Volume 5 1702263958

OCTOBER
2023
Volume: 5
TAX LAW IN ACTION

#5 INTERESTING CASES
D I R E C T T A X
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:: About the Contributors ::

Adv (CA) Mohit Balani is a Chartered Accountant turned Lawyer. He has successfully
argued matters relating to Direct Tax, Indirect Tax, Benami Properties and other Commercial
and Fiscal laws before the Hon’ble Supreme Court, Hon'ble Gujarat High Court, the Income
Tax Appellate Tribunal, CESTAT, Appellate Tribunal for Forfeited Properties, and
Commissioner of Income Tax (Appeals).
Adv. Priyanshi Desai is a lawyer. She practices as an independent tax counsel before High
Court of Bombay and Income Tax Appellate Tribunal and Commissioner of Income Tax
(Appeals).
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CASE LAW # 1
S. 90: No right to invoke MFN clause when the third country with which India
has entered into DTAA was not an OECD member at the time of entering into
such DTAA – MFN clause is not to be given effect to automatically – MFN
clause comes into effect only after a notification is issued.
AO Circle (International Taxation)- 2(2)(2), New Delhi
vs. M/s Nestle SA
Civil Appeal NO(S). 1420 of 2023 (SUPREME COURT)
FACTS OF THE CASE

The present batch of appeals arose from decisions of Delhi High Court involving interpretation
of the Most Favoured Nation (MFN) clause contained in various Indian treaties with countries
that are members of the Organization for Economic Cooperation and Development (OECD).
This clause provides for lowering of rate of taxation at source on dividends, interest, royalties
or fees for technical services as the case may be. The bilateral treaties in question are between
India and Netherlands, France and Switzerland respectively.
QUESTION BEFORE THE HIGH COURT
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 (DTAA) was not an 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 ?
SYNOPSIS OF THE JUDGMENT

Held: No; 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. 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. 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. The revenue’s appeals, therefore, succeed and are allowed.
TO VIEW THE FULL JUDGEMENT CLICK HERE

CASE LAW # 2
S. 147 – Where there is no fresh tangible material received by the Assessing

officer after a scrutiny assessment and no failure of Assessee was pointed out
by the Assessing officer while recording the reasons, the issuance of notice
u/s 148 of the Act is bad and untenable in the eyes of law
RATNABHUMI DEVELOPERS LTD. vs. ACIT
SCA No. 21131 of 2019 (GUJARAT HIGH COURT)
FACTS OF THE CASE

- The case of the petitioner was taken up for scrutiny assessment. During the course of the
original assessment proceedings, the then Assessing Officer had asked the petitioner to justify
the Lump Sum Compensation of Rs.135 Lacs debited into the Profit & Loss account. In
connection thereto, the petitioner vide letter dated 03.11.2014 furnished copy of the order of
the court and related documents to justify the Lump Sum compensation paid by the
petitioner. In furtherance to the queries raised by the then Assessing Officer, the petitioner
vide its letter dated 22.12.2014 furnished the Memorandum of Understanding entered into
between the petitioner and Ratna Developers, ledger account of Lump Sum Compensation
account of Ratna Developers and Bank Statements earmarking the payment made to Ratna
Developers.
- The then Assessing Officer was satisfied with the justifications given by the petitioner for
claiming Lump Sum Compensation and therefore he did not make any addition thereto while
framing the assessment order u/s 143(3) of the Act on 30.12.2014.
- On 30.03.2019, the Respondent issued the impugned notice u/s. 148 of the Act to reopen
again the assessment for the A.Y. 2012-13. In relation thereto, the petitioner filed its return
of income on 02.04.2019 in pursuant to the notice issued u/s 148 of the Act.
- The respondent did not provide any reasons recorded to reopen the impugned assessment
year until the issue of notice u/s 142(1) of the Act on 15.10.2019 by the Respondent, wherein,
the Respondent mentioned the reasons of re-opening the impugned assessment year.
- The petitioner vide its letter dated 21.10.2019 raised objections for the reasons recorded
by the Respondent to reopen the assessment proceedings for A.Y. 2012-13. The respondent,
vide order dated 31.10.2019 disposed off the objections raised by the petitioner and held that
the reopening is valid.

