into a DTAA subsequently was not a member of OECD at the time of entry into force of such DTAA with such third country.  Therefore, in view of principles of reciprocity and good faith, it was urged that similar interpretation should also be adopted by India.

In addition to the afore-stated, over-emphasis on subsequent state practice does not align with the conclusion that a Notification is a necessary qualification for implementation of MFN clauses.  This is because out of 10 DTAAs between India and Contracting States, which contain MFN clauses capable of being implemented automatically, Notifications have been issued in respect of only 3 DTAAs, viz., India – Netherlands DTAA, India – France DTAA and India – Belgium DTAA.  Hence, a comprehensive view of subsequent state practice is likely to tip the scale in the favour of rendering the requirement of such Notifications inessential.  Even otherwise, state practice of issuance of Notifications to implement MFN clauses, which is inconsistent with DTAAs/ Protocols and/ or “Entry into Force” clauses, would not automatically lead to a conclusion of Notifications being mandatory.

Viewed accordingly, since there is no requirement of further negotiations and/ or Notifications for implementation of the MFN clauses, except the MFN clause contained in the India – Finland DTAA, omission of certain benefits available to third country members of OECD in a Notification, is inconsequential.  In this regard, Steria (India) Ltd .(Supra), which now stands overruled, assumes relevance.  Steria (India) Ltd. (Supra) involved the India – France DTAA.  The India – France DTAA was signed on 26.03.1969.  The Protocol to the India – France DTAA was signed on 29.09.1992 and it formed an integral part of the India – France DTAA^[27].  As per Article 30 to the India – France DTAA, pertaining to “Entry into Force”, the India – France DTAA (along with appended Protocol thereto) was required to be notified for bringing the same into force.  Consequently, the India – France DTAA, along with the appended Protocol thereto, came into force on 01.08.1994 vide Notification No. GSR 681 (E) dated 07.09.1994.  Clause 7 to the Protocol to the India – France DTAA limited India’s taxation at source on dividends, interest, royalties, FTS or payments for use of equipment at a lower rate or scope, agreed upon in a subsequent DTAA entered into between India and a third country, which is a member of OECD.  Therefore, as per the plain language of the MFN clause contained in the India – France DTAA, the benefit of a lower rate or scope was automatic, without any requirement of further negotiations and/ or Notifications to implement the same.  This clause was integrated into India’s domestic legal system by way of Notification No. GSR 681 (E) dated 07.09.1994 and in terms of section 90(1) of the ITA.  Thereafter, the Executive issued Notification No. S.O. 650(E) dated 10.07.2000 to modify and implement Article 11(2), 12(2) and 13(2) to the India – France DTAA, pertaining to rates of taxation at source on dividends, interest, royalties, FTS and payments for use of equipment.  The fact of the Executive issuing a subsequent Notification^[28] to modify and implement rates of taxation at source cannot lead to an inference that the restricted scope of taxation provided for in a subsequent DTAA entered into between India and a third country, which is a member of OECD, cannot be imported to the India – France DTAA.  This is because the MFN clause, as assimilated into India’s domestic system, provides for both a restricted rate or scope and the said clause stands entirely unaltered by the Legislature.  The subsequent Notification was wholly unnecessary and not required for making Clause 7 to the India – France DTAA applicable.  It would also be pertinent to point out that though Notification No. S.O. 650(E) was dated 10.07.2000, the amendments envisaged thereunder were made retrospectively applicable from the date on which the India – France DTAA came into force.  This strengthens the interpretation that implementation of MFN clauses is automatic.  In that view of the matter and in the opinion of the authors, the endeavour of the Notification so as to not apply the restricted scope of taxation, was wholly unwarranted and contrary to the clauses relating to “Entry into Force” as well.  For these reasons, the Delhi High Court laid down the correct law in Steria (India) Ltd .(Supra).  Therefore, restricted scope of, inter-alia, the FTS definition, containing the “make available” condition, is legitimately entitled to be imported from the India – Portugal DTAA and the India – UK DTAA into the India – France DTAA.^[29]

Issue at (ii) above

Supreme Court’s decision

The Supreme Court interpreted the phrase “and a third state which is a member of the OECD”^[30] to ascertain whether “is a member” means present tense, i.e., that the third party country should be a member of OECD when it enters into a DTAA with India.  It was noted that “is” has a present signification (sic) and derives meaning contextually.^[31] In view thereof, it was held that a third country is required to be a member of OECD when it enters into a DTAA with India for an intended beneficiary to claim parity by invocation of the MFN clause.  In this manner, the plea of grant of benefit automatically, basis a third country’s entry into OECD, was declared as unfeasible.

