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TMI Blog2023 (10) TMI 981X X X X Extracts X X X X X X X X Extracts X X X X ..... . Bhupesh Kr. Pathak, Adv. Mrs. Ruche Anand, Adv. Mrs. Meera Mathur, AOR Ms. Meera Mathur, AOR Mr. Ayush Negi, AOR Mr. Rahul Gupta, AOR Mr. S Ganesh, Sr. Adv. Mr. Anand Sukumar, AOR Mr. S Sukumaran, Adv. Mr. Bhupesh Kr. Pathak, Adv. Mrs. Ruche Anand, Adv. Mr. Shankey Agrawal, AOR Mr. Mukesh Butani, Adv. Mr. Tarun Jain, Adv. Mr. Vansh Vermani, Adv. Ms. Shinjani Agnihotri, Adv. Ms. Shreya Wadhera, Adv. JUDGMENT S. RAVINDRA BHAT, J. Table of Contents I. Facts..................................................................................2 II. Arguments of parties...........................................................6 A. Revenue's contentions...............................................................6 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read into the expression 'fee for technical services' occurring in the India-France DTAA unless there was a notification 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 notification 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 notified 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 notification 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 satisfied, the benefit could not be availed unless there was a specific notification by the Government of India effectuating the benefit under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 India-Netherlands DTAA), contrary to the revenue's stand, no fresh notification was required. In support, reliance was placed upon the rulings in Court in 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, the judgment of the Karnataka High Court in Apollo Tyres Ltd. v. Commissioner of Income Tax, International Taxation, [2018] 92 Taxmann.com 166 (Karnataka) and of another judgment of the Delhi High Court in EPCOS Electronic Components S.A. v. Union of India 2019 SCC OnLine Del 9113. 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 inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 certificate 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equire enabling legislation. This 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. 1984 [2] SCR 664 and Union of India (UOI) & Ors. v. Azadi Bachao Andolan & Ors. 2003 (Supp 4) SCR 222 to urge that the position in India is entrenched that without enabling legislation, any convention or event flowing 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 effect to such obligation. 9. The ASG relied on Section 90 which requires the issuance of a notification, to give effect 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt in grant of any benefit or advantage to Netherlands. It was after bilateral negotiations that the Protocol was entered into, and yet later a notification under Section 90 was issued, bringing it into effect. 12. These practices were in consonance with the mandate and requirements of Section 90. The learned ASG also submitted that without the benefit of any notification, any tax administrator, an Assessing Officer or revenue authority would find 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 followed it, would pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate 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" signifies 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 definition in domestic law when a particular term is not defined 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 beneficial provision agreed with other OECD member. This was repealed by notification 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 benefit 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 beneficial provision whenever the MFN clause gets triggered. Counsel also referred the MFN clause in the Protocol to the India- Philippines DTAA, to say that that too clearly requires the countries to inform each other and review the provisions with a view to extend the beneficia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... col to the India-Netherlands DTAA; which as the revenue did not challenge - had, attained finality. 24. The assessees refute the revenue's argument that treaties with other OECD countries did not have a triggering consequence of the MFN clauses with the three countries in the present case. On the revenue's reference to the unilateral notification dated 30.08.1999, where the restricted scope of FTS is only given by India w.e.f. 01.04.1997, whereas the limited scope of FTS was agreed in the India-USA DTAA which came into force from 18.12.1990 - it is urged that this notification is unilateral and not a bilateral amendment by both states. The assessees highlight, in this regard that the notification nowhere clarifies that both states had agreed to its contents. In contrast Notification No. GSR 382(E)/ Notification No.2/2013 dated 14.1.2013 which notified the Protocol to India-Netherlands dated 10.5.2012 bilaterally amending the DTAA and states "India and Netherlands... Desiring to conclude a Protocol (hereinafter referred to as "Amending Protocol") to amend the Convention....have agreed as follows" 25. It is submitted that every bilateral amendment to treaty always has a date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the revenue's arguments are unfounded because even in Netherlands, a notification is required for MFN benefits to extend to the India-Netherlands DTAA. These decrees of 1998, 1999 and 2012 have been issued by executive-decree states in order to avoid