Whether on the facts and circumstances of the case and in law, the exercise of jurisdiction was
justified?
Held: No. The Hon’ble High Court held that the twin condition i.e. existence of new tangible
material and failure on the part of the assessee to disclose all material facts (truly and fully),
does not exist. Thus, jurisdiction under Section 148 cannot be exercised.

CASE LAW # 3
S. 41(1) : Transaction between the assessee and creditor found to be genuine

during the preceding assessment year after the same being examined by the
Assessing Officer – Outstanding balance pertaining to same transaction
could not be treated as non-genuine thereafter without existence of any fresh
materials.
PCIT vs. M/s SHANTI SUPER BUILDCON
R/Tax Appeal No. 585 of 2023 (GUJARAT HIGH COURT)
FACTS OF THE CASE

- During the course of assessment proceedings for A.Y. 2013-14, the Assessing Officer found
that the assessee failed to prove genuineness of the outstanding credit balance of a creditor
amounting to Rs.8,21,50,309/-. The Assessing Officer noted that the said creditor have
denied to enter into any transaction at any time with the assessee. It was further found that
even the bank statement of the said creditor revealed no transaction was undertaken with the
assessee.
- A show cause notice was issued to the assessee to show cause as to why the said sum should
not be added to the income of the assessee under section 41(1) of Income-tax Act, 1961.
- The assessee contended that the outstanding balance pertains to the transaction undertaken
by the assessee in the preceding year i.e. A.Y. 2012-13 and the same was completely
scrutinized during the course of assessment proceedings and was not found to be sham or
bogus by the Assessing Officer. It was also contended that genuineness of the outstanding
balance is further proved by the fact that the assessee had made payment of Rs.45 lakh to the
said creditor by cheque during years under consideration. The assessee had also filed copy of
bank statements and evidence contending that no addition could be made under section 41(1)
as the assessee had not written off any outstanding liabilities in its books of accounts.

Whether on the facts and circumstances of the case and in law, the Appellate Tribunal has erred
in deleting the addition of Rs.8,21,50,309/- made by the Assessing Officer by invoking the
provisions of section 41(1)?

Held: No. After considering the concurrent findings of facts arrived at by the CIT (Appeals) and
Tribunal to the effect that when the transaction between the assessee and the creditor was found
to be genuine in the preceding Assessment Year 2012-13 as per the assessment order after the
same being examined by the Assessing Officer, the High Court observed that outstanding
balance pertaining to the same transaction could not have been stated to be non-genuine since
the Assessing Officer in preceding year after conducting enquiry had found that the adverse
material on record in form of denial by the said creditor did not lead to the conclusion that the
transaction of the assessee with the said creditor was non-genuine. Considering the provision of
section 41(1), no addition can be made under the said section unless the liability ceased to exist
during the previous year and the assessee write off the same in its books of accounts. It is also
found as a matter of fact that the assessee has made payment to the said creditor during next
Assessment Year i.e. A.Y. 2014-15. So, the liability cannot be said to have ceased to exist during
the year under consideration and the assessee has also not written off the same in its books of
accounts.

CASE LAW # 4
S.144C – Final assessment order passed without issuing draft assessment

order – Process outlined in section 144C(1) of the Act is not discretionary, but
mandatory - Must be adhered to even when the assessment order is issued in
line with directions from a higher authority – Final assessment order and
consequential proceedings were invalidated
Sinogas Management PTE Ltd. vs. DCIT
W.P. (C) No. 1879 of 2023 (DELHI HIGH COURT)
FACTS OF THE CASE

- The assessee is a tax resident of Singapore and filed its return of income declaring its total
income as NIL for the year under consideration.
- During the course of original assessment proceedings under section 143(3), assessee
responded to the queries by asserting that it does not have permanent establishment in India.
Assessee stated that its income fell within the purview of Article 8 of India-Singapore DTAA
and thus taxable only in Singapore. After considering assessee’s reply, AO passed an
assessment order granting benefit of Article 8 of DTAA to the assessee.
- PCIT initiated proceedings under section 263 on the ground that the assessment order was
detrimental to revenue’s interest. Ld. PCIT remanded the matter back to AO with instructions
to revise the assessment order. Consequently, Ld. AO over-ruled the earlier assessment
whereby assessee’s claim to benefits under DTAA was negated and its income was assessed
to tax.
- Section 144C(1) mandated the AO to first issue a draft assessment order to an “eligible
assessee” as defined in section 144C(15)(b). As the assessee is a foreign entity incorporated
under laws of Singapore, it qualifies as an “eligible assessee”. However, Ld. AO passed a
prejudicial final assessment order without issuing a draft assessment order.
- The assessee challenged the order rendered under section 143(3) read with section 263 of the
Income-tax Act, 1961 on a jurisdictional ground that the mandate of Section 144C for
issuance of draft assessment order was not followed.

