Holding

A notification under Section 90(1) of the Income‑Tax Act is a mandatory condition for giving effect to a DTAA or its protocol, and MFN benefits arise only upon such notification, not automatically.

Summary

The Supreme Court examined a series of appeals concerning the Most‑Favoured‑Nation (MFN) clause in India’s DTAA’s with the Netherlands, France and Switzerland. The assessees argued that the MFN benefit should apply automatically when India later entered into a DTAA with another OECD member, even if that third country was not an OECD member at the time of the original treaty, and that no further notification was required. The revenue contended that a separate notification under Section 90 of the Income‑Tax Act is essential for any amendment or extension of treaty benefits. The Court held that a notification under s.90(1) is a mandatory condition for giving effect to a DTAA or its protocol, that the MFN clause does not operate automatically, and that the word “is” in the clause has a present‑time meaning, requiring the third state to be an OECD member at the time the benefit is claimed. Consequently, the impugned High Court orders were set aside and the revenue’s appeals were allowed.

Issues considered

Whether a party can invoke the MFN clause when the third country with which India has a DTAA was not an OECD member at the time of that DTAA.
Whether the MFN clause takes effect automatically or only after a notification under Section 90 of the Income‑Tax Act.
The proper interpretation of the term “is” in the MFN clause of the DTAA.

Legislation cited

Constitution of Indias. Article 253, s. Article 73
Income Tax Act, 1961s. 90, s. 90(1), s. 90(2), s. 90(2A), s. 90(3), s. 90(4), s. 90(5)

Subjects

Most Favoured Nation clauseDouble Tax Avoidance AgreementSection 90 notificationTreaty interpretationOECD membershipInternational tax lawConstitution of IndiaVienna Convention on Law of TreatiesTax treaty implementation

Judgment

[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 eﬀect to automatically or if it is to only come into eﬀect after
a notiﬁcation is issued.
Income Tax Act, 1961– s.90– Agreement with foreign countries
or speciﬁed territories – Double Tax Avoidance Agreement (DTAA)–
Notiﬁcation u/s.90, if mandatory to give eﬀect 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
deﬁni-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
1140 SUPREME COURT REPORTS [2023] 16 S.C.R.

Held: A notiﬁcation u/s.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 eﬀect 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 beneﬁt in regard to a matter covered in the DTAA of the ﬁrst
nation, which entered into DTAA with India – In such event, the terms of the
earlier DTAA require to be amended through a separate notiﬁcation u/s.90
– Further, the interpretation of the expression “is” has present signiﬁcation
and it derives meaning from the context – Therefore, for a party to claim
beneﬁt 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 ratiﬁed 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 eﬀect 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 aﬀects the
rights of citizens or others or modiﬁes the law of India – If citizens’ rights
or others’ rights are not unaﬀected, or the laws of India are not modiﬁed, no
legislative measure is necessary to give eﬀect to treaties – In the event of
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1141
NEW DELHI v. M/S NESTLE SA

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 Oﬃcer 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
1142 SUPREME COURT REPORTS [2023] 16 S.C.R.

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 Aﬀairs, 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 Modiﬁcation of Treaties
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1143
NEW DELHI v. M/S NESTLE SA

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 Inﬂuence
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.
1144 SUPREME COURT REPORTS [2023] 16 S.C.R.

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.
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1145
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

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 eﬀect to automatically
or if it is to only come into eﬀect after a notiﬁcation is issued.
I. Facts
2. One of the ﬁrst 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.
1146 SUPREME COURT REPORTS [2023] 16 S.C.R.

Protocol to the India-France DTAA the more restrictive deﬁnition 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 speciﬁc 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 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 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 notiﬁed on 27.03.1989. This DTAA
was amended by a subsequent notiﬁcation 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.
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1147
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

each applied under Section 197 of the Act in the prescribed form, seeking a
certiﬁcate 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, certiﬁcates 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 certiﬁcates were valid till 30.03.2021. The validity period of the
certiﬁcates 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 ﬁles 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 certiﬁcate did not grant the withholding
rate at 5%. The respondent sought to justify its certiﬁcate 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 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-Tax3, the judgment of the
Karnataka High Court in Apollo Tyres Ltd. v. Commissioner of Income Tax,

3 [2016] 386 ITR 390 (Delhi)
1148 SUPREME COURT REPORTS [2023] 16 S.C.R.

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 fulﬁlled:
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 fulﬁlled, 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 beneﬁcial 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
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1149
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

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 fulﬁls 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 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 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
1150 SUPREME COURT REPORTS [2023] 16 S.C.R.

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 Oﬃcer 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 ratiﬁcation, 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 eﬀect 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. “
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1151
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

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
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 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
beneﬁt 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 notiﬁcation to give eﬀect 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
1152 SUPREME COURT REPORTS [2023] 16 S.C.R.

notiﬁed 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 beneﬁts to a country which had entered into DTAA with India
because the later Protocol with France and the consequent notiﬁcation
omitted to extend any beneﬁt 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 notiﬁed on 30.08.1999. The plain reading
of that notiﬁcation shows that the Protocol itself was triggered by the beneﬁt
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 notiﬁcation issued on 30.08.1999 (notifying the
Protocol between India and Netherlands), conferred beneﬁts based upon
the concessions given to diﬀerent countries, with eﬀect from diﬀerent dates
depending on the nature of the beneﬁts, rate of tax withholding, deﬁnition
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 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
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1153
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

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 ﬁrst and second protocols (of
the India- Switzerland DTAA) demonstrates that without notiﬁcation in
accordance with Indian law, they could not have applied which was in
fact, the occasion for the notiﬁcations 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 eﬀect 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 eﬀect to apart from
ensuring that the interpretation should not render any word, phrase, or
sentence redundant. The grammatical and literal meaning of the India-
Netherlands MFN clause reveals that the beneﬁt 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)
1154 SUPREME COURT REPORTS [2023] 16 S.C.R.

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” 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 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 beneﬁts granted to countries, other than
Netherlands, France and Switzerland; two, that such subsequent notiﬁcations
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 deﬁnitions. These notiﬁcations were preceded by negotiations,
communications and letters, exchanged between India and the other country.
In many cases, the amending notiﬁcation granted one beneﬁt, while denying
other beneﬁts (granted to other, third countries, whose DTAAs conferred
such beneﬁts after Netherlands or France or Switzerland’s DTAAs were
entered into). This clearly showed that such notiﬁcations were necessary,
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1155
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

and that there could not be any automatic applicability of such beneﬁts 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
notiﬁed 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 notiﬁcation of a treaty or protocol, and does not mandate each
clause of such agreement to be further notiﬁed separately. A plain reading
of Section 90 of the Act demonstrates that it does not require each article
or paragraph thereof of an already notiﬁed agreement to be further notiﬁed
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 notiﬁcation 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 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
1156 SUPREME COURT REPORTS [2023] 16 S.C.R.

that too clearly requires the countries to inform each other and review the
provisions with a view to extend the beneﬁcial provisions.
21. Learned counsel submitted that the diﬀerence in language, is
unimportant, because Article 7(3) of the India-Netherlands DTAA shows that
treaty partners are same; yet the instrument uses diﬀerent language to denote
the same terms. Article 7(3) speciﬁcally notes that where the expense limit
is relaxed for computing the profits attributable to the permanent
establishment in any other convention, the competent authority of one state
would notify such competent authority of the other state, and at the request
of that competent authority which is notiﬁed, the terms of the treaty shall be
amended by Protocol to reﬂect such beneﬁcial terms. Naturally, once that
amendment is agreed pursuant to bilateral negotiations, it has to be notiﬁed.
This language, it is pointed out, is absent in the MFN clause.
22. There is no requirement in the subject MFN clause to issue any
notiﬁcation to bring into force the beneﬁcial provisions from subsequent
DTAAs or by way of a notiﬁed protocol or negotiation. The MFN clause
simply states that the reduced rate as extended to an OECD country “shall
also apply” under this current convention and, hence, such clause is
automatic in operation. The use of diﬀerent language in the DTAA by the two
contracting states is indicative of their intent and cannot be disregarded
whilst interpreting their terms. Likewise, in the case of the India-Switzerland
DTAA, the nature of the existing MFN clause is such that no negotiation is
needed but for change in scope, for which requirement for negotiation has
still been retained by the treaty partners. Obviously, these diﬀerences in the
language of the clauses bear signiﬁcance.
23. This court was shown the observations of the Income Tax Appellate
Tribunal (ITAT) Mumbai in SCA Hygiene Products AB v. DCIT13, and the
ITAT Delhi decision in Mitsubishi Electric India Pvt Ltd v Commissioner
of Income Tax 14 where the tribunal has noted the diﬀerence in triggers of
the MFN clause such as one which is (a) automatic (India-Sweden) (b)
requiring notifying authority of other state (India-Philippines) (c) requiring
negotiation. It was urged that the tribunal adopted the same interpretation

13 ITA No. 7315/Mum/2018
14 ITA No. 3336/Del/2018
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1157
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

as was done in the judgment impugned. It was submitted also, that the
Karnataka High Court in Apollo Tyres Ltd. (supra) had similarly considered
the same Protocol 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 entry into force agreed by both states. But the said Notiﬁcation
dated 30.08.1999 does not have one. Contrast this with the 2012 bilateral
amendment made in the India-Netherlands DTAA by the Protocol which
entered into force on 02.11.2012 and was notiﬁed vide Notiﬁcation No.
2/2013.
26. The purpose of this unilateral notiﬁcation by India is clear from the
Dutch communication dated 18.11.1999 which states that messages were
exchanged and there was a diﬀerence of understanding between Indian and
Dutch authorities on the limited aspect as to whether the MFN clause would
be applicable from the date of entry into force of the beneﬁcial DTAA, or
w.e.f. 1st April of the following ﬁscal year, since India follows the ﬁnancial
year (April-March) pattern. This limited aspect was agreed by the Dutch
authorities. It is argued that no such reservation was noted by India for MFN
in clause IV of Protocol.
1158 SUPREME COURT REPORTS [2023] 16 S.C.R.