ambiguity. Issuing such decrees are not akin to notifications statutorily required to give effect to automatic amendments but just represents the understanding of the Dutch authorities. Under Netherlands law to give effect to a DTAA, parliamentary approval under Article 91 of the Netherlands Constitution is required. The process is that it has to be signed by the government, after which it has to be approved by both houses of Parliament and then, ratified. After such approval and ratification, nothing remains, and consequently, formal decrees follow. Similar arguments were advanced in respect of French orders and Swiss decrees and orders, which gave effect to the DTAAs and Protocols. It is highlighted that the entry of the three countries: Lithuania, Slovenia, and Colombia, into OECD were duly noted in subsequent orders and given effect to, wherever necessary. 30. Next, the assessees dealt with the argument that Lithuania, Columbia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding tax at 5% - which was challenged by the assessee in the relevant impugned decision, was that the benefit of the MFN clause cannot be given as Lithuania, Columbia, etc, were not OECD members at the time of signing of the India- Netherlands DTAA. OECD membership requirement for the third country at the time of signing of its own DTAA was not the reason given for rejection in the order impugned before the High Court. 33 Counsel submitted that the word "is" appearing in Article 10(1) of the India-Netherlands DTAA is in fact a complete answer to the revenue's objection that Slovenia/Lithuania/Columbia ought to be members of OECD both at the time of signing of the India-Netherlands DTAA or at the time of execution of their own DTAA, and also at the time claim for lowering withholding by the assessee is made. Hence, the revenue is alluding that "is a member of OECD" appearing in the MFN clause means membership of OECD is a continuous requirement. Thus, if the argument, of the revenue that the phrase "is a member of OECD" is literally interpreted, it would mean Slovenia, Lithuania, and Columbia ought to be members of the OECD at the time of signing of India- Netherlands DTAA, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DTAA. It was argued that the purpose of amending the relevant provisions of the DTAA, by the third Protocol was to automatically provide the same treatment to Switzerland; counsel relies on the expression that the lower rate given to the later OECD member by India "shall also apply between both Contracting States under this Agreement as from the date on which such Convention, Agreement or Protocol enters into force". Counsel contrasts this with similar provisions in the third Protocol. The latter require the contracting states to enter into negotiations. Nestle underlines that the first and second Protocol, were worded differently. Earlier, in respect of the same event, i.e. India's entering into an agreement with another contracting state, granting lower rate of tax, parties had to enter into negotiations ("shall enter into negotiations without undue delay"). It was emphasized that the object of changing the terminology in the third Protocol, was to assure to Swiss entities, that the treatment extended to entities of the other state, automatically afforded a lower rate of taxation. 35. Learned senior counsel also referred to the opinions of Professor Dr. Robert J Dannon and Prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. (2A) Notwithstanding anything contained in sub-section (2), the provisions of Chapter X A of the Act shall apply to the assessee even if such provisions are not beneficial to him. (3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf. (4) An assessee, not being a resident, to whom an agreement referred to in subsection (1) applies, shall not be entitled to claim any relief under such agreement unless 4 a certificate of his being a resident in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory. (5) The assessee referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ints on the Treaty Power" Legal Studies Research Paper Series available at, in a paper describes that "The treaty lives a double life. By day, it is a creature of international law, which sets forth extensive substantive and procedural rules by which the treaty must operate [....] By night, however, the treaty leads a more domestic life. In its domestic incarnation, the treaty is a creature of national law, deriving its force from the constitutional order of the nation state that concluded it." 40. In State of W.B. v. Jugal Kishore More 1969 (1) SCR 320, this court held that the executive may make treaties with foreign States for the extradition of criminals, but those treaties can only be carried into effect by Act of Parliament, for the executive has no power, without statutory authority, to seize an alien here and deliver him to a foreign power. Likewise, in State of Gujarat v. Vora Fiddali Badruddin Mithibarwala 1964 (6) SCR 461 this court observed that in India, unlike some other countries the stipulations of a treaty duly ratified do not by virtue of such event (i.e. signing the treaty alone) have the force of law and Article 253 of the Constitution of India recognises thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formance, of the obligations constituted by a treaty, using that word as comprising any agreement between two or more sovereign States. Within the British Empire there is a well-established rule that the making of