Summary
The Supreme Court allowed the Revenue’s appeals concerning most-favoured-nation clauses in India’s tax treaties with France, the Netherlands and Switzerland. A separate notification under Section 90 was required to extend benefits arising from a later treaty with a third country. That country had to be an OECD member when entering its treaty with India; subsequent OECD accession did not suffice. The India–Spain treaty appeal was separately de-tagged.
Issues
- Whether an MFN clause automatically imports a later treaty’s more favourable tax treatment without a separate notification.
- When the third country must possess OECD membership for the same-treatment clause to operate.
Provisions considered
- Section 90(1), Income-tax Act, 1961A notification was mandatory to give domestic effect to a DTAA or protocol altering existing law; the MFN trigger required a separate consequential notification. (¶¶ 36, 46, 87–88)
Held
- A treaty stipulation promising equivalent treatment does not automatically integrate a later third-country concession into the earlier treaty. Its terms require amendment through a separate Section 90 notification. (¶ 88(a)–(b))
- For the same-treatment clauses considered, the third state must be an OECD member when entering its treaty with India. Later accession cannot supply that qualification retrospectively. (¶¶ 49–51, 88(c))
- Foreign executive decrees reflected their own constitutional regimes and could not displace India’s statutory notification requirement. India’s treaty practice supported that requirement even where protocol language referred to automatic application. (¶¶ 53–72, 86–87)
Result
Revenue’s appeals allowed and the impugned orders set aside, without costs. CA No. 1428/2023 concerning the India–Spain DTAA de-tagged for listing before the appropriate bench.