# CASE DETAILS ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) NEW DELHI v. M/S NESTLE SA

- **Citation:** 2023 INSC 928
- **Court:** Supreme Court of India
- **Decided:** 2023-10-19
- **Case number:** Civil Appeal No. 1420 of 2023
- **Bench:** S. Ravindra Bhat, Dipankar Datta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/case-details-assessing-officer-circle-international-taxation-2-2-2-new-delhi-v-37137
- **Pages:** 70

## 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 eff ect to automatically or if it is to only come into eff ect after
a notifi cation is issued.
Income Tax Act, 1961- s.90- Agreement with foreign countries
or specifi ed territories - Double Tax Avoidance Agreement (DTAA)-
Notifi cation u/s.90, if mandatory to give eff ect 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
defi ni-tion of 'fees for technical services' appearing in the India-UK
DTAA, must be read as forming part of the India-France 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:
1139
SUPREME COURT REPORTS
[2023] 16 S.C.R.
1140
Held: A notifi cation u/s.90(1) is necessary and a mandatory condition
for a court, authority, or tribunal to give eff ect to a DTAA, or any protocol
changing its terms or conditions, which has the eff ect 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 benefi t in regard to a matter covered in the DTAA of the fi rst
nation, which entered into DTAA with India - In such event, the terms of the
earlier DTAA require to be amended through a separate notifi cation u/s.90
- Further, the interpretation of the expression "is" has present signifi cation
and it derives meaning from the context - Therefore, for a party to claim
benefi t 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 ratifi ed 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 eff ect 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 aff ects the
rights of citizens or others or modifi es the

## Text

_Characters 0–39,884 of 158,152. This is a partial read: ask again with offset=39884 for what follows._

[2023] 16 S.C.R. 1139 : 2023 INSC 928
CASE DETAILS
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION)
2(2)(2) NEW DELHI
v.
M/S NESTLE SA
(Civil Appeal No(S). 1420 of 2023)
OCTOBER 19, 2023
[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]
HEADNOTES
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 eff ect to automatically or if it is to only come into eff ect after
a notifi cation is issued.
Income Tax Act, 1961- s.90- Agreement with foreign countries
or specifi ed territories - Double Tax Avoidance Agreement (DTAA)-
Notifi cation u/s.90, if mandatory to give eff ect 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
defi ni-tion of 'fees for technical services' appearing in the India-UK
DTAA, must be read as forming part of the India-France 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:
1139
SUPREME COURT REPORTS
[2023] 16 S.C.R.
1140
Held: A notifi cation u/s.90(1) is necessary and a mandatory condition
for a court, authority, or tribunal to give eff ect to a DTAA, or any protocol
changing its terms or conditions, which has the eff ect 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 benefi t in regard to a matter covered in the DTAA of the fi rst
nation, which entered into DTAA with India - In such event, the terms of the
earlier DTAA require to be amended through a separate notifi cation u/s.90
- Further, the interpretation of the expression "is" has present signifi cation
and it derives meaning from the context - Therefore, for a party to claim
benefi t 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 ratifi ed 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 eff ect 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 aff ects the
rights of citizens or others or modifi es the law of India - If citizens' rights
or others' rights are not unaff ected, or the laws of India are not modifi ed, no
legislative measure is necessary to give eff ect to treaties - In the event of
1141
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.
LIST OF CITATIONS AND OTHER REFERENCES
Gramaphone Co. of India Ltd v. Birendra Bahadur Pandey & Ors.
[1984] 2 SCR 664; Union of India (UOI) & Ors. v. Azadi Bachao Andolan
& Ors. [2003] Supp 4 SCR 222; Ram Jethmalani v. Union of India [2011]
339 ITR 107 (SC); Union of India of India v. Agricas LLP [2020] 14 SCR
372; Engineering Analysis Centre of Excellence P. Ltd. v. CIT (2021) 432
ITR 471(SC); State of W.B. v. Jugal Kishore More [1969] 1 SCR 320; State
of Gujarat v. Vora Fiddali Badruddin Mithibarwala [1964] 6 SCR 461; V.O.
Tractoroexport v. Tarapore & Co. [1970] 3 SCR 53 : (1969) 3 SCC 562;
Union of India (UOI) & Ors. v Azadi Bachao Andolan & Ors. [2003] 4
(Supp) SCR 222; Jagir Kaur v. Jaswant Singh [1964] 2 SCR 73; P. Anand
Gajapati Raju v. P.V.G Raju [2000] 2 SCR 684 : (2000) 4 SCC 539; Vijay
Kumar Prasad v. State of Bihar (2004) 5 SCC 196 - referred to.