a treaty is an executive act, while the performance of its obligations, if they entail alteration of the existing domestic law, requires legislative action. Unlike some other countries, the stipulations of a treaty duly ratified do not within the Empire, by virtue of the treaty alone, have the force of law. If the national executive, the Government of the day, decide to incur the obligations of a treaty which involve alteration of law they have to run the risk of obtaining the assent of Parliament to the necessary statute or statutes.... .Parliament, no doubt, ... .has a Constitutional control over the executive : but it cannot be disputed that the creation of the obligations undertaken in treaties and the assent to their form and quality are the function of the executive alone. Once they are created, while they bind the State as against the other contracting parties, Parliament may refuse to perform them and so leave the State in default." These observations are valid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sary when the treaty or agreement operates to restrict the rights of citizens or others or modifies the laws of the State. If the rights of the citizens or others which are justiciable are not affected, no legislative measure is needed to give effect to the agreement or treaty." In Gramaphone Co. of India Ltd. v. Birendra Bahadur Pandey & Ors.27 it was observed as follows: "The doctrine of incorporation also recognises the position that the Rules of international law are incorporated into national law and considered to be part of the national law, unless they are in conflict with Act of Parliament. Comity of Nations or no, Municipal Law must prevail in case of conflict. National Courts cannot say yes if Parliament has said no to a principle of international law. National Courts will endorse international law but not if it conflicts with national law. National courts being organs of the National State and not organs of international law must perforce apply national law if international law conflicts with it." 44. The holding in the decisions discussed above may thus be summarized: (i) The terms of a treaty ratified by the Union do not ipso facto acquire enforceability; (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment to issue a notification for implementation of the terms of a double taxation avoidance agreement. When that happens, the provisions of such an agreement, with respect to cases to which where they apply, would operate even if inconsistent with the provisions of the Income Tax Act. We approve of the reasoning in the decisions which we have noticed. If it was not the intention of the legislature to make a departure from the general principle of chargeability to tax under section 4 and the general principle of ascertainment of total income under section 5 of the Act, then there was no purpose in making those sections "subject to the provisions" of the Act". The very object of grafting the said two sections with the said clause is to enable the Central Government to issue a notification under section 90 towards implementation of the terms of the DTAs which would automatically override the provisions of the Income Tax Act in the matter of ascertainment of chargeability to income tax and ascertainment of total income, to the extent of inconsistency with the terms of the DTAC. 27. The contention of the respondents, which weighed with the High Court viz. that the impugned circula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any Date of signing relevant amending protocol Effective date of said amendment/ protocol Notification if any Whether member of OECD Netherlands Treaty & Protocol - 13.07.198 8 21.01.1989 27.03.1989 13.08.1999 .13/30.08.1999 (date of signing mentioned as 13.08.1999 in Protocol, but as 30.08.1988 in amending notification dated 30.08.1999). 01.04.1997 or 01.04.1991 or 01.04.1998 or 01.04.1995 (based on the provision, in relation to the concerned country) 30.08.1999 Yes (13 November 1961) 10.05.2012 02.11.2012 14.01.2013 - giving effect from 02.11.2012 USA [earlier agreement dated 15.06.1989; also see instruction dated 28.04.2003 and 23.10.2007] Treaty & Protocol: 12.09.198 9 18.12.1990 20.12.1990 No amendment. [Note - USA does not have an MFN clause] NA NA Yes (12 November 1961) UK [had an earlier agreement dated 30.06.1956; see also instruction dated 19.03.2004] Treaty & Protocol: 25.01.199 3 26.10.1993 11.02.1994 30.10.2012 27.12.2013 10.02.2014 - to be given retrospective effect from 27.12.2013 Yes (2 May 1961) Belgium 26.04.199 3 (protocol) 01.10.1997 31.10.1997 01.04.1998 (for India) 19.01.2001 Yes (13 September 1961) Fran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en India and a third State which is a member of the OECD, India should limit its taxation at source on dividends, interests, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, 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." [emphasis supplied] of the India-Netherlands DTAA - the other two clauses in relation to France and Switzerland being similar], which according to it "describes a state of affairs 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 certificate 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 heterological word, i.e., it does not describe itself". According to that interpretati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asual visit and the expression "last resided", about which also we have something to say, indicates that the Legislature could not have intended