Whether the failure to pass a draft assessment order before the final assessment order as required
under section 144C, invalidates the impugned final assessment order and the ensuing
proceedings?
Held: Yes. The provisions of Section 144C(1) provides that in case of an ‘eligible assessee”, an
AO proposing to pass an assessment order shall at the first instance forward a draft assessment
order to the assessee, in case they wish to make variations prejudicial to the interest of the
assessee. On receipt of the draft assessment order, the eligible assessee has a remedy of filing
objections before the DRP. It is undisputed and manifestly clear that no draft assessment order
as envisioned by Section 144C(1) was ever framed in the present case. The AO passed the
impugned order revising the assessee’s income and increased its tax liability. Thus, the
impugned order is clearly prejudicial to the interest of the assessee and a draft order should have
been made available to the assessee. The process outlined in Section 144C(1) is not discretionary
but mandatory. It must be adhered to even when the assessment order is issued in line with
directions from a higher authority. The exercise of revisionary powers does not dilute the
requirement of compliance with Section 144C. The exception carved out in Section 144C(14A)
extends to assessment/ re-assessment orders passed by the AO with the prior approval of the
Principal Commissioner or Commissioner as per Section 144BA(12). The nature of proceedings
initiated under Section 144BA differs from the ones commenced under Section 263. Although
this order was passed in remand proceedings to give effect to the directions of the PCIT issued
under Section 263 of the Act, yet it qualifies as a fresh assessment order within the ambit of
Section 143(3). Given this characterization, it was incumbent upon AO not just as a matter of
procedure, but also as a matter of law, to adhere to the special provisions delineated in Section
144C(1). The direct issuance of final impugned assessment order has in effect unjustly deprived
the assessee of a choice of a forum that the Act rightfully grants them.
The omission to do so renders the subsequent actions and orders/ notices ensuing from this
foundational oversight as unlawful. Failure to do so renders the final assessment order void of
jurisdiction. Consequently, the demand and penalty notices issued under Sections 156 and 270A
respectively are also bereft of jurisdiction.

CASE LAW # 5
S. 90: No right to invoke MFN clause when the third country with which India
has entered into DTAA was not an OECD member at the time of entering into
such DTAA – MFN clause is not to be given effect to automatically – MFN
clause comes into effect only after a notification is issued.
Shantilal L. Chandaliya Vs. ITO
Writ Petition No. 2715 of 2014 (BOMBAY HIGH COURT)
FACTS OF THE CASE

- The assessee had filed return of income and assessment was completed.
- Thereafter, the assessee received notice under section 148 on ground that the Assessing
Officer of a company Crown informed Assessing Officer of assessee that cash worth of
Rs.7,00,000/- had been deposited in the bank account of assessee and immediately the
amount was transferred through cheque in the bank account of Crown and assessee was a
director / family member of Crown and, thus, income had escaped assessment .
- On writ, the assessee had challenged said notice.

Whether same income can be taxed in case of different assessees simultaneously?