27. Counsel submit that the absence of a unilateral notiﬁcation which
may have in the past been issued as an administrative practice cannot override
the clear language of an MFN clause which provides for automatic
application. The assessees refer to Union of India of India v. Agricas LLP15,
which held that the State cannot breach a treaty to which it is a party by
referring to domestic law-be it legislative, executive, or judicial
decision. The decision in Engineering Analysis Centre of Excellence P.
Ltd. v. CIT16 applied the principle in Director of Income Tax v New Skies
Satellite BV17 wherein the Delhi High Court held that mere executive
position cannot alter the law under the DTAA.
28. Learned senior counsel submit that Netherlands’ position
has been clear as early as from 1998. The Dutch decree of 22.06.1998
issued by the Secretary of Finance clarifies that the MFN clause
in Clause IV of Protocol is automatic; for every favourable provision as a
consequence of a DTAA with another OECD country, Netherlands was of
the view that the amendment would apply with eﬀect from date of entry
into force of that relevant convention. Similarly, the decree by Netherlands
on 28.02.2012 maintained that beneﬁcial provision of the USA-DTAA on
restricted scope of FTS should apply with eﬀect from 01-04-1991 (1st April
of the ﬁscal year following the date of entry into force of the India-USA
DTAA).
29. Counsel argue that 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

15 [2020] 14 SCR 372
16 (2021) 432 ITR 471(SC)
17 (2016) 382 ITR 114
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1159
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

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, etc. were not OECD members at the time of signing of the India-
Netherlands DTAA, or the India-Switzerland Protocols in question, or the
India-France DTAA and Protocol. The following chart is extracted, from
the assessees’ submissions:
Country DTAA signed DTAA Date OECD Dividend Art. 10
Entry into Notiﬁed Members Tax
force
Slovenia 13.01.2003 17.02.2005 31.05.2005 21.07.2010 5% Art 10(2)(a) has
(pg.512 of (pg.501 of (pg.501 of 10% beneﬁcial
revenue’s revenue’s revenue’s ownership
Compilation- compilation- Compilation- requirement
Vol. III, pdf Vol. III), pdf Vol. III, pdf (pg.505 of
pg.16) pg.5) pg.5) revenue’s
Compilation- Vol.
III, pdf pg.9)
Lithuania 26.07.2011 10.07.2012 25.07.2012 05.07.2018 5% Art 10(2)(a) has
(pg.534 of (pg.534 of (pg.534 of 10% beneﬁcial
revenue’s revenue’s revenue’s ownership
Compilation- Compilation- Compilation- requirement
Vol. III), pdf Vol. III, pdf Vol. III, pdf (pg.538 of
pg.38 pg.38) pg.38) revenue’s
compilation-Vol.
III, pdf pg.42)
Columbia 13.05.2011 07.07.2014 23.09.2014 28.04.2020 5% Art 10(2) (pg.91
(pg.90 Asses- (pg.90 Asses- (pg.90 Assessee’s Com-
see’s Common see’s Common Assessee’s mon Comp.-Vol.
Comp.-Vol. VI, Comp.-Vol. VI, Common VI, pdf pg.94)
pdf pg.93) pdf pg.93) Comp.-Vol.
VI, pdf
pg.93)

31. Learned counsel argued that the assessees are entitled to the beneﬁt
of the lower tax rate of 5% provided for in the DTAAs between India and
Lithuania, Slovenia, and Colombia respectively, by relying on the MFN
clause in the treaty/protocol to the India-Netherlands, India-Switzerland
and India-France DTAAs in terms of which after the signing of the DTAA
with these countries (and other protocols), if India entered into a DTAA
1160 SUPREME COURT REPORTS [2023] 16 S.C.R.

with an OECD member where India has agreed for a rate of tax on dividend
lower than the rate provided for in each of the DTAAs with Netherlands,
Switzerland and France respectively, such lower rate also applies to those
DTAAs. It is urged that the MFN clauses in the three DTAAs and their
protocols clearly oblige Indian revenue oﬃcers to grant the beneﬁt that is
given to countries which subsequently entered into DTAAs with India, and
were given favourable beneﬁts, upon their entry into OECD.
32. On the OECD membership issue, it was argued that the revenue’s
only reason in the order denying the applicability of the lower rate of
withholding 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 the time of execution of their
own DTAA, and also the time when the assessee invokes the MFN clause
is to be accepted; then, the consequence would be that while interpreting
Article 10(1) of India-Netherlands DTAA which also uses the same word
“is” (“is a resident”) the same meaning ought to be given. However, it is
undisputed that while claiming the beneﬁt of Article 10, the assessee needs
to be a resident of India/Netherlands only for the year in which the beneﬁt of
Article 10 is sought by an assessee. Therefore, when for Article 10, “is” does
not postulate continuous requirement of residence, the same word “is” when
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1161
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

it appears in the MFN clause can only mean that Slovenia etc. need to be
OECD members only when the beneﬁt of the MFN clause is invoked.
34. Learned senior counsel appearing for Nestle argued in addition,
that the third Protocol, between India and the Swiss Confederation 18, by
Article 11(5) required that if India entered into agreement with another
OECD country, providing for lower rate of taxation on dividends, interest
and royalties at FTS, the same lower rate of taxation was to be given to
Swiss tax entities.19 It relies on the fact that India and Lithuania-DTAA was
signed on 26.07.2011; the date of its notiﬁcation was 25.07.2012. Lithuania
became an OECD member on 05.07.2018. Likewise, the India-Colombia
DTAA was signed on 13.05.2011 and notiﬁed on 23.09.2014; Colombia
entered OECD on 28.04.2020. These two DTAAs provided lower rates of
taxation, as compared with the India-Switzerland 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

18 Notiﬁed by the Indian government on 13.08.2011
19 Article 5 of the third protocol which amended Articles 10, 11, 12 and 22 inter
alia, read as follows:
“in respect of Articles 10 (Dividends), 11 (Interest) and 12 (Royal-
ties and fees for technical services), if under any Convention, Agreement or
Protocol between India and a third State which is a member of the OECD
signed after the signature of this Amending Protocol, India limits its taxa-
tion at source on dividends, interest, royalties or fees for technical services
to a rate lower than the rate provided for in this Agreement on the said
items of income, the same rate as provided for in that Convention, Agree-
ment 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.”
1162 SUPREME COURT REPORTS [2023] 16 S.C.R.

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. Dr. Stef Van Weeghel on the history of
treaty provisions and the applicable rules of interpretation, to support the
assessees’ arguments.
III. Relevant statutory provisions
36. Section 9020 of the Income Tax Act reads as follows:
“90. Agreement with foreign countries or speciﬁed territories. 1
(1) The Central Government may enter into an agreement with the
Government of any country outside India or speciﬁed territory outside
India—
(a) for the granting of relief in respect of—
(i) income on which have been paid both income-tax under this Act and
income-tax in that country or speciﬁed territory, as the case may be, or
(ii) income-tax chargeable under this Act and under the corresponding
law in force in that country or speciﬁed territory, as the case may be,
to promote mutual economic relations, trade and investment, or
(b) for the avoidance of double taxation of income under this Act
and under the corresponding law in force in that country or speciﬁed
territory, as the case may be, or

20 Section 90 (1) was substituted with eﬀect from 010.10.2009. The earlier provision was
amended three times. Section 90 (2A) was inserted with eﬀect from 01-04.2013 and
amended with eﬀect from 01-04-2016. It was later omitted by Act 17 of 2013. Section
90 (4) substituted, by Act 17 of 2013, the “a certiﬁcate, containing such particulars as
may be prescribed, of his being a resident” (w.e.f. 1-4-2013) to the present provision.
Section 90 (5) was inserted by w.e.f. 1-4-2013.Explanation 3 was inserted by Section
32 of Act 23 of 2012, s. 32 (w.e.f. 01-10-2009) and Explanation 4 was inserted by Act
7 of 2017, Section 39 (w.e.f. 1-4-2018).
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1163
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

(c) for exchange of information for the prevention of evasion or
avoidance of income-tax chargeable under this Act or under the
corresponding law in force in that country or speciﬁed territory, as the
case may be, or investigation of cases of such evasion or avoidance, or
(d) for recovery of income-tax under this Act and under the
corresponding law in force in that country or speciﬁed territory, as
the case may be,
and may, by notiﬁcation in the Oﬃcial Gazette, make such provisions
as may be necessary for implementing the agreement.
(2) Where the Central Government has entered into an agreement with
the Government of any country outside India or speciﬁed territory
outside India, as the case may be, under sub-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 sub-section (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 in sub-section (4) shall also provide such
other documents and information, as may be prescribed.
1164 SUPREME COURT REPORTS [2023] 16 S.C.R.