to use the word "resides" in the technical sense of domicile. The word "resides" cannot be given a meaning different from the word "resided" in the expression "last resided" and, therefore, the wider meaning fits in the setting in which the word "resides" appears." In P. Anand Gajapati Raju v. P.V.G Raju (2000) 4 SCC 539 in the context of the Arbitration and Conciliation Act, 1996, this court explained that "is" normally has present signification: "the phrase which is the subject of an arbitration agreement does not, in the context, necessarily require that the agreement must be already in existence before the action is brought in the Court. The phrase also connotes an arbitration agreement being brought into existence while the action is pending. Blacks Law Dictionary has defined the word is as follows: "This word, although normally referring to the present, often has a future meaning, but is not synonymous with shall have been. It may have, however, a past signification, as in the sense of has been." Again, in Vijay Kumar Pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .08.1999, provided the following benefits expressly on different dates, having regard to the fact that India entered into DTAAs with OECD members and gave them effect, subsequently: "Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby directs that the following modifications shall be made in the Convention notified by the said notification which are necessary for implementing the aforesaid Convention between India and the Netherlands, namely: I. With effect from April 1, 1997, for the existing paragraph 2 of article 10 relating to dividends the following paragraph shall be read : "2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends, the tax so charged shall not exceed 10 per cent. of the gross amount of the dividends." II. With effect from April 1, 1997, for the existing paragraph 2 of article 11 relating to interest the following paragraph shall be read : "2. However, such interest may also be taxed in the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of literary, artistic or scientific work including motion picture films and works on film or video-tape for use in connection with television, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience ; and (b) payments of any kind received as consideration for the use of, or the right to use industrial, commercial or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of articles 8 and 8A (shipping and air transport) from activities described in paragraph 2(a) of article 8 or paragraph 4(b) of article 8A. 5. For purposes of this article, "fees for technical services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 4 of this article is received ; or (b) make available technical knowledge, experience, skill, know-how or processes o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficial owner or between both of them and some other person, the amount of royalties or fees for technical services, having regard to the royalties or fees for technical services for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this article shall apply only to the lastmentioned amount. In such case, the excess part of the payment shall remain taxable according to the laws of each State, due regard being had to the other provisions of this Convention." IV. With effect from April 1, 1995, for paragraph 6 of article 12 relating to royalties and fees for technical services referred to in paragraph III above the following paragraph shall be read: "6. Notwithstanding paragraph 5, 'fees for technical services' does not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property ; (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in internati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een India and Sweden entered into force on 25.12.1997, the India-Swiss Confederation DTAA entered into force on 19.10.1994 itself. These earlier dates, did not result in India automatically extending benefits of Article IV of the India-Netherlands DTAA Protocol to Netherlands. The relevant phrase in that provision (Article IV) obliged India to grant to the Netherlands, the same benefit to it, as was granted to the other nation in that third party state's DTAA or Protocol with India: "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" 55. Clearly, therefore, so far as India-Netherlands DTAA goes, there is established and clear precedent, of behaviour, in relation to treaty practise and interpretation. This was uncontested, and is a matter of record. 56. In relation to France, the India-France DTAA and Protocol came into force on 01.08.1994, after the notification by the contracting states to each other of the completion of the procedures required under their laws to bring them into force. Article 7 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable, and different definition for different dates for "fees on royalties and technical services", i.e. 01.04.1995 and 01.04.1997 for Articles 11, 12, and 13. This notification again reinforced India's practise and conduct of giving effect of the subsequent event of a more beneficial arrangement with a third country, to the country which had entered into a DTAA previously, on the basis of a treaty provision, through an express action i.e., a notification under Section 90. Another aspect is that the India-UK DTAA and India-Portugal DTAA had a condition, i.e., that by Article 4, technical services (for the purpose of levying tax on income from fees for technical service) applied a condition that the taxpayer could "make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design" 59. Steria's argument in addition, was that the India-Portugal DTAA was signed on 11.09.1998 (after 29.09.1992 when India-France DTAA was signed). The Portuguese Republic is a member of OECD. Similarly, India - UK DTAA was signed on 25.01.1993 (after 29.09.1992) and the UK is a member of OECD. Hence, the scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at provision is extracted below: "D With reference to Articles 10, 11 and 12 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." 