LI Network
Published on: October 21, 2023 at 16:10 IST
The Supreme Court has reaffirmed the mandatory requirement of a notification under Section 90(1) of the Income Tax Act, 1961 for the enforcement of a Double Tax Avoidance Agreement (DTAA) or any protocol that alters its terms.
This significant decision came in response to a batch of appeals arising from the interpretation of the Most Favored Nation (MFN) clause in various Indian treaties with countries that were members of the Organization for Economic Cooperation and Development (OECD).
The issues arose were whether the MFN clause could be invoked when a third country, with which India had entered into a DTAA, was not an OECD member at the time, and whether the MFN clause should take effect automatically or only after a notification was issued.
A two-Judge Bench comprising Justice S. Ravindra Bhat and Justice Dipankar Datta emphasized that the automatic extension of benefits based on another country’s entry into the OECD is “unfeasible.” They stated that, in such cases, the terms of the earlier DTAA must be amended through a separate notification under Section 90.
The Supreme Court underlined that the treaty-making power is vested exclusively with the Union, as per Article 253 of the Constitution, and relevant entries in the Union List (List I, Seventh Schedule).
The Bench recognized that treaty interpretation and integration into domestic law depend on constitutional and political factors specific to each signatory, and domestic courts cannot interpret treaties in a rigid, black-and-white manner.
In conclusion, the Supreme Court clarified that a notification under Section 90(1) of the Income Tax Act is a necessary and mandatory requirement for any court, authority, or tribunal to enforce a DTAA or any protocol that impacts its terms or conditions, particularly when these changes affect existing provisions of the law.
The Court’s ruling provides clarity on the interpretation and enforcement of DTAA agreements and their integration into Indian tax law. It reinforces the importance of a legal notification for enforcing such agreements in the country.
The case titled “Assessing Officer Circle (International Taxation) v. M/s Nestle SA” marks a significant development in tax law and international agreements in India.
[Neutral Citation: 2023 INSC 928]