Explanation 1.- For the removal of doubts, it is hereby declared that
the charge of tax in respect of a foreign company at a rate higher
than the rate at which a domestic company is chargeable, shall not
be regarded as less favourable charge or levy of tax in respect of such
foreign company.
Explanation 2.—For the purposes of this section, “speciﬁed territory”
means any area outside India which may be notiﬁed as such by the
Central Government.
Explanation 3.—For the removal of doubts, it is hereby declared that
where any term is used in any agreement entered into under sub-section
(1) and not deﬁned under the said agreement or the Act, but is assigned
a meaning to it in the notiﬁcation issued under sub-section (3) and
the notiﬁcation issued thereunder being in force, then, the meaning
assigned to such term shall be deemed to have eﬀect from the date on
which the said agreement came into force.
Explanation 4.—For the removal of doubts, it is hereby declared that
where any term used in an agreement entered into under sub-section
(1) is deﬁned under the said agreement, the said term shall have the
same meaning as assigned to it in the agreement; and where the term
is not deﬁned in the said agreement, but deﬁned in the Act, it shall
have the same meaning as assigned to it in the Act and explanation,
if any, given to it by the Central Government.”
37. The relevant extracts of the DTAAs and the MFN clause contained
within them, are extracted in Part IV.C below.
IV. Analysis
A. General
38. Treaty making power vests exclusively with the Union, per Article
253 of the Constitution, and the relative entries in the Union List (List I, VIIth
Schedule). Entering into a treaty is an attribute of sovereignty, and the power
to do vests solely in the Union executive - as opposed to the states, or the
shared (concurrent) domain within the distribution of administrative powers
under the Constitution; thus, it can be traced to Article 73 of the Constitution.
The structure and phraseology of Article 253 leaves one in no doubt, that
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1165
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

it is when a treaty is enacted by law, or enabled through legislation, which
assimilates it, that such provisions are enforceable in India.
39. Duncan B. Hollis21, 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 More22, 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 Mithibarwala23 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 this position.
If a treaty either requires alteration of or addition to existing law, or aﬀects
the rights of the subjects, or are treaties on the basis of which obligations
between the treaty-making state and its subjects have to be made enforceable
in municipal courts, or which, involves raising or expending of money or
conferring new powers on the government recognizable by the municipal
courts, a legislation will be necessary.
41. In the judgment reported as V.O. Tractoroexport v. Tarapore &
24
Co this court underlined that
“16. We may look at another well-recognised principle. In this country,
as is the case in England, the treaty or International Protocol or

21 Duncan Hollis: Executive Federalism : Forging New Federalist Constraints on the
Treaty Power” Legal Studies Research Paper Series available at http : //ssrn.com/
abstract=895623
22 1969 (1) SCR 320
23 1964 (6) SCR 461
24 (1969) 3 SCC 562
1166 SUPREME COURT REPORTS [2023] 16 S.C.R.

convention does not become eﬀective or operative of its own force as
in some of the continental countries unless domestic legislation has
been introduced to attain a speciﬁed result. Once, Parliament has
legislated, the Court must ﬁrst look at the legislation and construe
the language employed in it. If the terms of the legislative enactment
do not suﬀer from any ambiguity or lack of clarity they must be given
eﬀect to even if they do not carry out the treaty obligations. But the
treaty or the Protocol or the convention becomes important if the
meaning of the expressions used by the Parliament is not clear and
can be construed in more than one way. The reason is that if one of
the meanings which can be properly ascribed is in consonance with
the treaty obligations and the other meaning is not so consonant, the
meaning which is consonant is to be preferred. Even where an Act
had been passed to give eﬀect to the convention which was scheduled
to it, the words employed in the Act had to be interpreted in the well-
established sense which they had in municipal law. (See Barras v.
Aberdeen Steam Trawling & Fishing Co. Ltd. [(1933) AC 402])”
42. This court, in Maganbhai Ishwarbhai Patel & Ors. v. Union of India
& Ors.25 followed the ruling of the Privy Council in Attorney-General for
Canada v. Attorney-General for Ontario & Ors.26 (which had made some
observations in the context of a rule applicable within the British Empire).
This court’s ruling in Maganbhai Ishwarbhai (supra) is the most signiﬁcant,
on this aspect. The relevant observations are as follows:
“It will be essential to keep in mind the distinction between (1) the
formation, and (2) the performance, 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

25 1970 (3) SCR 53
26 [1937] A.C. 326
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1167
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

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 in the context of our Constitutional set
up.”
43. The issue was more pointedly dealt with by the concurring
judgment of J.C. Shah, J (who relied on Oppenheim’s International Law,
8th Edition):
“...Such treaties as aﬀect private rights and, generally, as required
for their enforcement by English Courts a modiﬁcation of common
law or of a statute must receive parliamentary assent through an
enabling Act of Parliament. To that extent binding treaties which are
part of International Law do not form part of the law of the land unless
expressly made so by the Legislature.
*********************************
The binding force of a treaty concerns in principle the contracting
States only, and not their subjects. As International Law is primarily
a law between States only and exclusively, treaties can normally have
eﬀect upon States only. This Rule can, as has been pointed out by the
Permanent Court of International Justice, be altered by the express
or implied terms of the treaty, in which case its provisions become
self-executory. Otherwise, if treaties contain provisions with regard to
rights and duties of the subjects of the contracting States, their Courts,
oﬃcials, and the like, these States must take steps as are necessary
according to their Municipal Law, to make these provisions binding
upon their subjects, Courts, oﬃcials, and the like.”
1168 SUPREME COURT REPORTS [2023] 16 S.C.R.

Shah, J also referred to Articles 73 and 253 and further commented:
“80...By Article 73, subject to the provisions of the Constitution, the
executive power of the Union extends to the matters with respect to
which the Parliament has power to make laws. Our Constitution
makes no provision making legislation a condition of the entry into
an international treaty in times either of war or peace. The executive
power of the Union is vested in the President and is exercisable in
accordance with the Constitution. The Executive is qua the State
competent to represent the State in all matters international and
may by agreement, convention or treaties incur obligations which
in international law are binding upon the State. But the obligations
arising under the agreement or treaties are not by their own force
binding upon Indian nationals. The power to legislate in respect
of treaties lies with the Parliament under Entries 10 and 14 of List
I of the Seventh Schedule. But making of law under that authority
is necessary 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.”

27 [1984] 2 SCR 664
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1169
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

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) The Union has exclusive executive power to enter into
international treaties and conventions under Article 73 [read with
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.
(iii) Parliament can refuse to perform or give eﬀect 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.
(iv) The application of such treaties is binding upon the Union. Yet,
they “are not by their own force binding upon Indian nationals”.
(v) Law making by Parliament in respect of such treaties is required
if the treaty or agreement restricts or aﬀects the rights of citizens
or others or modiﬁes the law of India.
(vi) If citizens’ rights or others’ rights are not unaﬀected, or the laws
of India are not modiﬁed, no legislative measure is necessary to
give eﬀect to treaties.
(vii) In the event of 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.
45. The clearest enunciation of law, on Section 90 can be found in
Union of India (UOI) & Ors. v Azadi Bachao Andolan & Ors 28. Apart from
noticing the decisions of various High Courts (i.e. Commissioner of Income
Tax v. Visakhapatnam Port Trust29, Commissioner of Income Tax v. Davy
Ashmore India Ltd.30, Leonhardt Andra Und Partner, Gmbh v. Commissioner

28 2003 (Supp4) SCR 222
29 [1983]144ITR146(AP)
30 [1991]190 ITR 626 (Cal)
1170 SUPREME COURT REPORTS [2023] 16 S.C.R.

of Income Tax31, Commissioner of Income Tax v. R.M. Muthaiah32 and
Arabian Express Line Ltd. of United Kingdom & Ors. v. Union of India 33)
this court held as follows:
“The provisions of Sections 4 and 5 of the Act are expressly made
“subject to the provisions of this Act”, which would include Section 90
of the Act. As to what would happen in the event of a conﬂict between
the provision of the Income Tax Act and a notiﬁcation issued Under
Section 90, is no longer res integra.
************** ***************
26. A survey of the aforesaid cases makes it clear that the judicial
consensus in India has been that section 90 is speciﬁcally intended to
enable and empower the Central Government 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 circular No. 789 is inconsistent with
the provisions of the Act, is a total non-sequitur. As we have pointed

31 [2001] 249 ITR 418 (Cal)
32 [1993]202 ITR 508 (KAR)
33 [1995] 212 ITR 31 (Guj)
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1171
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

out, Circular No. 789 is a circular within the meaning of section
90; therefore, it must have the legal consequences contemplated
by sub-section (2) of section 90. In other words, the circular shall
prevail even if inconsistent with the provisions of Income Tax Act,
1961 insofar as assessees covered by the provisions of the DTAC
are concerned.
****************** ****************
29. In our view, the contention is wholly misconceived. Section 90,
as we have already noticed (including its precursor under the 1922
Act), was brought on the statute book precisely to enable the executive
to negotiate a DTAC and quickly implement it. Even accepting the
contention of the respondents that the powers exercised by the Central
Government under section 90 are delegated powers of legislation,
we are unable to see as to why a delegate of legislative power in all
cases has no power to grant exemption. There are provisions galore in
statutes made by Parliament and State legislatures wherein the power
of conditional or unconditional exemption from the provisions of the
statutes are expressly delegated to the executive. For example, even in
ﬁscal legislation like the Central Excise Act and Sales Tax Act, there
are provisions for exemption from the levy of tax. (See Section 5A of
Central Excise Act, 1944 and Section 8(5) of the Central Sales Tax
Act, 1956). therefore we are unable to accept the contention that the
delegate of a legislative power cannot exercise the power of exemption
in a ﬁscal statute.”
46. The legal position discernible from the previous discussion,
therefore is that upon India entering into a treaty or protocol does not
result in its automatic enforceability in courts and tribunals; the provisions
of such treaties and protocols do not therefore, confer rights upon parties,
till such time, as appropriate notiﬁcations are issued, in terms of Section
90(1).
47. The various DTAAs, their relative Protocols and the date(s)
of their notiﬁcation under Section 90 of the Income Tax Act, based on
the submissions of parties, and the materials placed on the record, are
summarized in a tabular chart:
1172 SUPREME COURT REPORTS [2023] 16 S.C.R.