Steria (India) Ltd. v. Commissioner of Income-Tax [2016] 386 ITR
390 (Delhi): Judgment dated 22.04.2021 passed by the Delhi High Court
in WP (C) No. 9051/2020 and connected matters; Apollo Tyres Ltd. v.
Commissioner of Income Tax, International Taxation [2018] 92 Taxmann.
com 166 (Karnataka); EPCOS Electronic Components S.A. v. Union of
India; 2019 SCC OnLine Del 9113; Nestle SA v. Assessing Offi cer Circle
(International Taxation) W.P. (C) No. 3243 of 2021 decided on 04.06.2021;
Sanofi Pasteur Holding SA v. Department of Revenue [2013] ITR 354 (AP
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2)
NEW DELHI v. M/S NESTLE SA
SUPREME COURT REPORTS
[2023] 16 S.C.R.
1142
HC); SCA Hygiene Products AB v. DCIT ITA No. 7315/Mum/2018; ITAT
Delhi decision in Mitsubishi Electric India Pvt Ltd. v. Commissioner of
Income Tax ITA No. 3336/Del/2018; Director of Income Tax v. New Skies
Satellite BV (2016) 382 ITR 114; Maganbhai Ishwarbhai Patel & Ors. v.
Union of India & Ors. [1970] 3 SCR 53; Gramaphone Co. of India Ltd.
v. Birendra Bahadur Pandey & Ors.; Commissioner of Income Tax v.
Visakhapatnam Port Trust [1983]144ITR146(AP); Commissioner of Income
Tax v. Davy Ashmore India Ltd. [1991]190 ITR 626 (Cal); Leonhardt Andra
Und Partner, Gmbh v. Commissioner of Income Tax [2001] 249 ITR 418
(Cal); Commissioner of Income Tax v. R.M. Muthaiah [1993]202 ITR 508
(KAR); Arabian Express Line Ltd. of United Kingdom & Ors. v. Union of
India [1995] 212 ITR 31 (Guj) - referred to.
Attorney-General for Canada v. Attorney-General for Ontario & Ors.
[1937] A.C. 326; Anglo-Iranian Oil Co. Case (U.K. v. Iran) 1952 I.C.J. 93,
106-07; South West Africa Cases (Ethiopia v. S. Afr.; Liberia v. S. Afr.), 1966
I.C.J. 6, 134; Legal Consequences for States of the Continued Presence of
South Africa in Namibia, 1971 I.C.J. 16, 39; Case Concerning Rights of
Nationals of the United States of America in Morocco (Fr. v. U.S.), 1952
I.C.J. 176, 211; Asylum Case (Colombia. v. Peru), 1950 I.C.J. 266, 286;
Corfu Channel (U.K. v. Alb.), 1949 I.C.J. 4, 25; Case Concerning the Land,
Island and Maritime Frontier Dispute (El Salvador v Hondurus) ICJR (1992)
351 - Decision dated 12-09-1992, [General List No. 75]; Case Concerning
Kasikili/Sedudu Island- Botswana v Namibia [1999] ICJ Rep 1045; (General
List No. 98) - referred to.
Duncan Hollis: Executive Federalism : Forging New Federalist
Constraints on the Treaty Power" Legal Studies Research Paper Series;
Decision of 28 February 2012, No. IFZ 2012/54M, Tax treaties: India, issued
by the Director General, Fiscal Aff airs, Kingdom of Netherlands; The State
Secretariat for International Financial Matters SIF Section Bilateral tax
Issues and double taxation treaties, Swiss Federation, dated 13.08.2021;
Klaus Vogel on Double Taxation Conventions; ILC Draft Conclusions
on Subsequent Agreements and Subsequent Practice in relation to the
Interpretation of Treaties, available at; JL Brierly, The Law of Nations,
6th Ed. (Oxford University Press, 1963), 59; Irina Buga, 'Subsequent
Practice as a Means of Treaty Interpretation' in Modifi cation of Treaties
1143
by Subsequent Practice (Oxford University Press, 2018). See also Report
of the International Law Commission covering its 2nd session, UN Doc
A/1316 (1950) II YBILC 364, 368; M. Akehurst, ʻCustom as a Source of
International Lawʼ (1974-75) 47 BYBIL 1, 43; ME Villiger, Customary
International Law and Treaties: A Study of Their Interactions and
Interrelations, with Special Consideration of the 1969 Vienna Convention
on the Law of Treaties (Brill, 1985), para 19; SM Schwebel, ʻThe Infl uence
of Bilateral Investment Treaties on Customary International Lawʼ (2004) 98
ASIL Proc 27; JE Alvarez, ʻA BIT on Customʼ (2009) 42 NYU J Intl L & Pol
17; ILC, Third Report on the Law of Treaties, UN Doc A/CN.4/167, 59 para
24; See also ME Villiger, Commentary on the 1969 Vienna Convention on
the Law of Treaties (Brill, 2009), 431; Danae Azaria, The International Law
Commission's Return to the Law of Sources of International Law, 13 FIU L.