62. Nestle had argued that this provision has been deleted, and instead, another condition added, by the 2010 Protocol, which reads as follows: "ARTICLE 11 Paragraph 4 of the Protocol to the Agreement shall be deleted and replaced by the following paragraph: With reference to Articles 10, 11, 12 and 22 The provisions of Articles 10, 11, 12 and 22 shall not apply in respect to any dividend, interest, royalty, fees for technical services or other income paid under, or as part of a conduit arrangement. The term "conduit arrangement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were given to Switzerland. However, the language of the third Protocol is more emphatic, in that it, states, through the second paragraph of the amended Protocol to Article 11, that in such event (of entry by third party state into OECD): "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." 63. At this stage, it would also be useful to note that the second Protocol, by Article 16, had provided that: "ARTICLE 16 The Governments of the Contracting States shall notify each other through diplomatic channels 1. that all legal requirements and procedures for giving effect to this Protocol have been satisfied. [..]" It could plausibly be argued that this condition is not substantive, but only diplomatic. However, what it requires is that the concerned governments have to notify how and when the Protocol is assimilated into the domestic legal system. Quite correctly the provision does not assign any time frame within which the Protocol has to be made effective. Therefore, inbu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst granted, or under a contract which is signed, after the date of entry into force of the first-mentioned Agreement or convention." 65. The amendment to the DTAA was on 24.06.1992, which was notified under Section 90 on 28.10.1992; it reads inter alia, as follows: "Subsequent to the signing of the Agreement with Canada, India has entered into Agreements with other OECD countries, wherein the rate of taxation in respect of royalties and fees for technical services has been agreed at 20% of the gross amount. The revised Agreement with Sweden, which came into force on 12th December, 1988, is the first of such Agreements. Accordingly, after consultation with the Canadian Government,"a notification has been issued on 24th June, 1992 notifying that the rate of tax of 20% will be applicable to royalties and fees for technical services paid by a resident of India to a resident of Canada. This reduced rate will be applicable to payments made in respect of the right or property which is first granted or under a contract which is signed, after the 12th day of December, 1988. A copy of the notification bearing GSR No. 635(E), dated 24th June, 1992, is enclosed. 3. The Canadian Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tfolio dividends (if a body is less than 10 percent of the share capital of the company that pays the dividends) in the Netherlands-India relationship a rate of 10 percent applies. This rate is taken from the treaty between India and Germany of June 19, 1995 and applies since April 1, 1997. Herein brings the treaty therefore no change between India and Slovenia." The decree issued by the Swiss Federation The State Secretariat for International Financial Matters SIF Section Bilateral tax Issues and double taxation treaties, Swiss Federation, dated 13.08.2021 provides as follows: "Application of the most favoured nation clause of the protocol amending the agreement between the Swiss Confederation and the Republic of India for the avoidance of double taxation with respect to taxes on income Switzerland and India have concluded the agreement of 2 November 1994 for the avoidance of double taxation with respect to taxes on income (DTC IN-CH)1.1t was revised by the amending protocols dated 16 February 2000 and 30 August 2010. Article 11 of the amending protocol dated 30 August 2010 contains a so-called most favoured nation clause, which stipulates that if, after the signing of the ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of DTC IN-CH, Indian tax residents receiving dividends from Swiss source as of 5 July 2018, or 28 April 2020 can claim, subject to the conditions laid down in DTC IN*CH, a refund of the (additional) withholding tax in accordance with the established procedures. The legal time limit set out in Article 32 of the Federal Act on withholding tax applies.." 