Held : No. The notice under section 148 issued by Assessing Officer is inconsistent with the
scheme of the Act inasmuch as the same has been issued without satisfying the requirement in
this behalf as laid down in the provisions of section 147. The impugned notice has been issued
for the assessment of the alleged escaped income which has already been assessed in the
reassessment for assessment year 2007-08 of Crown. The same income cannot be
simultaneously assessed in the hands of different assessee. Reasons for reopening says "Thus, it
was alleged that the company had introduced its unaccounted money in the Balance Sheet……"
company is Crown. The requirement of the provisions of section 147 is that there should be
reasons to believe that income chargeable to tax has escaped assessment in the case of assessee
to whom notices under section 148 have been issued whereas in the reasons recorded allegedly,
it is the company viz. Crown, who introduced its unaccounted money in the name of assessee.
The provisions of section 147 cannot be pressed into service for the purpose of making an
inquiry as to whether or not there is escapement of income chargeable to tax from assessment.
The inquiry as regards escapement of income chargeable to tax has to precede the initiation of
the proceedings under section 147 and not follow the issue of notice under section 148.
Assessing Officer has issued the impugned notice under section 148 mechanically and without
application of mind at the behest of Assessing Officer of Crown, whereas for the purpose of the
initiation of proceedings under section 147, Assessing Officer who issues the notice under
section 148 himself should have his own satisfaction and reasons to believe that a particular
income of his assessee has escaped assessment for a particular assessment year. The Assessing
Officer in his letter dated 15-9-2014 and 14-8-2014 respectively rejecting the objections raised
by assessee has given fresh reasons not included in the reasons as recorded under section 148
which Courts have time and again held cannot be done. The reasons must be found on the
satisfaction of Assessing Officer that income chargeable to tax has escaped assessment. Once
that is not to be found, then, the impugned notice cannot be sustained. There are no reasons to
believe but only reasons to suspect. Hence, reopening of assessment is not satisfactory.

1
2023 INSC 928 REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). 1420 OF 2023
ASSESSING OFFICER CIRCLE (INTERNATIONAL

TAXATION) 2(2)(2) NEW DELHI …APPELLANT(S)
VERSUS
M/S NESTLE SA …RESPONDENT(S)
WITH
Civil Appeal No. 1423/2023, Civil Appeal No. 1421-1422/2023,

Civil Appeal No. 1424/2023, Civil Appeal No. 1425/2018,
Civil Appeal No. 1432/2023
JUDGMENT
S. RAVINDRA BHAT, J.
Table of Contents
I. Facts..................................................................................2
II. Arguments of parties...........................................................6
A. Revenue’s contentions...............................................................6
B. Contentions of the assessees/Respondents...............................12
III. Relevant statutory provisions.............................................20
IV. Analysis............................................................................21
A. General...................................................................................21
2
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 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
1 By judgment dated 28.07.2016 passed by the Delhi High Court in W.P.(C) 4793/2014.
3
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
2
4
remitted dividends. In 2020, Concentrix India and Optum India 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
5
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, 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, 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
3 [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.
4 [2018] 92 Taxmann.com 166 (Karnataka)
5 2019 SCC OnLine Del 9113
6
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 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.
6 W.P. (C) No. 3243 of 2021 decided on 04.06.2021

7 Petition for Special Leave to Appeal (C) No. 5360/2022
7
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 253 8
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 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
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. "
9 1984 [2] SCR 664
10 2003 (Supp 4) SCR 222
8
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 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.
9
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 followed it,
10
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
11 [2011] 339 ITR 107 (SC)

12 [2013] ITR 354 (AP HC)
11
benefit of reduced rate mentioned therein would be available only in case of such
subsequent Indian treaties 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
12
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, 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
13
required initiation of negotiation, to apply the beneficial provision agreed with

other OECD member. This was repealed by notification No. SO 2903(E), dated
27-12-2011 and both India-Switzerland agreed on the present MFN clause
which does not require negotiation to give the benefit of reduced rate of tax, and
it was argued applies automatically just like the India-Netherlands MFN.
Counsel also highlighted that the MFN Clause in the Protocol to the India-
Finland DTAA also clearly requires India to immediately inform the Finland
authorities and notify such beneficial provision whenever the MFN clause gets
triggered. Counsel also referred the MFN clause in the Protocol to the India-
Philippines DTAA, to say that that too clearly requires the countries to inform
each other and review the provisions with a view to extend the 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.
14
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 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.
13 ITA No. 7315/Mum/2018
14 ITA No. 3336/Del/2018
15
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. 1 st
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.
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
15 [2020] 14 SCR 372
16 (2021) 432 ITR 471(SC)
16
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 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.
17 (2016) 382 ITR 114