Rev. 989 (2019); See for eg., ILC, Reports on Subsequent Agreements and
Subsequent Practice in Relation to Treaty Interpretation, by Georg Nolte,
Special Rapporteur, UN Doc A/CN.4/660 (2013); UN Doc A/CN.4/671
(2014); UN Doc A/CN.4/683 (2015), UN Doc A/CN.4/694 (2016), UN
Doc A/CN.4/715 (2018); Steven Ratner, 'International Law Rules on Treaty
Interpretation' in The Law and Practice of the Northern Ireland Protocol,
edited by Christopher McCrudden, Cambridge: Cambridge University
Press (2022), pp. 80-91; James Crawford, 'A Consensualist Interpretation
of Article31(3) of the Vienna Convention on the Law of Treaties' in Georg
Nolte et al (eds.), Treaties and Subsequent Practice (Oxford University Press,
2013), pp. 29, 31; Bruno Simma, 'Miscellaneous thoughts on subsequent
agreements and practice' in: Georg Nolte (ed.) Treaties and Subsequent
Practice (Oxford University Press, 2013), pp 46-51; Anthony Aust, Modern
Treaty Law and Practice, (Cambridge University Press, 2013), at p. 194;
B. Cheng, 'Air Law', Max Planck Encyclopedia of Public International
Law (1989), Vol. 11, pp. 8-9; G. Fitzmaurice, 'The Law and Procedure of
the International Court of Justice: Treaty Interpretation and Certain Other
Treaty Points' (1951) 29 British Yearbook of International Law 8; Donald
Regan: Understanding What the Vienna Convention Says About Identifying
and Using 'Sources for Treaty Interpretation' Identifying and Using 'Sources
for Treaty Interpretation' University of Michigan (2017)<:> (accessed on
14.10.2023) - referred to.
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2)
NEW DELHI v. M/S NESTLE SA
SUPREME COURT REPORTS
[2023] 16 S.C.R.
1144
OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1420 of 2023.
From the Judgment and Order dated 04.06.2021 of the High Court of
Delhi at New Delhi in WPC No. 3243 of 2021.
With
C.A. Nos.1423, 1421-1422, 1424 of 2023, C.A. No.1425 of 2018, C.A.
Nos. 1426, 1427, 1428, 1429, 1430, 1431 and 1432 of 2023.
Appearances:
N Venkatraman, A.S.G., Arijit Prasad, Sr. Adv., V Chadrashekara
Bharathi, Rupesh Kumar, Durga Dutt, Santosh Kumar, Annirudh Sharma
Ii, T A Khan, Ms. Amritha Chandramouli, Rahul Vijaykumar, Ms. Shruthi
Sivakumar, Raj Bahadur Yadav, Advs. for the Appellant.
Porus Kaka, Percy Pardiwalla, S. Ganesh, P. Chidambaram, Sr. Advs.,
Divesh Chawla, Prakash Kumar, Rahul Gupta, Prashant Meharchandani,
Arun Bhadauria, Rahul Jain, Kamal Sawhney, Nikhil Agarwal, Nishank
Vashishta, Rahul Jain, Ayush Negi, Arijit Chakravarty, S. Sukumaran,
Anand Sukumar, Bhupesh Kumar Pathak, Divyanshu Agrawal, Vaibhav
Niti, Ms. Pooja Mittal, Ms. Madhavi Agrawal, Mukesh Butani, Tarun Jain,
Vansh Vermani, Ms. Shreya Wadhera, Ms. Shinjani Agnihotri, Siddharth
Agrawal, Shankey Agrawal, Ms. Meera Mathur, Advs. for the Respondent.
JUDGMENT / ORDER OF THE SUPREME COURT
JUDGMENT
S. RAVINDRA BHAT, J.
Table of Contents*
I.
Facts .........................................................................................2
II.