SUMMARIES OF DTAAs, PROTOCOLS & NOTIFICATIONS
IN TABULAR FORMAT
Contracting signing of/ date of entry Notiﬁcation, Date of signing Eﬀective Notiﬁcation Whether
State #2 entry into into force if any relevant date of said if any member
treaty amending amendment/ of OECD
protocol protocol

Netherlands Treaty & 21.01.1989 27.03.1989 13.08.199934 01.04.1997 or 30.08.1999 Yes (13
Protocol - 01.04.1991 No-
13.07.1988 or 01.04.1998 vember
or 01.04.1995 1961)
(based on the
provision, in
relation to the
concerned
country)

10.05.2012 02.11.2012 14.01.2013
- giving
eﬀect from
02.11.2012

USA Treaty & 18.12.1990 20.12.1990 No amendment. NA NA Yes (12
Protocol: [Note – USA No-
[earlier agree- 12.09.1989 does not have vember
ment dated an MFN clause] 1961)
15.06.1989;
also see
instruc-
tion dated
28.04.2003
and
23.10.2007]

UK Treaty & 26.10.1993 11.02.1994 30.10.2012 27.12.2013 10.02.2014 Yes (2
[had an Protocol: - to be given May
earlier agree- 25.01.1993 retrospective 1961)
ment dated eﬀect from
30.06.1956; 27.12.2013
see also
instruc-
tion dated
19.03.2004]

Yes (13
Belgium 26.04.1993 01.04.1998 Sep-
01.10.1997 31.10.1997 19.01.2001
(protocol) (for India) tember
1961)

01.04.1995 or
01.04.1997
10.07.2000
Treaty & (based on the Yes (07
France provision)
Protocol - 01.08.1994 07.09.1994 August
29.09.1992 12.08.2009 1961)
12.08.2009

34 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).
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1173
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

Contracting signing of/ date of entry Notiﬁcation, Date of signing Eﬀective Notiﬁcation Whether
State #2 entry into into force if any relevant date of said if any member
treaty amending amendment/ of OECD
protocol protocol

In force from
20.12.2000
Protocol
amending 1994 1 January
07.02.2001
19.10.1994/ Treaty (2000) - 2001 (Swit-
29.12.1994 16.02.2000 zerland); 1
April 2001
(India) Yes (28
Switzerland Treaty and
Sep-
Protocol - 01.01.1995 21.04.1995
In force from tember
02.11.1994 (Switzer-
10.10.2011 1961)
land) and
01.04.1995 Protocol
(India) amending 1994 1 January
27.12.2011
Treaty (2010) - 2012 (Swit-
30.08.2010 zerland); 1
April 2012
(India)

Germany
[replaced old-
No amendment
er agreements Yes (27
Treaty & [Note – Ger-
notiﬁed on Sep-
Protocol: 26.10.1996 29.11.1996 many does not NA NA
13.09.1960, tember
19.06.1995 have an MFN
27.04.1979 1961)
clause]
and
02.03.1990]

Philippines Treaty &
Protocol: 21.03.199435 02.04.1996 02.02.2005 No
12.02.1996

Protocol
14.08.2013
amending the Yes (28
- to be
Sweden Convention Sep-
24.06.1997 25.12.1997 17.12.1997 16.08.2013 given eﬀect
and Protocol tember
to from
- signed on 1961)
16.08.2013
17.02.2013

11.09.2018
16.01.2000
- to have
(correction
eﬀect from
Treaty and by notiﬁca- Yes (4
Portuguese 08.08.2018
Protocol: 30.04.2000 tions dated 24.06.2017 08.08.2018 August
Republic (Art. 26 says
11.09.1998 25.08.2000 1961)
10.08.2018
and
in the
20.09.2005)
footnote)

Protocol Notiﬁca-
amending the tion dated
date of entry Yes (21
Convention 27.10.2017
Slovenia 13.01.2003 17.02.2005 31.05.2005 into force is July
and Protocol - to have
21.12.2016 2010)
- signed on eﬀect from
17.05.2016 01.03.2017

35 Unclear if there is perhaps a typographical error in the Notiﬁcation produced before
this court.
1174 SUPREME COURT REPORTS [2023] 16 S.C.R.

Contracting signing of/ date of entry Notiﬁcation, Date of signing Eﬀective Notiﬁcation Whether
State #2 entry into into force if any relevant date of said if any member
treaty amending amendment/ of OECD
protocol protocol

20.05.2010
Treaty & Yes (28
- with
Finland Protocol: 19.04.2010 - NA NA January
eﬀect from
15.01.2010 1969)
01.04.2011

25.07.2012:
Treaty & Yes (05
to have
Lithuania Protocol: 10.07.2012 - NA NA July
eﬀect from
26.07.2011 2018)
01.04.2013

Treaty & Yes (28
Colombia Protocol: 07.07.2014 23.09.2014 - NA NA April
13.05.2011 2020)

C. The interpretation of the term “is”
48. The High Court had interpreted the term “is” occurring in the
DTAAs [see Clause IV(2)36 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 interpretation of ‘is, when the request for parity
is made by a party seeking aid of the DTAA and the Protocol containing a
“same treatment” or in other words, a pull in clause, the court has to consider
whether at that time the third party state is enjoying better beneﬁts. Integral
to this interpretation is whether the “is a member” means the present tense,
which is that the third party state should be a member of OECD when it
enters into DTAA with India. This is relevant, because the India-Lithuania

36 “If after the signature of this convention under any Convention or Agreement between
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]
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1175
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

DTAA was signed on 26.07.2011; and notiﬁed on 25.07.2012 37. The date of
membership of Lithuania into OECD was 05.07.2018. The India-Colombia
DTAA was signed on 13.05.2011; its date of Notiﬁcation was 23.09.2014.
Colombia was admitted to membership of OECD on 28.04.2020. Slovenia
signed a DTAA with India on 13.01.2003; this was notiﬁed on 31.05.2005,
and Slovenia became a member of OECD on 21.07.2010. An amending
Protocol was entered into, between India and Slovenia, on 16.05.2016,
which was notiﬁed on 27.10.2017.
49. Thus, in all three cases, the three “third party” nations: Lithuania,
Colombia and Slovenia, were initially not members of OECD when they
entered into treaties and protocols with India; they became members later.
50. In Jagir Kaur v. Jaswant Singh38 Section 488 of the erstwhile
Criminal Procedure Code read as follows:
“Proceedings under this Section may be taken against any person in
any district where he resides or is, or where he last resided with his
wife, or, as the case may be, the mother of the illegitimate child.”
This court considered the meaning of “is” in the above provision:
“The crucial words of the sub-Section are, “resides”, “is” and “where
he last resided with his wife”. Under the Code of 1882 the Magistrate
of the District where the husband or father, as the case may be, resided
only had jurisdiction.”
The court then emphasized that the term “is” was fact dependent, and
had to be read contextually:
“The purpose of the statute would be better served if the word “resides”
was understood to include temporary residence. The juxtaposition
of the words “is” and “last resided” in the sub-Section also throws
light on the meaning of the word “resides”. The word “is”, as we
shall explain later, confers jurisdiction on a Court on the basis of a
casual visit and the expression “last resided”, about which also we

37 Notiﬁcation No. 28/2012 [F. No. 503/02/1997-FTD-1]/S.O. 1693(E), dated 25-7-2012
38 (1964) 2 SCR 73
1176 SUPREME COURT REPORTS [2023] 16 S.C.R.

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 Raju39 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 Prasad v. State of Bihar40 this court reiterated
the same view, that “is” refers to the present:
“Although the expression normally refers to the present, often it has
a future meaning. It may also have a past signiﬁcation as in the sense
of “has been”. (See F.S. Gandhi v. CWT [(1990) 3 SCC 624 : 1990
SCC (Tax) 364 : AIR 1991 SC 1866] .) The true intention has to be
contextually culled out.”
51. From the above discussion, it is clear that the expression “is” has
a present signiﬁcation and it derives meaning from the context. Given this
interpretation, the conclusion is that when a third-party country enters into
DTAA with India, it should be a member of OECD, for the earlier treaty
beneﬁciary to claim parity.

39 (2000) 4 SCC 539
40 (2004) 5 SCC 196
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1177
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

D. Treaty practice of India, in relation to DTAAs and their Protocol,
and practices of Netherlands, France and Switzerland
52. The DTAA which India entered into with the Kingdom of
Netherlands, was signed on 13.07.1988. Article IV of the Protocol (of the
same date), to the DTAA provided that
“if after the signature of the aforesaid Convention under any
Convention or Agreement between India and a third State which
is a member of the Organisation for Economic Co-operation and
Development, India, should limit its taxation at source on dividends,
interest, 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”
53. The DTAA between India and Germany entered into force on
26.10.1996; the DTAA between India and Sweden entered into force on
25.12.1997, the India-Swiss Confederation DTAA entered into force on
19.10.1994, and the DTAA between India and the United States of America
entered into force on 18.12.1990. These states were members of the OECD.
The Union limited the taxation at source on dividends, interest, royalties,
fees for technical services and payments for the use of equipment to a rate
lower or a scope more restricted than that provided in the DTAA between
India and the Netherlands on the said items of income. Consequently, the
notiﬁcation dated 30.08.1999, 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:
1178 SUPREME COURT REPORTS [2023] 16 S.C.R.