17
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 DTAA Date Notified OECD Dividend Art. 10

signed Entry into Members Tax
force
Slovenia 13.01.2003 17.02.2005 31.05.2005 21.07.201 5% Art 10(2)(a)
(pg.512 of (pg.501 of (pg.501 of 0 has 10%
revenue’s revenue’s revenue’s beneficial
Compilation- compilation- Compilation- ownership
Vol. III, pdf Vol. III), pdf Vol. III, pdf requirement
pg.16) pg.5) pg.5) (pg.505 of
revenue’s
Compilation-
Vol. III, pdf
pg.9)
Lithuania 26.07.2011 10.07.2012 25.07.2012 05.07.201 5% Art 10(2)(a)
(pg.534 of (pg.534 of (pg.534 of 8 has 10%
revenue’s revenue’s revenue’s beneficial
Compilation- Compilation- Compilation- ownership
Vol. III), pdf Vol. III, pdf Vol. III, pdf requirement
pg.38 pg.38) pg.38) (pg.538 of
revenue’s
compilation-
Vol. III, pdf
pg.42)
Columbia 13.05.2011 07.07.2014 23.09.2014 28.04.202 5% Art 10(2)
(pg.90 (pg.90 (pg.90 0 (pg.91
Assessee’s Assessee’s Assessee’s Assessee’s
Common Common Common Common
Comp.-Vol. Comp.-Vol. Comp.-Vol. Comp.-Vol.
VI, pdf VI, pdf VI, pdf VI, pdf
pg.93) pg.93) pg.93) pg.94)
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 with an OECD member
18
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
19
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
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
18 Notified by the Indian government on 13.08.2011

19Article 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 (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.”
20
rate given to the later OECD member by India “shall also apply between both
Contracting States under this Agreement as from the date on which such
Convention, Agreement or Protocol enters into force”. Counsel contrasts this
with similar provisions in the third Protocol. The latter require the contracting
states to enter into negotiations. Nestle underlines that the first and second
Protocol, were worded differently. Earlier, in respect of the same event, i.e.
India’s entering into an agreement with another contracting state, granting lower
rate of tax, parties had to enter into negotiations (“shall enter into negotiations
without undue delay”). It was emphasized that the object of changing the
terminology in the third Protocol, was to assure to Swiss entities, that the
treatment extended to entities of the other state, automatically afforded a lower
rate of taxation.
35. Learned senior counsel also referred to the opinions of Professor Dr.
Robert J Dannon and Prof. 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
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).
21
(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
(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.
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
22
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, VII th
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 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
21 Duncan Hollis: Executive Federalism : Forging New Federalist Constraints on the Treaty Power” Legal
Studies Research Paper Series available at
22 1969 (1) SCR 320
23
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 & Co24 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 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
23 1964 (6) SCR 461
24 (1969) 3 SCC 562
25 1970 (3) SCR 53
24
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 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.”
Shah, J also referred to Articles 73 and 253 and further commented:
26 [1937] A.C. 326

25
“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.”
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 VII th
Schedule to the Constitution of India] and Parliament, holds the
exclusive power to legislate upon such conventions or treaties.
27
26
(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 of Income
Tax31, Commissioner of Income Tax v. R.M. Muthaiah32 and Arabian Express
Line Ltd. of United Kingdom & Ors. v. Union of India33) 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.
************** ****************
28 2003 (Supp4) SCR 222
29 [1983]144ITR146(AP)
30 [1991]190 ITR 626 (Cal)
31 [2001] 249 ITR 418 (Cal)
32 [1993]202 ITR 508 (KAR)
33 [1995] 212 ITR 31 (Guj)
27
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 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
28
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:
29
SUMMARIES OF DTAAs, PROTOCOLS & NOTIFICATIONS