Arguments of parties ...............................................................6
A. Revenue's contentions ........................................................6
*Ed. Note: Pagination as per the original Judgment.
1145
B. Contentions of the assessees/Respondents .....................12
III. Relevant statutory provisions ................................................20
IV. Analysis ..................................................................................21
A. General ..............................................................................21
B. The interpretation of the term "is" .................................30
C. Treaty practice of India, in relation to DTAAs and their
Protocol, and practices of Netherlands, France and

Switzerland .......................................................................32
D. International perspectives and practices .......................47
E. Vienna Convention on Law of Treaties ..........................49
V.
Conclusions ......................................................................................57
1. The present batch of appeals arise from decisions of the Delhi High
Court involving interpretation of the Most Favoured Nation (MFN) clause
contained in various Indian treaties with countries that are members of
the Organisation for Economic Cooperation and Development (hereafter
'OECD'). This clause provides for lowering of rate of taxation at source on
dividends, interest, royalties or fees for technical services (hereafter 'FTS')
as the case may be, or restriction of scope of royalty/FTS in the treaty,
similar to concession given to another OECD country subsequently. The
bilateral treaties in question are between India and Netherlands, France, and
Switzerland, respectively. Broadly, the issues arising are whether there is
any right to invoke the MFN clause when the third country with which India
has entered into a Double Tax Avoidance Agreement (hereafter 'DTAA')
was not an OECD member yet (at the time of entering into such DTAA);
and secondly whether the MFN clause is to be given eff ect to automatically
or if it is to only come into eff ect after a notifi cation is issued.
I. Facts
2. One of the fi rst judgments1 challenged, in this batch of appeals
by special leave, relates to Steria India. Before the Authority for Advance
Ruling ("AAR"), Steria contended that having regard to Clause 7 of the
1
By judgment dated 28.07.2016 passed by the Delhi High Court in W.P.(C) 4793/2014.
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2)
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]
SUPREME COURT REPORTS
[2023] 16 S.C.R.
1146
Protocol to the India-France DTAA the more restrictive defi nition of the
expression 'fees for technical services' appearing in the India-UK DTAA,
must be read as forming part of the India-France DTAA as well. The AAR,
by the impugned order, disagreed with Steria. It ruled that the Protocol
could not be treated as forming part of the DTAA itself. It further held
that restrictions imposed by the Protocol were only to limit the taxation
at source for the specifi c items mentioned therein; the restriction was only
on the rates. Further, the 'make available' clause found in the India-UK
DTAA could not be read into the expression 'fee for technical services'
occurring in the India-France DTAA unless there was a notifi cation under
Section 90 of the Income Tax Act, 1961 issued by the Union Government
to incorporate the more restrictive provisions of the India-UK DTAA into
the India-France DTAA. In other words, Steria's plea that Clause 7 of the
Protocol did not require any separate notifi cation and could straightway
be operationalised, was not accepted by the AAR. Upon challenge in a
writ petition before the High Court, this was reversed; the court accepted
Steria's contention, and held that a Protocol is considered as part of the
treaty itself and does not have to be separately notifi ed for the purposes
of application of the MFN clause. Therefore, in Steria, the question for
the interpretation of the MFN clause in the Protocol to the India-France
DTAA, was whether a separate notifi cation by the Union was required for
application of the MFN clause. The AAR had concluded that even though
the conditions set out in the MFN clause were satisfi ed, the benefi t could
not be availed unless there was a specifi c notifi cation by the Government
of India eff ectuating the benefi t under the MFN clause, which the High
Court reversed.
3. The next set of facts, relate to the India-Netherlands DTAA which
was entered into on 21.01.1989, and notifi ed on 27.03.1989. This DTAA
was amended by a subsequent notifi cation dated 30.08.1999. The respondent
assessees (writ petitioners before the High Court2) were Concentrix Services
Netherlands BV, and Optum Global Solutions International BV, and their
Indian counterparts (in which the former held 99.99% share respectively)
which remitted dividends. In 2020, Concentrix India and Optum India
2
Judgment dated 22.04.2021 passed by the Delhi High Court in W.P. (C) No.9051/2020
and connected matters.