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 Contracting State
in which it arises and according to the laws of that State, but if the
recipient is the beneﬁcial owner of the interest the tax so charged shall
not exceed 10 per cent. of the gross amount of the interest.”
III. With eﬀect from the April 1, 1997, for the existing article 12
relating to royalty, fees for technical services and payments for the
use of equipment the following article shall be read :
“Article 12
ROYALTIES AND FEES FOR TECHNICAL SERVICES
1. Royalties and fees for technical services arising in a Contracting
State and paid to a resident of the other Contracting State may be
taxed in that other State.
2. However, such royalties and fees for technical services may also be
taxed in the Contracting State in which they arise and according to
the laws of that State ; but if the beneﬁcial owner of the royalties or
fees for technical services is a resident of the other Contracting State,
the tax so charged shall not exceed :
(a) in the case of royalties referred to in sub-paragraph (a) of
paragraph 4 and fees for technical services as deﬁ ned in this
article (other than services described in sub-paragraph (b) of this
paragraph):
(i) during the ﬁrst ﬁve taxable years for which this Convention has
eﬀect,--
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1179
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

(A) 15 per cent. of the gross amount of the royalties or fees for technical
services as deﬁned in this article, where the payer of the royalties
or fees is the Government of that Contracting State, a political sub-
division or a public sector company ; and
(B) 20 per cent, of the gross amount of the royalties or fees for technical
services in all other cases ; and
(ii) during the subsequent years, 15 per cent. of the gross amount of
royalties or fees for technical services ; and
(b) in the case of royalties referred to in sub-paragraph (b) of
paragraph 4 and fees for technical services as deﬁned in this article
that are ancillary and subsidiary to the enjoyment of the property for
which payment is received under paragraph 4(b) of this article, 10 per
cent. of the gross amount of the royalties or fees for technical services.
3. The competent authorities of the States shall by mutual agreement
settle the mode of application of paragraph 2.
4. The term “royalties” as used in this article means:
(a) payments of any kind received as a consideration for the use of,
or the right to use, any copyright 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 :
1180 SUPREME COURT REPORTS [2023] 16 S.C.R.

(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 or consist of the development and transfer of a technical
plan or technical design.
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 other than a sale
described in paragraph 4(a) ;
(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 international traﬃc;
(c) for teaching in or by educational institutions;
(d) for services for the personal use of the individual or individuals
making the payment; or
(e) to an employee of the person making the payments or to any
individual or partnership for professional services as deﬁned in article
14 (independent personal services) of this Convention.
7. The provisions of paragraphs 1 and 2 shall not apply if the
beneﬁcial owner of the royalties or fees for technical services, being
a resident of one of the States, carries on business in the other State,
in which the royalties or fees for technical services arise, through a
permanent establishment situated therein, or performs in that other
State independent personal services from a ﬁxed base situated therein,
and the royalties or fees for technical services are eﬀectively connected
with such permanent establishment or ﬁxed base. In such case, the
provisions of article 7 or article 14, as the case may be, shall apply.
8. Royalties or fees for technical services shall be deemed to arise in
one of the States when the payer is that State itself, a political sub-
division, a local authority or a resident of that State. Where, however,
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1181
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

the person paying the royalties or fees for technical services, whether
he is a resident of one of the States or not, has in one of the States a
permanent establishment or a ﬁxed base in connection with which the
contract under which the royalties or fees for technical services are
paid was concluded, and such royalties or fees for technical services
are borne by such permanent establishment or ﬁxed base, then such
royalties or fees for technical services shall be deemed to arise in the
State in which the permanent establishment or ﬁxed base is situated.
9. Where, by reason of a special relationship between the payer and the
beneﬁcial 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 last-mentioned 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 international traﬃc;
(c) for teaching in or by educational institutions;
(d) for services for the personal use of the individual or individuals,
making the payment; or
(e) to an employee of the person making the payments or to any
individual or partnership for professional services as deﬁned in article
1182 SUPREME COURT REPORTS [2023] 16 S.C.R.

14 (independent personal services) of this Convention.”
V. With eﬀect from April 1, 1997, for paragraph 2 of article 12, relating
to royalties and fees for technical services referred to in paragraph
III above the following paragraph shall be read :
“2. However, such royalties and fees for technical services may also
be taxed in the Contracting State in which they arise and according
to the laws of that State, but if the recipient is the beneﬁcial owner of
the royalties, or fees for technical services, the tax so charged shall
not exceed 10 per cent. of the gross amount of the royalties or the fees
for technical services.”
VI. With eﬀect from April 1, 1998, for paragraph 4 of article 12 relating
to royalties and fees for technical services referred to in paragraph
III above the following paragraph shall be read :
“4. The term “royalties” as used in this article means payments of
any kind received as a consideration for the use of, or the right to
use, any copyright of literary, artistic or scientiﬁc work including
cinematograph ﬁlms, any patent, trade mark, design or model, plan,
secret formula or process, for information concerning industrial,
commercial or scientiﬁc experience.”
VII. The memorandum of understanding and the conﬁrmation of
understanding, dated September 12, 1989, with reference to paragraph
4 of article 12 of the Indo-USA Double Taxation Avoidance Convention
(DTAC), will apply mutatis mutandis for the purpose of paragraphs
III, IV, V and VI above.”
54. It is therefore, clear that the date on which the relief of rate
of taxation for interest and dividends was speciﬁed to be 01.04.1997;
diﬀerent dates (01.04.1995 and 01.04.1998) were applied as applicable to
the deﬁnition of fees and technical services and other details; the rates, too
varied, depending on the period(s). The second aspect, is that the notiﬁcation
under Section 90 was issued on 30.08.1999. The third, and most signiﬁcant
aspect is that the favourable or beneﬁcial treatment was given to other
OECD nations on 26.10.1996 (India-Germany); the DTAA between 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
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1183
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

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 that DTAA (which dealt with principles
of taxation of Business proﬁts), provided by Article 7(3)(a) that:
“Provided that where the law of the Contracting State in which the
permanent establishment is situated imposes a restriction on the
amount of the executive and general administrative expenses which
may be allowed, and that restriction is relaxed or overridden by any
Convention, Agreement or Protocol signed after 1-1-1990 between
that Contracting State and a third State which is a member of the
OECD, the competent authority of that Contracting State shall notify
the competent authority of the other Contracting State of the terms
of the corresponding paragraph in the Convention, Agreement or
Protocol with that third State immediately after the entry into force
of that Convention, Agreement or Protocol and, if the competent
authority of the other Contracting State so requests, the provisions
of that paragraph shall apply under this Convention from that entry
into force.”
57. The DTAA between India and USA had been entered into force, on
18.12.1990; the DTAA between India and Germany had been entered into
on 26.10.1996. These DTAAs gave beneﬁts or more favourable treatment
1184 SUPREME COURT REPORTS [2023] 16 S.C.R.

to USA and Germany, in respect of income on dividends, interest, royalties,
deﬁnition of royalties and fees for technical services. In the light of these,
India notiﬁed changes in the applicable provisions to the India-France DTAA
and Protocols through a notiﬁcation in July, 200041. The recital to the said
notiﬁcation of 2000 reads as follows:
“And whereas in the Convention between India and Germany which
entered into force on the 26th October, 1996, and the Convention
between India and the United States of America which entered into
force on the 18th December, 1990, which States are members of the
Organisation for Economic Co-operation and Development, the
Government of India has limited the taxation at source on dividends,
interest, royalties, fees for technical services and payments for the
use of equipment to a rate lower or a scope more restricted than that
provided in the Convention between India and France on the said
items of income.”
58. The amending notiﬁcation again followed the same pattern, as in the
case of the India-Netherlands DTAA, of deﬁning the rate and nature of relief
on interest, and dividends and the rates applicable, 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

41 Notiﬁcation No. S.O. 650(E), dated 10-7-2000
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1185
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

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 of India-France DTAA is less restrictive
than these two DTAAs (India-Portugal and India-UK). The provisions of
the latter two DTAAs enabling such acts to get beneﬁts, too should have
applied. The revenue argues that for the more restrictive deﬁnitions in
the DTAAs in India-Portugal and India-UK treaties, to be automatically
imported into India-France DTAA there is need for a notiﬁcation, before its
scope could be imported. It is pointed out that the Protocol, of 10.07.2000
did not extend the expanded deﬁnition, and instead conﬁned the beneﬁts to
deﬁnition and treatment of income from dividends, interest, and royalties.
The “make available” condition, in other DTAAs was consciously omitted
from the notiﬁcation.
60. The omission of certain beneﬁts (available to other member
countries of OECD who had entered into DTAAs with India) in the
subsequent notiﬁcation, dated 10.07.2000, is another indication that a
“trigger” event such as India granting favourable relief to a country per
se does not cover all the beneﬁts granted through the later instrument.
Therefore, the beneﬁt which India granted France, was within the framework
of its treaty originally negotiated. In the case of the other country (granted
beneﬁts later, through a convention, by India), a diﬀerent trajectory of
negotiations might have led to diﬀerent kind of beneﬁts to the third country
(UK and Portugal, in the case of France). In other words, the structure of the
main DTAA, and its phraseology, based on negotiations with the countries
concerned, i.e., Netherlands, France and Switzerland, also plays a role in
the kind of beneﬁts that are assured through it. The structure and terms of
other DTAAs might be diﬀerent; the coverage and deﬁnition of certain terms
(FTS, permanent establishment, etc.) might be dissimilar. The revenue’s
argument that grant of automatic beneﬁts based on the other country’s entry
into OECD, as unfeasible, has merit.
61. As far as Switzerland is concerned the earlier discussion has noticed
the three diﬀerent dates when DTAA and the two later Protocols were entered
into. They were given eﬀect to by three separate notiﬁcations (No. GSR
357(E), dated 21.04.1995; as amended by Notiﬁcation No. GSR 74(E),
dated 07.02.2001 and Notiﬁcation No. S.O. 2903(E), dated 27.12.2011).
1186 SUPREME COURT REPORTS [2023] 16 S.C.R.