Author’s analysis

In the opinion of the authors, the analysis of the Supreme Court on the interpretation of the word “is” contextually does not reconcile with the conclusion ultimately reached at.  It is trite law that statues are to be read contextually or purposely only when literal interpretation thereof point to an absurdity, anomaly or unintended consequence.^[32] Absent any discussion on how literal interpretation of relevant MFN clauses of the Protocol to DTAAs in the present case led to an absurd or analogous situation or an unintended consequence, resort to contextual or purposive interpretation was unwarranted.  Literally construed, the observation and consequent conclusion of the Delhi High Court in Concentrix Services Netherlands B.V. (Supra) that since the word “is” is both autological and heterological, it describes the state of affairs not necessarily at the time of execution a DTAA, but at the time taxability is ultimately determined, is irrefutable.  Be that as it may, since it may be argued that technical rules of interpretation of domestic law are inapplicable in interpretation of DTAAs, the same having been entered into by diplomats not duly instructed in law,^[33] it may be relevant to identify the purpose and context of bringing in force MFN clauses, so as to decipher possible interpretation thereof.  The purpose of entering into DTAAs is to allocate taxing rights amongst Contracting States.  Further, MFN clauses have been incorporated in DTAAs to advance consistency, fairness and equity in allocating taxing rights, towards economic liberalisation and to avoid economic distortions in investment arena.^[34]  This being the purpose and overarching context against which MFN clauses are entered into force, even contextually interpreted, the factum of a third country not being a member of OECD when it entered into a DTAA with India ought not to be a reason enough for the intended beneficiary to be denied parity in tax treatment.

It is pertinent to point out that the Supreme Court failed to consider DTAAs, where the phrase used is “If under any Convention or Agreement between India and a third State being a member of the OECD which enters into force…”, for instance, the phrase as appearing in the India – Belgium DTAA.  The painting of all the DTAAs with the same brush, without presenting any compelling reasons on this aspect, was wholly unwarranted.

M/s Nestle SA (Supra) is likely to have global ramifications.  The interpretation endorsed by the Supreme Court has the potential of disrupting investor expectation, by virtue of being contrary to the bare language of the law and positions taken by Contracting States in conformity therewith.  The Supreme Court has unsettled a perfectly reasonable interpretation, that too, without giving any reasoning.  The overall analysis is unappealing, and conclusions ultimately reached at do not reconcile with either the averments raised, or with the discussions extensively set out.  The Supreme Court effectively brushed off the entire objective of entering into and implementing MFN clauses without just cause or rationale.  It failed to appreciate that compulsion to issue Notifications will heedlessly stall the process of implementing MFN clauses, as is evident from the fact that till date, Notifications have been issued to implement MFN clauses in only 3 DTAAs.  In light of the judgment in M/s Nestle SA (Supra), pertinent questions arise.  Is the interpretation likely to impact remittances that have already been made to Non-Residents?  Is the Assessing Officer empowered to rectify or revise a NIL/ lower withholding certificate that may have been issued by the Assessing Officer?  If the answer is in the affirmative, then, can parties to a transaction be held to be in violation of such rectified or revised NIL/ lower withholding certificate and proceeded against accordingly?  Can the interpretation of the Supreme Court entail a possible violation of Bilateral Investment Treaties and/ or other International Treaties or International Conventions, thus, exposing India to sanctions, penalties and global criticism^[35]?

Conclusion:

In India, precedents are a cornerstone and an authoritative source of law.  The judgment in M/s Nestle SA (Supra), lacks legal or justiciable reasons to digress from the interpretation endorsed by High Courts pan-India.  This is a textbook example of a situation in which the Supreme Court should have exercised a sparing and minimalistic role accorded to it in the constitutional framework.  Instead, the Supreme Court has exposed itself to an issue that stood fairly well-settled, that too, by frustrating the letter of the law and overreaching into the domain of law-making, of which it has no power.  In the considered opinion of the authors, given the glaring errors of law and non-consideration of certain issues and/ or DTAAs, it would only be proper to seek a review of the judgment or re-consideration thereof by a Larger Bench.

Footnotes:

[1]               Assessing Officer Circle (International Taxation) 2(2)(2), New Delhi vs. M/s Nestle SA, Civil Appeal No. 1420/2023, decision dated 19.10.2023 (Supreme Court).

[2]               Notification No. 28/2012 dated 25.07.2012.

[3]               Notification No. 44/2014 dated 23.09.2014.

[4]               Notification No. GSR 344(E) dated 31.05.2005.

[5]               Issue arising in the judgment in Steria (India) Ltd. vs. CIT, [2016] 386 ITR 390 (Delhi High Court), overruled in M/s Nestle SA (Supra).

[6]               Issue arising in the judgment in Concentrix Services Netherlands B.V. vs. ITO, [2021] 434 ITR 516 (Delhi High Court), overruled in M/s Nestle SA (Supra).

[7]               Union of India and Others vs. Azadi Bachao Andolan and Others, [2003] 263 ITR 706 (Supreme Court).

[8]               State of West Bengal vs. Jugal Kishore More and Another, [1969] 1 SCC 440 (Supreme Court); State of Gujarat vs. Vora Fiddali Badruddin Mithibarwala, [1964] 6 SCR 461 (Supreme Court); V.O. Tractoroexport vs. Tarapore & Co., [1969] 3 SCC 562 (Supreme Court); Maganbhai Ishwarbhai Patel vs. UOI and Another, [1970] 3 SCC 400 (Supreme Court); and Gramophone Company of India Ltd. vs. Birendra Bahadur Pandey and Others, [1984] 2 SCC 534 (Supreme Court).