1147
each applied under Section 197 of the Act in the prescribed form, seeking a
certifi cate that authorized them to deduct withholding tax at a lower rate of
5% in consonance with the subject DTAA read with the Protocol. In both
cases, certifi cates were issued on 16.09.2020 and 04.01.2021 respectively
by which the stipulated withholding tax rate was shown as 10%. In both
cases, the certifi cates were valid till 30.03.2021. The validity period of the
certifi cates came to an end on 31.03.2021 in both cases. By communication
dated 17.09.2020, Concentrix, through its accountants, sought permission
of respondents to inspect the fi les as well as copies of order sheet(s) which
concerned processing of its application preferred under Section 197 of the
Act. It also sought reasons why the certifi cate did not grant the withholding
rate at 5%. The respondent sought to justify its certifi cate on 01.10.2020,
and applied seeking reasons from the appellant (hereafter "the revenue").
A similar request was made by Optum Netherlands; the revenue furnished
reasons to justify the withholding tax rate which was pegged at 10% by
its communication dated 22.01.2021. Feeling aggrieved, both Concentrix
Ne and Optum Ne approached the Delhi High Court, in proceedings under
Article 226 of the Constitution.
4. In both cases, 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 5%. It was urged that since India had
entered into DTAAs with other countries which were members of OECD,
the lower rate or the restricted scope in the DTAA executed between India
and such a country automatically applied to the India-Netherlands DTAA.
This was based on the provision made in the preface of the Protocol
which inter alia stated that the Protocol "shall form part an integral part
of the Convention" i.e., the subject DTAA. It was argued that application
of provisions of the DTAA (which followed subsequent to the IndiaNetherlands DTAA), contrary to the revenue's stand, no fresh notifi cation
was required. In support, reliance was placed upon the rulings in Court in
Steria (India) Ltd. v. Commissioner of Income-Tax3, the judgment of the
Karnataka High Court in Apollo Tyres Ltd. v. Commissioner of Income Tax,
3
[2016] 386 ITR 390 (Delhi)
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2)
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]
SUPREME COURT REPORTS
[2023] 16 S.C.R.
1148
International Taxation,4 and of another judgment of the Delhi High Court
in EPCOS Electronic Components S.A. v. Union of India5.
5. By the impugned judgment, the Delhi High Court, allowed the writ
petitions, inter alia, reasoning that:
"15. A bare perusal of Clause IV (2) shows that it incorporates the
principle of parity between the subject DTAA and the Conventions/
DTAAs executed thereafter qua the rate of withholding tax or the scope
of the Conventions in respect of items of income concerning dividends,
interest, royalties, fees for technical services, or payments for use of
equipment [in short "subject remittances"].
16. However, the principle of parity kicks-in, only if the following
conditions are fulfi lled:
i. First, the third State with whom India enters into a Convention/
DTAA should be a member of the OECD.
ii. Second, India should have, in its Convention/DTAA, executed
with the third State, limited its rate of withholding tax, on subject
remittances, at a rate lower or a scope more restricted, than the rate
or scope provided in the subject Convention/DTAA.
17. Once the aforementioned conditions are fulfi lled, then, from the
date on which the Convention/DTAA between India and a third State
comes into force, the same rate of withholding tax or scope as provided
in the Convention/DTAA executed between India and the third State
would necessarily have to apply to the subject DTAA.
17.1. Therefore, the argument advanced on behalf of the revenue,
that the benefi cial provisions contained in the Conventions/DTAAs,
executed both prior to or after the coming into force of the subject
DTAA, i.e., 21.01.1989, could not be made applicable to the recipients
of remittances covered under the subject DTAA even though the
concerned third State was a member of the OECD is, to our minds,
4
[2018] 92 Taxmann.com 166 (Karnataka)
5
2019 SCC OnLine Del 9113
1149
completely misconceived and contrary to the plain terms of Clause IV
(2) of the protocol appended to the subject DTAA.
17.2. Although it must be said in favour of the revenue, the construct
of Clause IV (2) is such that in certain cases there could be a hiatus
between the dates on which the Convention/DTAA is executed between
India and the third State and the date when such third State becomes
a member of OECD. The limit on the lower rate of tax or the scope
more restricted contained in the Convention/DTAA executed between
India and the third State can only apply when the third State fulfi ls the
attribute of being a member of the OECD.
17.3. We must point out that a lot of emphases is laid on behalf of the
revenue on the word "is" mentioned in the following part of Clause
IV (2) in the context of the aforementioned third States with which
India has entered into Conventions/DTAAs after the execution of the
subject DTAA "... which is a member of the OECD...".
17.4. In our view, the word "is" describes a state of aff airs that should
exist not necessarily at the time when the subject DTAA was executed
but when a request is made by the taxpayer or deductee for issuance of
a lower rate withholding tax certifi cate under Section 197 of the Act.