The second Protocol contained a condition, which constituted the “trigger”
event. That 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” means a transaction or series of transactions
which is structured in such a way that a resident of a Contracting State
entitled to the beneﬁts of the Agreement receives an item of income
arising in the other Contracting State but that resident pays, directly
or indirectly, all or substantially all of that income (at any time or in
any form) to another person who is not a resident of either Contracting
State and who, if it received that item of income directly from the
other Contracting State, would not be entitled under a Convention
or Agreement for the avoidance of double taxation between the State
in which that other person is resident and the Contracting State in
which the income arises, or otherwise, to beneﬁts with respect to that
item of income which are equivalent to, or more favorable than, those
available under this Agreement to a resident of a Contracting State;
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1187
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

and the main purpose of such structuring is obtaining beneﬁts under
this Agreement.
In respect of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties
and fees for technical services), if under any Convention, Agreement
or Protocol between India and a third State which is a member of the
OECD signed after the signature of this Amending Protocol, India
limits its taxation at source on dividends, interest, royalties or fees
for technical services to a rate lower than the rate provided for in
this Agreement on the said items of income, 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.
If after the date of signature this Amending Protocol, India under
any Convention, Agreement or Protocol with a third State which is
a member of the OECD, restricts the scope in respect of royalties or
fees for technical services than the scope for these items of income
provided for in Article 12 of this Agreement, 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.”
It is urged that the change in terminology is significant. The
earlier Protocol had obliged parties to enter into negotiations to ensure
that beneﬁts extended to state parties which later entered into OECD
membership, 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:
1188 SUPREME COURT REPORTS [2023] 16 S.C.R.

“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,
inbuilt in the entire eco-system of the DTAAs is the inarticulate premise
that assimilation into the domestic legal system is not always within the
control of the executive wing which enters into the convention, or signs the
protocol and that compelling constitutional and legal requirements have
to be satisﬁed, before its beneﬁts are integrated within the national legal
regimes. This consideration, or premise, would equally apply in the case of
the India-Switzerland DTAA and its amending Protocol; the requirement of
notiﬁcation of the protocol and a separate amending Protocol, (like in the
case of France and Netherlands) is necessary, by reason of Section 90 of
the Act. Switzerland cannot claim an exception, based only on the language
of the third Protocol.
64. It would be useful to end this discussion, with one more instance of
India’s treaty practice, in regard to fulﬁlling its obligations under DTAAs and
their Protocols. India had entered into a DTAA with Canada on 30.10.1985
which was notiﬁed on 25.09.1986 under Section 90. The DTAA contained
provisions relating to rate of taxation, and treatment of royalties. It also
contained a provision that in the event India entered into a subsequent DTAA
with a member of the OECD, and conferred better terms, as compared with
Canada, then the latter would be extended similar beneﬁts. The India-Sweden
DTAA was signed on 12.12.1988, which extended more favourable beneﬁts,
than what was given to Canada; Sweden was an OECD member when the
DTAA was signed with India. This constituted the “trigger” event, impelling
Canada to seek parity. The Protocol (of 1985) to the India-Canada DTAA
contained the following stipulation:
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1189
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

“With reference to paragraph 2 of article 13, in the event that
pursuant to an Agreement or a Convention concluded with a State
which is a member of the Organisation for Economic Co-operation
and Development after the date of signature of this Agreement, India
would accept a rate lower than 30 per cent for the taxation of royalties
or fees for technical services paid by a resident of India to a resident
of that State, it is understood that such lower rate will automatically
be applied for the taxation of royalties and fees for technical services
paid by a resident of India to a resident of Canada where the royalties
or fees for technical services are paid in respect of a right or property
which is ﬁrst 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 Government have also passed a Remission Order
dated 3rd December, 1991, making the revised rate as above applicable
to Indian residents as well in respect of royalties or fees for technical
services paid by a Canadian resident.”
66. It is quite clear that the Protocol, to the original DTAA was
unambiguous and emphatic; it required that the trigger event would lead to
1190 SUPREME COURT REPORTS [2023] 16 S.C.R.

“such lower rate will automatically be applied for the taxation of royalties
and fees for technical services paid by a resident of India to a resident of
Canada where the royalties or fees for technical services are paid in respect
of a right or property”. In such an instance, of language, in the protocol,
being as emphatic as the third Protocol to the India-Switzerland DTAA,
the treaty practice of India was consistent; a separate notiﬁcation was later
issued.
67. The respondents had relied on decrees/decisions of each of the
countries, to underline that in terms of treaty practice of the three countries,
the Union government has to extend reciprocity, which means that similarly,
automatic beneﬁts have to be given to taxpayers, claiming them under
DTAAs and Protocols, on the occurrence of a third-party state granted
better beneﬁts, gaining admission/membership into OECD. The decree or
decision of the Directorate General of Fiscal Aﬀairs, International Fiscal
Aﬀairs (relevant authority in the Kingdom of Netherlands), relied upon by
Concentrix and Optum Global42 reads as follows:
“In the treaty India agreed with Slovenia which entered into
force on 17 February 2005 has entered a participation dividend rate
of 5 percent. This is the case a participation dividend, if a company
immediately provides at least 10 percent of the capital hold the
body that pays the dividends. Slovenia joined. the OECD on 21 July
2010. Under the most-favored nation clause in the Protocol to the
Convention, this event has the eﬀect of retroactive eﬀect to and As of
July 21, 2010 a rate of 5 percent applies to participation dividends,
which are paid by a body that a resident of the Netherlands to a body
that is a resident of India. The text of the relevant Treaty provision from
the India -Slovenia Treaty is contained in the attachment.
The most-favored-nation clause remains on portfolio 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

42 Decision of 28 February 2012, No. IFZ 2012/54M, Tax treaties: India, issued
by the Director General, Fiscal Aﬀairs, Kingdom of Netherlands
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1191
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

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 Federation43 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 amending protocol dated 30 August 2010, India
under any convention, agreement or protocol with a third State which
is a member of the OECD, limits its taxation at source on dividends,
interest, royalties or fees for technical services to a rate lower than
the rate provided for in OTC IN-CH on the said items of income, the
same rate as provided for in that convention, agreement or protocol
on the said items of income shall also apply between Switzerland
and India as from the date on which such Convention, Agreement or
Protocol enters into force.
Following the signing of the amending protocol dated 30 August
2010, India concluded two new double taxation agreements with
States which are now OECD members, in which it granted lower rates
with respect to dividends. These are the agreement of 26 July 2011
between the government of the Republic of India and the government
of the Republic of Lithuania for the avoidance of double taxation with
respect to income tax (DTC IN-L T) and the agreement of 13 May 2011
between the government of the Republic of India and the Republic of
Colombia for the avoidance of double taxation with respect to income
tax (DTC IN-CO).

43 The State Secretariat for International Financial Matters SIF Section Bilateral
tax Issues and double taxation treaties, Swiss Federation, dated 13.08.2021
1192 SUPREME COURT REPORTS [2023] 16 S.C.R.

Article 10, paragraph 2, letter a DTC IN-LT provides for a residual
tax rate in the source State of 5% of the gross amount of dividends
if the beneﬁcial owner is a company (other than a partnership) that
directly owns at least 10% of the capital of the company paying the
dividends. Lithuania joined the OECD on 5 July 2018.
On the basis of the most favoured nation clause between Switzerland
and India, lithuania’s accession to the OECO has the effect of
retroactively (from 5 July 2018) reducing the residual lax rate in the
source State for dividends from qualiﬁed participations from 10% to
5% applicable to the relationship between India and Switzerland.
Article 10, paragraph 2 OTC IN-CO provides for a general residual
tax rate of 5% in the source state. Colombia joined the OECD on 28
April 2020.
On the basis of the most favoured nation clause between Switzerland
and India, Colombia’s accession to the OECD has the eﬀect of
retroactively (from 28 April 2020) reducing the residual tax rate in
the source Start: for dividends from 10% to 5% (dividends arising
from qualiﬁed interests and portfolio dividends) applicable to the
relationship between India and Switzerland.
Thus, under the provisions 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-
favoured-nation clause
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1193
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

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 directly holds
at least 10 % of the capital of the company paying those dividends.
B. Interest referred to in Article 2, Paragraph 12
(a) The rate of 10 per cent provided for in paragraph 2 {a) of Article
12 of the Franco-Indian Convention applies to interest paid on loans
granted by insurance companies as a result of India’s tax treaty with
the United States.
(b) The rate of 15 % provided for in paragraph 2 (b) of Article 12
shall be replaced by that of 10 % following the tax treaty concluded
by India with Germany.”
69. The context of these executive orders or decrees is to be understood
in relation to each country’s manner of assimilation of treaties, in municipal
or national law. The Federal Council headed by the President and the Federal
Chancellor exercise the executive authority, in Switzerland. The Federal
Council has the authority to negotiate and sign treaties and conventions.
The treaty after its signature is ratiﬁed in four diﬀerent ways:
(a) In certain cases, Parliament authorizes the Federal Council in
advance to sign the treaty and bring it into force as well;
(b) Some treaties require prior approval of the Parliament to be
enforceable;
(c) In some cases, the treaty is subjected to optional referendum
provided under Article 89 (3) of the Constitution;
(d) In some cases, the international agreement needs sanction through
compulsory referendum in terms of Article 89 (5) of the Constitution44.

44 Article 89 of the Federal Constitution of the Swiss Federation, available at: https://
www.constituteproject.org/constitution/Switzerland_2014.pdf?lang=en (accessed on
11.10.2023).
1194 SUPREME COURT REPORTS [2023] 16 S.C.R.