68. The decree issued by the Republic of France, inter alia, after narrating and reciting the India-France DTAA, the amending Protocols, the date on which India-Germany DTAA was entered into, and the date on which the Protocol, amending India-France DTAA on the basis of the Indo-German DTAA, provided as follows: "I. Withholding tax rate on dividends and interest under the most-favourednation clause A. Dividends referred to in Article 11 The rate of 15 % provided for in paragraph 2 of Article 11 of the Franco- Indian convention shall be replaced by that of 10% provided for in the tax treaty concluded by India with Germany. This rate shall be replaced by the rate of 5 % of the gross amount of dividends provided for in the tax treaty concluded between India and Slovenia if the 'beneficial owner is a company which dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land is party to a number of treaties, international Agreements and Conventions. Such treaties have to receive approval of the Lower and Upper House of its Parliament (States General; ). If a provision in a treaty is in conflict with the Constitution, a two-thirds majority of the houses is mandatory (Article 91 paragraph 3 Constitution Article 91 of the Constitution of the Kingdom of Netherlands, 2018, available at: (accessed on 15.10.2023)). The Netherlands government and its courts are not bound by a treaty until the States General have ratified it. 72. In the opinion of this court, the status of treaties and conventions and the manner of their assimilation is radically different from what the Constitution of India mandates. In each of the said three countries, every treaty entered into the executive government needs ratification. Importantly, in Switzerland, some treaties have to be ratified or approved through a referendum. These mean that after intercession of the Parliamentary or legislative process/procedure, the treaty is assimilated into the body of domestic law, enforceable in courts. However, in India, either the treaty concerned has to be legislatively embodied in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ************ 47. Upon declaration of intent to contract, whether through ratification or other means, the treaty becomes binding under international law (unless the treaty provides for a different date for entry into force). The binding force of the treaty under international law is to be distinguished from its internal applicability. Internal applicability is a consequence only of treaties which - like tax treaties - are designed to be applied by domestic authorities in addition to obligating the States themselves (i.e., self-executing treaties). GATT has been held by the German Bundesfinanzhof not to be 'self-executing': 25 February, 1959, BStBl. III 166, 167 (1959); 15 October 1959, BStBl. III 486, 489 (1959). Direct internal applicability of GATT, however, has been advocated by Jackson, 66 Mich. L. Rev. 250 (1967) *************** *************** 49. In the UK, where parliamentary consent is not necessary for conclusion of a treaty, the treaty becomes applicable internally only when a special law to this effect is passed by Parliament after the treaty enters into force under international law. McNair, A.D., The Law of Treaties (1961) at 81; Oliver, J.D.B., 15 BTR 388 (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which a treaty enters into force internationally and the point at which it becomes applicable under domestic law must be distinguished from the point in time at which the material consequences of the treaty begin to take effect, or, in other words, the taxable period or the date from which taxation shall be limited by the treaty (the effective date). Usually this 'initiation of treaty effects' is established by explicit treaty rules. Various aspects may be of importance here. Treaty rules in particular often distinguish between treaty effects on assessed taxes and those on withholding taxes. In general, the material effects of tax treaties apply retrospectively, viewed from the date of entry into force under international law; detrimental retrospectivity, however, may be prohibited. 52. Through the mandate of the legislature, treaties in most States obtain the same authority as internal law. In some States they are even considered to have priority over domestic law. For e.g., Art. 94 of the Dutch Constitution, Art. 55 of the French Constitution and for Luxembourg see Cour de Cassation of 14 July 1954, Pagani, 16 Pas. 150" F. Vienna Convention on Law of Treaties 74. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that under the scheme of the VCLT, subsequent agreements and subsequent practice, being objective evidence of the understanding of the parties as to the meaning of the treaty, are authentic means of interpretation of treaties. Conclusion 3, Id. 76. The ILC Draft Conclusions define 'subsequent agreement' as an agreement between parties, reached after the conclusion of a treaty, regarding the interpretation of a treaty and its provisions. Conclusion 4(1), Id. A 'subsequent practice' is defined as consisting of conduct in the application of a treaty, after its conclusion, which establishes the agreement of the parties regarding the interpretation of the treaty. Conclusion 4(2), Id. Such subsequent practice under Articles 31 and 32 may consist of any conduct of a party in the application of a treaty, whether in the exercise of its executive, legislative, judicial or other functions, Conclusion 5(1), Id. and may take several forms. Conclusion 6(2), Id 'Practice' includes any type of positive action, whether physical or conduct -for instance, the reliance on the provisions of a treaty to support a State's chosen course of action, or the adoption of legislation, or enforcement action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ICJ took into account the practice of local customs officials. Case Concerning Rights of Nationals of the United States of America in Morocco (Fr. v. U.S.), 1952 I.C.J. 176, 211 In the Asylum Case Asylum Case (Colombia. v. Peru), 1950 I.C.J. 266, 286, Colombian failure to raise the Havana Convention in diplomatic correspondence was used to show that Colombia did not construe the convention as applicable. In the Corfu Channel Case Corfu Channel (U.K. v. Alb.), 1949 I.C.J. 4, 25, Albanian failure to challenge the court's power to fix the amount of compensation was used in interpreting the Special Agreement as not precluding the court from fixing the quantum of damages. 