The word 'is'- is both autological and heterological. An autological
word is one that expresses the property that it possesses. Opposite
of that is a heterological2 word, i.e., it does not describe itself. The
examples of autological words are expressions such as "English",
"Noun", or "Word". Heterological words as indicated above are those
which do not describe themselves or have the potential of developing
into several forms or supporting multiple interpretations. An example
of a heterological word is the word "long". The word long does not
describe itself because it is not a long word.
17.5. Therefore, bearing the aforesaid in mind, the best interpretative
tool that can be employed to glean the intent of the Contracting States
in framing Clause IV (2) of the protocol would be as to how the other
contracting State [i.e., the Netherlands] has interpreted the provision."
The judgment then considered the executive decree issued by
Netherlands, pursuant to the Protocol, as a method of interpretation of how
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2)
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]
SUPREME COURT REPORTS
[2023] 16 S.C.R.
1150
the event, i.e. entry of another country into OECD, which had a previous
DTAA with India (or where a country which was in OECD and subsequently
entered into DTAA with India) had to be dealt with.
6. The judgment in Concentrix was followed subsequently, in the case
of Nestle SA v. Assessing Offi cer Circle (International Taxation)6 which is
also under challenge. In the revenue's appeals7 in Nestle what was considered
by the Delhi High Court, were provisions of the India-Switzerland DTAA
and its three protocols. The other judgments impugned before this court
have similar facts, and the decisions by the High Court have followed the
position laid out in Steria and Concentrix.
II. Arguments of parties
A. Revenue's contentions
7. The revenue argues, through the Additional Solicitor General,
Shri N. Venkatraman (hereafter "ASG") that the impugned judgments are
unsustainable. The revenue points out that under the Indian Constitution,
especially by operation of Articles 253 (read with Entries 13, 14 and 15
of List I of the Seventh Schedule) of the Constitution of India, Parliament
has exclusive power to legislate in respect of any treaty or convention,
entered into by India, with any other nation; such treaty can only be
entered into in exercise of executive power of the Union. It was urged
that without Parliamentary legislation, such treaties are unenforceable,
having regard to the express terms of Article 2538 which clothe Parliament
alone with the power to make laws "notwithstanding" other provisions in
that chapter- which delineates and distributes legislative power between
the Union and States. Counsel submitted that India follows the "dualist"
practise, which means that international treaties and conventions are not,
upon their ratifi cation, automatically assimilated into municipal law (i.e.
the national legal system) but would require enabling legislation. This
6
 W.P. (C) No. 3243 of 2021 decided on 04.06.2021
7
Petition for Special Leave to Appeal (C) No. 5360/2022
8
 Article 253 "Legislation for giving eff ect to international agreements Notwithstanding
anything in the foregoing provisions of this Chapter, Parliament has power to make
any law for the whole or any part of the territory of India for implementing any treaty,
agreement or convention with any other country or countries or any decision made at
any international conference, association or other body. "
1151
is in contrast to those countries which are "monist", wherein the treaty
provisions are enforceable like municipal law, and are to be given equal
weight by courts.
8. The ASG relied upon the decisions in Gramaphone Co. of India
Ltd v. Birendra Bahadur Pandey & Ors.9 and Union of India (UOI) &
Ors. v. Azadi Bachao Andolan & Ors.10 to urge that the position in India
is entrenched that without enabling legislation, any convention or event
fl owing from a convention, as in creation of rights and liabilities of third
parties to conventions or treaties, do not operate on their own, and needs
an intervening action by the Union, giving eff ect to such obligation.
9. The ASG relied on Section 90 which requires the issuance of a
notifi cation, to give eff ect to any treaty or convention. It is argued that
in the absence of any law, mere entering into a treaty or convention or
protocol cannot give rise to any right under the taxation laws having regard
to the structure of Section 90. Therefore, in the present case, the trigger to
the MFN clause can occur at a later point in time when India enters into
a treaty or convention with other nations which happens to be a member
of the OECD at the time it enters into treaty or convention with India and
if the DTAA with such country provides for taxation at rate lower than or
benefi t over and above conferred upon the parties of the existing DTAA
between India and the other nation. However, it would still require issuance
of a notifi cation to give eff ect to such consequence. The incident involved
in the present case - i.e., the mere fact that India entered into DTAAs with
Slovenia, Lithuania, and Columbia at certain points in time and that some
of them gained membership of OECD, ipso facto could not lead to claims
by the respondents assessees that similar or identical treatment had to be
extended to them as tax residents of Netherlands, France, and Switzerland
respectively.