Consequential process then follows having regard to the nature of
the treaty.
70. As far as France is concerned, the French Constitution of 1958, by
Article 52 empowers the President to negotiate and ratify treaties. Treaty
ratiﬁcation is authorized by the National Assembly and Senate when that
treaty would aﬀect the sovereignty of France or alter an existing statute,
though such authorization has no normative value. A treaty aﬀecting the
rights of the citizens has to be published; after publication it prevails over
French legislation. Article 55 confers upon treaties a status superior to that
of domestic legislation and provides that concluded treaties do not require
any implementing legislation to be enforceable.45
71. The Kingdom of Netherland 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;
Chapter III of the Constitution.). 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 Constitution46). 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, through a separate statute,
or get assimilated through a legislative device, i.e. notiﬁcation in the gazette,

45 Title VI and Art. 56 of the French Constitution, 1958, available at: https://
www.constituteproject.org/constitution/France_2008.pdf?lang=en (accessed on
15.10.2023).
46 Article 91 of the Constitution of the Kingdom of Netherlands, 2018, available at:
https://www.government.nl/binaries/government/documenten/reports/2019/02/28/
the-constitution-of-the-kingdom-of-the-netherlands/WEB_119406_Grondwet_
Koninkrijk_ENG.pdf (accessed on 15.10.2023).
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1195
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

based upon some enacted law (some instances are the Extradition Act, 1962
and the Income Tax Act, 1961). Absent this step, treaties and protocols
are per se unenforceable.
E. International perspectives and practices
73. Klaus Vogel47 (an acknowledged authority on double taxation), in
the Treatise Double Taxation Conventions, comments - pertinently states, on
the aspect of assimilation of international treaties into municipal (national)
laws, that:
“45.For purposes of international law, a tax treaty comes into
existence upon the declaration of consent by both Contracting States
(Article 9(1) VCLT). Ordinarily, the Head of State is authorized to
make the declaration. In Germany, the declaration under Article 59
Abs. 1 GG is made by the Federal President. In the US, under Article
II, section 2, clause 2 of the Constitution, the President, as Head of
State, declares the consent of the United States to be bound by the
treaty under international law. This power is ordinarily delegated to
the Secretary of State or a US Ambassador.
46. The method by which the Contracting States declare their
consent is left to the Contracting Parties (Article 11 et seq. VCLT).
For important treaties, however, it is generally agreed that the
conclusion of the treaty shall be given eﬀect only through an
exchange of instruments, or ‘ratiﬁcation’ (Article 14(1) VCLT);
for multilateral treaties, it is by deposit of instruments at a location
agreed upon in the treaty through corresponding notiﬁ cation
(Articles 14(1), 16 VCLT). Ratiﬁ cation is to be distinguished from
parliamentary consent (see above), which frequently, primarily in
the language of the media, is incorrectly termed as ‘ratiﬁcation’.
Article 31 of the OECD MC, Article 30 of the UN MC and Article
29 of the US MC each provide for ratiﬁcation of tax treaties and
treaties normally follow the MC in this respect. In the document
of ratiﬁcation, the authorized agent - the President in the US, the
Federal President in Germany, Austria and Switzerland – delivers the

47 Klaus Vogel on Double Taxation Conventions
1196 SUPREME COURT REPORTS [2023] 16 S.C.R.

formal declaration that the constitutional requirements necessary for
internal application of the treaty have been fulﬁlled (see infra Article
31 at m.no. 11 et seq.).
*************** *************
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).48
*************** ***************
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.49 In special, legally
authorized cases, such as for DTCs under § 788 ICTA 1988, the Queen
may enact an Order in Council in place of parliamentary legislation.50
A special law is also required in Canada51 and other members of the
Commonwealth. Under Netherlands constitutional law, the treaty
becomes applicable domestically at the time it enters into force,52
reﬂecting the ‘monist’ theory of international law. In general, the
conﬂict between ‘monistic’ and ‘dualist’ theories has been overcome
by a compromise view.53

48 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 McNair, A.D., The Law of Treaties (1961) at 81; Oliver, J.D.B., 15 BTR 388 (1970).
50 See Baker, P., Double Taxation Conventions and International Tax Law (1994) at 46.
51 Ward, D.A., Ward’s Tax Treaties (1993/94), at 6.
52 Van Raad, K., 47 MBB 49 (1978).
53 See in general: Tunkin, G & Wolfrum, R. (eds.), International Law and Municipal Law
(1988).
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1197
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

50. The process pursuant to which a treaty acquires the force and
eﬀect of domestic law was for long referred to by German theorists
as a ‘transformation’ (i.e., as the promulgation of a domestic
statute parallel to the treaty and incorporating the treaty text). A
similar view can also be found, though often not very explicit, in
other countries.54 This theory, however cannot explain why, among
other things, the treaty, even after parliamentary consent, becomes
applicable domestically only when it enters into force under
international law or why it loses its binding force internally when
it is rescinded or terminated at the international level. For these
reasons, the German doctrine of international law abandoned the
transformation theory. Parliamentary consent is now understood as a
mandate through which the treaty itself - rather than a corresponding
internal legislative provision - becomes applicable within the scope
of domestic law.55
51. The point in time at 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.

54 See, e.g., Canadian Supreme Court of 28 September 1982, The Queen v. Melford
Development Inc., D.T.C. 6281 (1982), at 6285.
55 Regarding the domestic applicability of international agreements in Germany, see
Partsch, J., Die Anwendung des Volkerrechts im innerstaatlichen Recht. Uberprufung der
Transformationslehre (6 Berichte der Deutschen Gesellschaft fur Volkerrecht (1964));
Blechmann, A., Begriﬀ und Kriterien der innerstaatlichen Anwendbarkeit volkerrechtlicher
Vertage (1970); id., Grundgesetz und Volkerrecht, 277 (1975); Langbein, V., Intertax 151
(1985), original German version: Langbein, V.,30 RIW 531 (1984).
1198 SUPREME COURT REPORTS [2023] 16 S.C.R.

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.56”
F. Vienna Convention on Law of Treaties
74. Article 31 of the VCLT57 reﬂects the general rules of treaty
interpretation. India is not a signatory to the convention. However, the
convention has been accepted by consensus as reﬂecting the customary
international law on general rules of treaty interpretation, and is thus still
relevant in the Indian context. Article 31(3) of the VCLT provides that the
following shall be taken into account, while interpreting the provisions of
a treaty:
(a) any subsequent agreement between the parties regarding
the interpretation of the treaty or the application of its
provisions;

56 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
57 “Article 31 General Rule of Interpretation
1. A treaty shall be interpreted in good faith in accordance with the ordinary
meaning to be given to the terms of the treaty in their context and in the light of
its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall com-
prise, in addition to the text, including its preamble and annexes:
(a) any agreement relating to the treaty which was made between all the
parties in connection with the conclusion of the treaty;
(b) any instrument which was made by one or more parties in connection
with the conclusion of the treaty and accepted by the other parties as an instru-
ment related to the treaty.”
3. There shall be taken into account, together with the context:
(a) any subsequent agreement between the parties regarding the interpreta-
tion of the treaty or the application of its provisions;
(b) any subsequent practice in the application of the treaty which establish-
es the agreement of the parties regarding the interpretation of the treaty or the
application of its provisions;
(c) any relevant rules of international law applicable in the relations be-
tween the parties.”
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1199
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

(b) any subsequent practice in the application of the treaty
which establishes the agreement of the parties regarding the
interpretation of the treaty or the application of its provisions;
(c) any relevant rules of international law applicable in the relations
between the parties.
75. In 2018, the International Law Commission (ILC) adopted its
Draft Conclusions on Subsequent Agreements and Subsequent Practice in
relation to the Interpretation of Treaties (“ILC Draft Conclusions”).58 The
ILC Draft Conclusions note 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.59
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.60 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.61 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,62 and may take several forms.63 ‘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 based on a treaty, and
abstention from action (omission) in the application of a treaty. Put simply,
practice covers ‘what states do in their relations with one another’.64 In a
more dynamic sense, it represents the process of continuous interaction

58 ILC Draft Conclusions on Subsequent Agreements and Subsequent Practice in relation
to the Interpretation of Treaties, available at https://legal.un.org/ilc/texts/instruments/
english/draft_articles/1_11_2018.pdf.
59 Conclusion 3, Id.
60 Conclusion 4(1), Id.
61 Conclusion 4(2), Id.
62 Conclusion 5(1), Id.
63 Conclusion 6(2), Id.
64 JL Brierly, The Law of Nations, 6th Ed. (Oxford University Press, 1963), 59.
1200 SUPREME COURT REPORTS [2023] 16 S.C.R.

between States. It also covers subsequent treaties with third States65, and
patterns of treaties, for instance when considering whether the conclusion
of a large number of Bilateral Investment Treaties (BITs) could collectively
amount to subsequent practice.66
77. The International Court of Justice (ICJ) has accepted a wide
variety of activities as interpretive conduct by states. It has referred to
domestic legislation67, diplomatic correspondence68, and the silence or
inactivity of one state in the face of the conduct of another. For example,
in the Rights of Nationals Case, the ICJ took into account the practice
of local customs oﬃcials.69 In the Asylum Case70, 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 Case71, 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.