IN TABULAR FORMAT
Effective
signing of/ date of Whether
Contractin Notification Date of signing relevant date of said Notification
entry into entry into member of
g State #2 , if any amending protocol amendment/ if any
treaty force OECD
protocol
01.04.1997 or
01.04.1991 or
01.04.1998 or
01.04.1995
13.08.199934 (based on the 30.08.1999
Netherland Treaty & provision, in Yes (13
s Protocol - relation to the
21.01.1989 27.03.1989 November
13.07.198 concerned 1961)
8 country)
14.01.2013 -
giving effect
10.05.2012 02.11.2012
from
02.11.2012
USA
[earlier
agreement
dated Treaty &
No amendment. [Note – Yes (12
15.06.1989; Protocol:
18.12.1990 20.12.1990 USA does not have an NA NA November
also see 12.09.198
MFN clause] 1961)
instruction 9
dated
28.04.2003
and
23.10.2007]
UK
[had an 10.02.2014 -
earlier Treaty & to be given
agreement Protocol: retrospectiv Yes (2 May
dated 26.10.1993 11.02.1994 30.10.2012 27.12.2013
25.01.199 e effect 1961)
30.06.1956; 3 from
see also 27.12.2013
instruction
dated
19.03.2004]
Belgium 26.04.199 Yes (13
01.04.1998
3 01.10.1997 31.10.1997 19.01.2001 September
(for India)
(protocol) 1961)
01.04.1995 or
01.04.1997
Treaty & 10.07.2000
(based on the Yes (07
France Protocol -
01.08.1994 07.09.1994 provision) August
29.09.199
2 12.08.2009 1961)
12.08.2009
Switzerland Treaty and 19.10.1994/ 21.04.1995 Protocol amending 1994 In force from 07.02.2001 Yes (28
Protocol - 29.12.1994 Treaty (2000) - 20.12.2000 September
02.11.199 16.02.2000 1961)
4 1 January
01.01.1995 2001
(Switzerland (Switzerland)
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).
30
Effective
signing of/ date of Whether
Contractin Notification Date of signing relevant date of said Notification
entry into entry into member of
g State #2 , if any amending protocol amendment/ if any
treaty force OECD
protocol
; 1 April 2001
(India)
In force from
) and 10.10.2011
01.04.1995 Protocol amending 1994
(India) 1 January
Treaty (2010) - 27.12.2011
2012
30.08.2010
(Switzerland)
; 1 April 2012
(India)
Germany
[replaced
older Treaty &
No amendment Yes (27
agreements Protocol:
26.10.1996 29.11.1996 [Note – Germany does NA NA September
notified on 19.06.199
not have an MFN clause] 1961)
13.09.1960, 5
27.04.1979
and
02.03.1990]
Philippines Treaty &
Protocol:
21.03.199435 02.04.1996 02.02.2005 No
12.02.199
6
14.08.2013 -
Sweden Protocol amending the to be given Yes (28
24.06.199
25.12.1997 17.12.1997 Convention and Protocol 16.08.2013 effect to September
7
- signed on 17.02.2013 from 1961)
16.08.2013
11.09.2018 -
16.01.2000
to have
(correction
effect from
Treaty and by
08.08.2018 Yes (4
Portuguese Protocol: notifications
30.04.2000 24.06.2017 08.08.2018 (Art. 26 August
Republic 11.09.199 dated
says 1961)
8 25.08.2000
10.08.2018
and
in the
20.09.2005)
footnote)
Notification
Protocol amending the dated
13.01.200 Convention and Protocol date of entry 27.10.2017 - Yes (21 July
Slovenia 17.02.2005 31.05.2005 - signed on 17.05.2016 into force is
3 to have 2010)
21.12.2016
effect from
01.03.2017
Treaty & 20.05.2010 -
Yes (28
Protocol: with effect
Finland 19.04.2010 - NA NA January
15.01.201 from
1969)
0 01.04.2011
Treaty & 25.07.2012:
Protocol: to have Yes (05 July
Lithuania 10.07.2012 - NA NA
26.07.201 effect from 2018)
1 01.04.2013
Treaty &
Protocol: Yes (28 April
Colombia 07.07.2014 23.09.2014 - NA NA
13.05.201 2020)
1
35 Unclear if there is perhaps a typographical error in the Notification produced before this court.
31
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 DTAA was signed on 26.07.2011; and
notified on 25.07.201237. 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.
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]
37 Notification No. 28/2012 [F. No. 503/02/1997-FTD-1]/S.O. 1693(E), dated 25-7-2012
32
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 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.”
38 (1964) 2 SCR 73
39 (2000) 4 SCC 539
33
Again, in Vijay Kumar Prasad v. State of Bihar 40 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.
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
40 (2004) 5 SCC 196
34
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:
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 defined 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,--
(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
35
(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 :
(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
36
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, 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 14 (independent
personal services) of this Convention."
V. With effect from April 1, 1997, for paragraph 2 of article 12, relating to
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
following paragraph shall be read :
37
"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 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
38
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 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, 2000 41. 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
41 Notification No. S.O. 650(E), dated 10-7-2000