10. The learned ASG pointed out to the treaty practice between India
and each of the three countries (France, Netherlands and Switzerland). He
also referred to the fact that after Slovenia had entered OECD (in 2010)
a Protocol has been signed between India and France. This Protocol was
9
1984 [2] SCR 664
10 2003 (Supp 4) SCR 222
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2)
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]
SUPREME COURT REPORTS
[2023] 16 S.C.R.
1152
notifi ed sometime in 2012. This, it was argued, is a clear pointer to the fact
that entering into membership of OECD per se does not result in automatic
grants of benefi ts to a country which had entered into DTAA with India
because the later Protocol with France and the consequent notifi cation
omitted to extend any benefi t on the basis that Slovenia had entered OECD
membership in 2010.
11. The learned ASG likewise pointed out that the Protocol executed
between India and Netherlands was notifi ed on 30.08.1999. The plain reading
of that notifi cation shows that the Protocol itself was triggered by the benefi t
granted to the United States - with which India entered into a DTAA in 1990;
Germany with which India entered into a DTAA in 1996; Sweden with which
India entered into a DTAA in 1997 and the U.K. with which India entered
into a DTAA in 1993. The notifi cation issued on 30.08.1999 (notifying the
Protocol between India and Netherlands), conferred benefi ts based upon
the concessions given to diff erent countries, with eff ect from diff erent dates
depending on the nature of the benefi ts, rate of tax withholding, defi nition
etc.; this too, it is argued, showed that the triggering event itself (here, mere
entering into DTAA with a country which was or became a member of the
OECD) did not result in grant of any benefi t or advantage to Netherlands.
It was after bilateral negotiations that the Protocol was entered into, and
yet later a notifi cation under Section 90 was issued, bringing it into eff ect.
12. These practices were in consonance with the mandate and
requirements of Section 90. The learned ASG also submitted that without
the benefi t of any notifi cation, any tax administrator, an Assessing Offi cer
or revenue authority would fi nd it hard to verify the claim of any assessee.
The learned ASG argued that the impugned order is erroneous in as much
as it relied upon executive orders and decrees issued by the Swiss, Dutch
and French authorities; such executive decrees or orders could not possibly
bind Indian Revenue Authorities and had in fact been issued unilaterally.
They were bound to be implemented by the concerned revenue authorities in
Netherlands, Switzerland and France, which in fact was done. The judgment
in Concentrix relied heavily upon such orders or decrees, and to the extent
is unsustainable.
13. The learned ASG also highlighted that if the impugned judgment
is left undisturbed the interpretation by it as well as the judgments which
1153
followed it, would preclude enquiry into whether any DTAA or international
instrument was in fact assimilated in municipal law under Section 90 or
any like provision.
14. Learned counsel highlighted that in the case of Nestle in fact,
a plain and straightforward review of the fi rst and second protocols (of
the India- Switzerland DTAA) demonstrates that without notifi cation in
accordance with Indian law, they could not have applied which was in
fact, the occasion for the notifi cations dated 07.02.2001 and 27.02.2001
respectively. Counsel particularly highlighted the concerned provision,
i.e. Section 90 (1) of the Act.
15. The learned ASG cited Ram Jethmalani v. Union of India11,
referring to the General Rule on Interpretation of Vienna Convention on
Law of Treaties, 1961 (hereafter "VCLT"), stated that though India is not a
party to the VCLT, the convention contains many principles of customary
international law and the principle of interpretation in Article 31 provides a
broad guideline as to what should be an appropriate manner of interpreting
a treaty in the Indian context as well. This court also observed that the
broad principle of interpretation, with respect to treaties, and provisions
therein, would be that ordinary meaning of words be given eff ect to, unless
the context requires otherwise. That such treaties are drafted by diplomats,
and not lawyers, also implies that care has to be taken to not render any
word, phrase, or sentence redundant, especially where rendering of such
word, phrase, or sentence redundant would lead to a manifestly absurd
situation, particularly from a constitutional perspective. This principle of
interpretation was applied by the Andhra Pradesh High Court in the case
of Sanofi Pasteur Holding SA v. Department of Revenue12.
16. It was argued thus, that a treaty should be interpreted ordinarily,
and the ordinary meaning of the words be given eff ect to apart from
ensuring that the interpretation should not render any word, phrase, or
sentence redundant. The grammatical and literal meaning of the IndiaNetherlands MFN clause reveals that the benefi t of reduced rate mentioned
therein would be available only in case of such subsequent Indian treaties
11 [2011] 339 ITR 107 (SC)
12 [2013] ITR 354 (AP HC)
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2)
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]
SUPREME COURT REPORTS
[2023] 16 S.C.R.