65 Irina Buga, ‘Subsequent Practice as a Means of Treaty Interpretation’ in Modiﬁcation
of Treaties 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.
66 See eg., SM Schwebel, ʻThe Inﬂuence 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.
67 See Anglo-Iranian Oil Co. Case (U.K. v. Iran), 1952 I.C.J. 93, 106-07 (Iranian law
used in interpreting the Iranian declaration acceding to the jurisdiction of the court).
68 See 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, where, in both cases, statements by South African diplomats were
used in interpreting the League of Nations Mandates. See also Case Concerning Rights
of Nationals of the United States of America in Morocco (Fr. v. U.S.), 1952 I.C.J.
176, 211, where letters and minutes of meetings of customs oﬃcials were used in
interpreting the treaty in question.
69 Case Concerning Rights of Nationals of the United States of America in Morocco (Fr.
v. U.S.), 1952 I.C.J. 176, 211
70 Asylum Case (Colombia. v. Peru), 1950 I.C.J. 266, 286.
71 Corfu Channel (U.K. v. Alb.), 1949 I.C.J. 4, 25.
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1201
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

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.72 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 subsequent
practice when the circumstances call for some reaction.73 Agreement between
the parties in respect of subsequent conduct or practice may be established
by acquiescence of parties not actively participating in the practice, or the
absence of objections (characterized as ‘passive conduct’).74
79. ILC commentaries, such as the ILC Draft Conclusions on
subsequent practice, are an inﬂuential subsidiary means for determining
rules of law, within the meaning of the term in Article 38(1)(d) of the ICJ
Statute. This is because these documents often record and assess state
practice (as well as international jurisprudence and doctrine), and often
explain whether (and to what extent) opinio juris exists.75 As of 2019, the
ICJ had relied expressly on the ILC’s work in 22 cases (19 decisions in
contentious proceedings and 3 advisory opinions).76
80. The provisions of the ILC Draft Conclusions on subsequent practice
were drafted and adopted by consolidating the writings of eminent publicists
in international law, pursuant to extensive research on evolving state practice.77
The cumulative eﬀect of these provisions is that state practice subsequent to
the adoption of a treaty conﬁrms and solidiﬁes the intent of the parties to the

72 Conclusion 10(1), Id.
73 Conclusion 10(2), Id.
74 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.
75 Danae Azaria, The International Law Commission’s Return to the Law of Sources of
International Law, 13 FIU L. Rev. 989 (2019).
76 Id.
77 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).
1202 SUPREME COURT REPORTS [2023] 16 S.C.R.

treaty. The goal of treaty interpretation under the VCLT is to determine the
meaning of the treaty viewed from the perspective of the contemporary
shared understanding of the parties to the treaties.78 As James Crawford
has pointed out, from the perspective of international law, ‘the parties…own
the treaty’79. 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.80
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.81 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 it does not pick up
or set down passengers or cargo. However, the practice of the parties over
many years has been to require charter airlines to seek permission to land
in all cases, and the article is now so interpreted. 82
82. The work of Sir Gerald Fitzmaurice during the drafting
process that eventually led to the formulation of Article 31 VCLT is also
worthy of note. Taking as a reference point the ICJ’s case law between
1951 and 1954, Fitzmaurice formulated the major principles of treaty
interpretation that formed the basis for the ILC draft provisions on treaty
interpretation. He outlined three subsidiary principles of interpretation,

78 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.
79 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.
80 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 Anthony Aust, Modern Treaty Law and Practice, (Cambridge University Press, 2013),
at p. 194.
82 B. Cheng, ‘Air Law’, Max Planck Encyclopedia of Public International Law (1989),
Vol. 11, pp. 8-9.
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1203
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

‘eﬀectiveness’, ‘subsequent practice’, and ‘contemporaneity’, which he
saw as complementary to the three primary ones: ‘actuality’, the ‘natural
and ordinary meaning’, and ‘integration’. With regard to the principle of
subsequent practice, Fitzmaurice remarked, as early as then, that: “Where
the practice has brought about a change or development in the meaning of
the treaty through a revision of its terms by conduct, it is permissible to give
eﬀect to this change or development as an agreed revision...” 83
83. The ICJ in its decision in Case Concerning the Land, Island
and Maritime Frontier Dispute (El Salvador v Hondurus)84 considered
and explained how practice of parties assumes signiﬁcance in treaty
interpretation:
“380. The Chamber considers that, while both customary law and
the Vienna Convention on the Law of Treaties (Art. 31, para. 3(b))
contemplate that such practice may be taken into account for purposes
of interpretation, none of these considerations raised by Honduras
can prevail over the absence from the text of any speciﬁc reference
to delimitation. In considering the ordinary meaning to be given to
the terms of the treaty, it is appropriate to compare them with the
terms generally or commonly used in order to convey the idea that a
delimitation is intended. Whenever in the past a special agreement has
entrusted the Court with a task related to delimitation, 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.
***********************

83 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.
84 ICJR (1992) 351 - Decision dated 12-09-1992, [General List No. 75]
1204 SUPREME COURT REPORTS [2023] 16 S.C.R.

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 jurisdiction
and sovereignty, though with rights of innocent passage conceded on
a mutual basis; second, all three States recognized a further belt of 3
marine leagues (9 nautical miles) for rights of “maritime inspection”
for ﬁscal purposes and for national security; third, there was an
Agreement of 1900 between Honduras and Nicaragua by which a
partial maritime boundary between the two States had been delimited,
which, however, stopped well short of the waters of the main entrance
to the bay.
*************************
410. If the Gulf is an historic bay, it is necessary to determine
the closing line of the waters of the bay. The normal geographical
closing line for the waters of the Gulf of Fonseca would be the line
Punta Amapala to Punta Cosigüina. This seems to have been the
closing line recognized by the three coastal States in practice. It is,
moreover, the closing line referred to in the 1917 Judgement (loc cit.,
p. 706). It had not been necessary to say more, had not El Salvador
elaborated a thesis of an “inner Gulf” and an “outer Gulf”, based
on the reference in the Judgement of 1917, to an inner closing line
from Punta Chiquirin, through Meanguera and Meanguerita, to
Punta Rosario. The purpose of El Salvador’s reference to this inner
line, in its argument before the Chamber, was apparently to suggest
that the Honduran legal interest in the Gulf waters was limited to
the area inside the inner line, the remainder being left to El Salvador
and Nicaragua. But there is nothing in the Judgement of the Central
American Court of Justice to support this. There is no suggestion in
that Judgement that Honduras was excluded from the waters between
that inner line and the outer closing line subject to the régime of
condominium found by the Court.”
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1205
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

84. In Case Concerning Kasikili/Sedudu Island- Botswana v Namibia85
too, practice was given signiﬁcance. The ICJ held, quoting from the
commentary of the ILC, that “(t)he importance of such subsequent practice
in the application of the treaty, as an element of interpretation, is obvious;
for it constitutes objective evidence of the understanding of the parties as
to the meaning of the treaty. Recourse to it as a means of interpretation is
well-established in the jurisprudence of international tribunals.” (Op cit.,
p. 241, para. 15.)”
85. Donald Regan, in a paper “Understanding What the Vienna
Convention Says About Identifying and Using ‘Sources for Treaty
Interpretation’ Identifying and Using ‘Sources for Treaty Interpretation’86
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 So, it is easy to see why concordant practice
should be an authentic source if it is engaged in by all the parties.
But Article 31 (3) (b) does not say the practice must be engaged in
by all the parties; it says only that it must establish the agreement of
all the parties. The ILC Commentary is very clear both that it must
be the agreement of all, and that it need not be the practice of all.27
Now, we will see below that even if 31 (3) (b) contemplated only the

85 [1999] ICJ Rep 1045; (General List No. 98)
86 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) < : https://repository.law.umich.
edu/book_chapters/257> (accessed on 14.10.2023).
1206 SUPREME COURT REPORTS [2023] 16 S.C.R.

practice of all the parties, a practice that was engaged in by some
parties, but not all, could still be introduced under Article 32; and
the interpreter would then consider how strong the partial practice
was as evidence of a common understanding.”
86. The material cited in the preceding paragraphs, on the ILC
Draft Conclusions and ICJ decisions, though not binding per se on this
court, certainly oﬀer valuable insight into treaty interpretation. In sum,
whilst considering treaty interpretation, it is vital to take into account
practice of the parties. There is no dispute that treaties constitute binding
obligations upon their signatories. Yet, like all compacts, how the parties
to any speciﬁc instrument view them, give eﬀect to its provisions, and the
manner of acceptance of such conventions or compacts are in the domain
of bilateral relations and diplomacy. Much depends upon the relationship
of the parties, the mutuality of their interests, and the extent of co-operation
or accommodation they extend to each other. In this, a range of interests
combine. The issue of treaty interpretation and treaty integration into
domestic law is driven by constitutional and political factors subjective to
each signatory. Therefore, domestic courts cannot adopt the same approach
to treaty interpretation in a black letter manner, as is required or expected
of them, while construing enacted binding law. The role of practice- which
is, as the previous discussion demonstrates, not bilateral or joint practice,
but practice by one, accepted generally by the international community
as operating in that particular sphere, which is relevant, and at times
determinative.
87. This court is of the opinion that the treaty practice of Switzerland,
Netherlands and France is dictated by conditions peculiar to their
constitutional and legal regimes. Could it conceivably be argued that in
the event of failure of the Swiss Confederation 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
ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) 1207
NEW DELHI v. M/S NESTLE SA [S. RAVINDRA BHAT, J.]

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 eﬀect of altering the existing
provisions of law.
(b) 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 beneﬁt in regard to a matter covered in the DTAA
of the ﬁrst nation, which entered into DTAA with India.
In such event, the terms of the earlier DTAA require to be
amended through a separate notiﬁcation under Section 90.
(c) The interpretation of the expression “is” has present
signiﬁcation. Therefore, for a party to claim beneﬁt 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 becomes an OECD member, in terms of India’s
practice.
1208 SUPREME COURT REPORTS [2023] 16 S.C.R.

89. In view of the foregoing analysis and conclusions, it is held that
the reasoning and ﬁndings in the impugned orders cannot survive; they are
set aside.
The revenue’s appeals, therefore, succeed and are allowed. There
shall be no order on costs. Pending applications, including those seeking
intervention for impleadment, are disposed of.
90. As the facts in CA No. 1428/2023 relate to the interpretation of the
India-Spain DTAA, which has not been considered in the present judgment,
this matter is hereby de-tagged, to be listed before the appropriate bench.

Headnotes prepared by: Appeals allowed.
Divya Pandey