78. The ILC Draft Conclusions further provide that a common understanding would be required, regarding the interpretation of a treaty which the parties are aware of and accept. Such an agreement may, but need not, be legally binding for it to be taken into account. Conclusion 10(1), Id Further, the number of parties that must actively engage in subsequent practice in order to establish an agreement under Article 31(3)(b), may vary. Silence on the part of one or more parties may constitute acceptance of the subseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pretation 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 further emphasizes the relevance of subsequent practice for the understanding of a treaty, noting that subsequent practice denotes the decisive consent of the parties, and acts as a cogent, peremptory means of treaty interpretation. Bruno Simma, 'Miscellaneous thoughts on subsequent agreements and practice' in: Georg Nolte (ed.) Treaties and Subsequent Practice (Oxford University Press, 2013), pp 46-51 81. It is widely accepted that however precise the treaty text appears to be, the way in which it is actually applied by the parties is usually a good indication of what they understand it to mean, provided the practice is consistent, and is common to, or accepted by, all the parties. Anthony Aust, Modern Treaty Law and Practice, (Cambridge University Press, 2013), at p. 194 A relevant case in point is the interpretation of Article 5 of the Chicago Convention, which governs charter air services. This provision does not require a charter airline to obtain permission to land en route, provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it has spelled out very clearly what was asked of the Court: the formulation of principles or rules enabling the parties to agree on delimitation, the precise application of these principles or rules (see North Sea Continental Shelf cases, Continental Shelf (Tunisia/Libyan Arab Jamahiriya) and Continental Shelf (Libyan Arab Jamahiriya/Malta) cases), or the actual task of drawing the delimitation line (Delimitation of the Maritime Boundary in the Gulf of Maine Area case). Likewise, in the Anglo-French Arbitration of 1977, the Tribunal was specifically entrusted by the terms of the Special Agreement with the drawing of the line. *********************** 389. On the underlying question of the status of the waters of the Gulf which was thus raised before the Central American Court, there were by then three matters which practice and the 1917 Judgement took account of: first, the practice of all three coastal States had established and mutually recognized a 1 marine league (3 nautical miles) littoral maritime belt off their respective mainland coasts and islands (see the passage of the 1917 Judgement quoted in paragraph 400 below), in which belt they each exercised an exclusive j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a paper "Understanding What the Vienna Convention Says About Identifying and Using 'Sources for Treaty Interpretation' Identifying and Using 'Sources for Treaty Interpretation' 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). writes this, about treaty practice: "Article 31 (3) (b) presents a different complication. Article 31 (3) (b) says that the interpreter shall take into account 'any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation'. It is clear why practice is important. The point of the treaty is to direct behaviour. But the treaty is in words, and words are never perfectly clear. In contrast, behaviour is the very stuff the treaty is about. The ILC Commentary says the practice is 'objective evidence' of the understanding of the parties, and it quotes the Permanent Court of Arbitration, saying that practice is 'le plus sûr commentaire du sens' of the agreement.26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to secure the requisite majority in a referendum or approval by the Swiss Parliament, or in the absence of approval by both houses of the States General in Netherlands, a DTAA provision or trigger event could nevertheless be assimilated into executive decrees? The answer is obviously in the negative. Likewise, the treaty practice in India points to a consistent pattern of behaviour when the signatory to an existing DTAA, points to the event of a third state entering into OECD membership, and a resultant trigger event, the beneficial effect given to the later third-party state has to be notified in the earlier DTAA, as a consequential amendment, preceded by exchange of communication (and perhaps, negotiation) and acceptance of that position by India. The essential requirement of a notification under Section 90 of the consequences of the trigger (or causative) event cannot be undermined. V. Conclusions 88. In the light of the above discussion, it is held and declared that: (a) A notification under Section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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