1154
wherein the other State is an OECD member as on the date of the treaty
entering into force. Any other interpretation would render the words "then
as from the date on which the relevant Indian Convention or Agreement
enters into force" redundant or otiose, which is not permissible as per
the above cited decisions of this court.
17. Responding to the linguistic interpretation of "is" by the
impugned judgments, it is urged that the assessees had cited Article 10 and
other Articles of the DTAAs to advance a view that "is" signifi es the time
when the provisions of treaty are to be applied. They have also relied on
dynamic interpretation of Article 3(2) which allows taking into account
the defi nition in domestic law when a particular term is not defi ned in the
DTAA. The ASG urges that such arguments ignore the discussion which
clearly states that the word "is" can have present, past, or future meaning
depending on the context in which it is used. In fact, Article 3(2) of the
DTAAs also gives prominence to the context, as it clearly talks about
meaning of a treaty term in accordance with domestic tax law at the time
of applying the tax treaty unless the context otherwise requires. Counsel
contends that the MFN clause clearly demonstrates that the other country is
required to be an OECD member as on the date of the signing of the treaty
and not on any future date. Thus, when Slovenia, Lithuania, or Columbia
entered into respective DTAAs with India, they had to have been members
of OECD at that time, for Netherlands, France, and Switzerland to claim
parity of treatment.
18. It was lastly argued that the notifications, which amended
existing DTAAs in respect of the three countries, reveal two aspects: one,
that they were issued because of benefi ts granted to countries, other than
Netherlands, France and Switzerland; two, that such subsequent notifi cations
were triggered by the lowering of rate, or treatment of certain kinds of
income (dividends, interest and royalties and fee for technical services)
and their defi nitions. These notifi cations were preceded by negotiations,
communications and letters, exchanged between India and the other country.
In many cases, the amending notifi cation granted one benefi t, while denying
other benefi ts (granted to other, third countries, whose DTAAs conferred
such benefi ts after Netherlands or France or Switzerland's DTAAs were
entered into). This clearly showed that such notifi cations were necessary,
1155
and that there could not be any automatic applicability of such benefi ts given
to other OECD members.
B. Contentions of the assessees/Respondents
19. Mr. Poros Kaka, Mr. P. Chidambaram, Mr. S. Ganesh and Mr.
Percy Pardiwala, learned senior counsel; Mr. Lovkesh Sawhney, and Mr.
Mukesh Bhutani, learned counsel, appeared for the respondent assessees.
It was submitted that when the DTAA and the Protocols - including the
MFN clause contained in the concerned Article of the Protocol was already
notifi ed under section 90(1) and it has come into force, there is further
no legal requirement to notify any subsequent amendment to the DTAA
which becomes operative automatically as a consequence of the trigger
of the MFN clause to the DTAA. Counsel urged that Section 90 only
requires notifi cation of a treaty or protocol, and does not mandate each
clause of such agreement to be further notifi ed separately. A plain reading
of Section 90 of the Act demonstrates that it does not require each article
or paragraph thereof of an already notifi ed agreement to be further notifi ed
separately if the amendment is as a consequence of a self-operative MFN
clause. Undoubtedly if the amendment is as a consequence of a bilateral
negotiation, then, a separate notifi cation is required. To ascertain if any
such requirement exists or otherwise, one will have to refer to the
respective clauses itself. It is urged that the subject MFN clause in the
Protocol to India-Netherlands DTAA has no such requirement.
20. The contrast between India's DTAAs with Netherlands and
Switzerland, is that the relevant MFN clause in the India-Switzerland DTAA
originally required initiation of negotiation, to apply the benefi cial provision
agreed with other OECD member. This was repealed by notifi cation No.
SO 2903(E), dated 27-12-2011 and both India-Switzerland agreed on the
present MFN clause which does not require negotiation to give the benefi t
of reduced rate of tax, and it was argued applies automatically just like the
India-Netherlands MFN. Counsel also highlighted that the MFN Clause
in the Protocol to the India-Finland DTAA also clearly requires India to
immediately inform the Finland authorities and notify such benefi cial
provision whenever the MFN clause gets triggered. Counsel also referred
the MFN clause in the Protocol to the India-Philippines DTAA, to say that
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2)
NEW DELHI v. M/S NESTLE SA [S.