[9]               Notification No. S.O. 693(E) dated 30.08.1999 to give effect to Clause IV(2) to the Protocol to the India – Netherlands DTAA.

[10]             Notification No. S.O. 650(E) dated 10.07.2000 to give effect to Clause 7 to the Protocol to the India – France DTAA.

[11]             Notification No. GSR(E) dated 24.06.1992 vide Circular No. 638 dated 28.10,1992 to give effect to the Protocol of 1986 to the India – Canada DTAA.

[12]             Notification No. GSR 74(E) dated 07.02.2001 and Notification No. S.O. 2903(E) dated 27.12.2011.

[13]             It was duly observed that though India is not a signatory to the VLCT, principles enshrined in the VLCT have been accepted as reflecting customary international law on general rules of interpretation of International Treaties or Conventions.

[14]             Signed on 11.09.1998, after signing of the India – France DTAA on 26.03.1969.

[15]             Signed on 25.01.1993, after signing of the India – France DTAA on 26.03.1969.

[16]             Refer Paras 26 to 29 of the judgment in Azadi Bachao Andolan (Supra).

[17]             The judgment in Azadi Bachao Andolan (Supra) should be construed as an authority for what it decides, nothing further.  Reliance in this regard is placed on the judgments in State of Orissa and Others vs. MD. Illiyas, [2006] 1 SCC 275 (Supreme Court) and Ambica Quarry Works vs. State of Gujarat and Others, [1987] 1 SCC 213 (Supreme Court).

[18]             Preamble to Protocols to DTAAs.

[19]             As it stood prior to its substitution vide Notification No. SO 2903(E) dated 27.12.2011.

[20]             Omitted vide Notification No. SO 1589(E) [NO.20/2018 (F.NO.501/06/94-FTD-II)], dated 12.04.2018.

[21]             In the opinion of the authors, Notifications are delegated Legislations by way of which, DTAAs entered into by the Executive are integrated into India’s domestic legal system.  If this interpretation is not preferred, then, there will be no distinction between a notified DTAA and a DTAA that has not been notified.  The language of the Notifications, viz., “may, by notification in the official gazette, make such provisions as may be necessary for implementing the agreement”, gives credence to the position afore-stated.  One wonders if this is not integration of DTAAs into India’s domestic system, then what is?

[22]             Protocols specifically use the phrase “which shall form an integral part of the Convention”.

[23]             Like the exception created in terms of section 90(2A) of the ITA, in respect of Chapter X-A of the ITA.

[24]             Decree of 28.02.2012, No. IFZ 2012/54M, Tax Treaties, India, issued by the Directorate-General for Tax Affairs, International Tax Affairs, Kingdom of Netherlands.

[25]             Publication dated 13.08.2021 issued by the Federal Department of Finance, the Swiss Confederation.

[26]             French official bulletin of Public – Finances Taxes dated 04.11.2016 issued by the General Directorate of Public Finances.

[27]             The Preamble to the India – France DTAA reads, “At the time of proceeding to signature of the Convention between India and France for the avoidance of double taxation with respect to taxes on income and on capital, the undersigned have agreed on the following provisions which shall form an integral part of the Convention…”

[28]             Notification No. S.O. 650(E) dated 10.07.2000, which has been relied upon by the Supreme Court to infer requirement of issuance of Notification.

[29]             The same logic and reasoning also applies to Notification No. SO 54(E) dated 19.01.2001 issued under the India – Belgium DTAA.

[30]             Clause IV(2) to the Protocol to the India – Netherlands DTAA, which as per the Supreme Court is similar in the India – France and the India – Swiss DTAA.

[31]             Jagir Kaur vs. Jaswant Singh, [1964] 2 SCR 73 (Supreme Court); P. Anand Gajapati Raju vs. P.V.G Raju, [2000] 4 SCC 539 (Supreme Court) and Vijay Kumar Prasad vs. State of Bihar, [2004] 4 SCC 196 (Supreme Court).

[32]             Kuldip Nayar vs. Union of India, [2006] 7 SCC 1 (Supreme Court), Prakash Nath Khanna vs. CIT, [2004] 9 SCC 686 (Supreme Court) and Pandian Chemicals Ltd. vs. CIT, [2003] 5 SCC 590 (Supreme Court).

[33]             Supra Note 7.

[34]             OECD (2004), “Most-Favoured-Nation Treatment in International Investment Law”, OECD Working Papers on International Investment, 2004/02, OECD Publishing.

[35]             It would be pertinent to point out that the United States Trade Representative imposed sanctions on India, when India unilaterally imposed 2% tax on gross revenue received by Non-Resident technology companies for any service rendered to Indian Residents digitally, other than digital advertising services, on which 6% tax was already applicable.  Subsequently, however, an arrangement was agreement upon.  Executive Office of the President, the Office of the United States Trade Representative; “United States and India Sign Framework for Cooperation on Trade and Investment”; Available at: https://ustr.gov/about-us/policy-offices/press-office/blog/2010/march/united-states-and-india-sign-framework-cooperation-trade-and-i; Accessed on: 01.11.2023.