39
and 01.04.1997 for Articles 11, 12, and 13. This notification again reinforced
India’s practise and conduct of giving effect of the subsequent event of a more
beneficial arrangement with a third country, to the country which had entered
into a DTAA previously, on the basis of a treaty provision, through an express
action i.e., a notification under Section 90. Another aspect is that the India-UK
DTAA and India-Portugal DTAA had a condition, i.e., that by Article 4,
technical services (for the purpose of levying tax on income from fees for
technical service) applied a condition that the taxpayer could
“make available technical knowledge, experience, skill, know-how, or
processes, or consist of the development and transfer of a technical plan or
technical design”
59. Steria’s argument in addition, was that the India-Portugal DTAA was
signed on 11.09.1998 (after 29.09.1992 when India-France DTAA was signed).
The Portuguese Republic is a member of OECD. Similarly, India - UK DTAA
was signed on 25.01.1993 (after 29.09.1992) and the UK is a member of OECD.
Hence, the scope 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
40
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). 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
41
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; 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):
42
“the same rate as provided for in that Convention, Agreement or Protocol on

the said items of income shall also apply between both Contracting States
under this Agreement as from the date on which such Convention, Agreement
or Protocol enters into force.”
63. At this stage, it would also be useful to note that the second Protocol, by
Article 16, had provided that:
“ARTICLE 16
The Governments of the Contracting States shall notify each other through
diplomatic channels
1. that all legal requirements and procedures for giving effect to this Protocol
have been satisfied. [..]”
It could plausibly be argued that this condition is not substantive, but only
diplomatic. However, what it requires is that the concerned governments have to
notify how and when the Protocol is assimilated into the domestic legal system.
Quite correctly the provision does not assign any time frame within which the
Protocol has to be made effective. Therefore, 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
43
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:
"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 “such lower rate
44
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 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:
42 Decision of 28 February 2012, No. IFZ 2012/54M, Tax treaties: India, issued by the Director General,
Fiscal Affairs, Kingdom of Netherlands
43 The State Secretariat for International Financial Matters SIF Section Bilateral tax Issues and double taxation
treaties, Swiss Federation, dated 13.08.2021
45
“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).
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..”
46
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
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;
47
(d) In some cases, the international agreement needs sanction through

compulsory referendum in terms of Article 89 (5) of the
Constitution44.
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; ). 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.
44 Article 89 of the Federal Constitution of the Swiss Federation, available at: (accessed on 11.10.2023).
45 Title VI and Art. 56 of the French Constitution, 1958, available at: (accessed on 15.10.2023).
46 Article 91 of the Constitution of the Kingdom of Netherlands, 2018, available at: (accessed on 15.10.2023).
48
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, 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 notification (Articles 14(1), 16
VCLT). Ratification 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 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 -
47 Klaus Vogel on Double Taxation Conventions

49
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
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
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).
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).
50
entry into force under international law; detrimental retrospectivity, however,

may be prohibited.
52. Through the mandate of the legislature, treaties in most States obtain the
same authority as internal law. In some States they are even considered to have
priority over domestic law.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;
(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.
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 comprise, 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 instrument related to the treaty.”
3. There shall be taken into account, together with the context:
(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the
application of its provisions;
(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.”
51
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 between States. It also covers subsequent treaties with
third States65, and patterns of treaties, for instance when considering whether the
58 ILC Draft Conclusions on Subsequent Agreements and Subsequent Practice in relation to the Interpretation
of Treaties, available at .
59 Conclusion 3, Id.
60 Conclusion 4(1), Id.
64 JL Brierly, The Law of Nations, 6th Ed. (Oxford University Press, 1963), 59.
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
52
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.
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
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 Law ʼ
(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.
53
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 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.
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).
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.
54
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, ‘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
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.
55
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.
***********************
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
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]
56
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.”
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
85[1999] ICJ Rep 1045; (General List No. 98)
86Donald 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).
57
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 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
58
the negative. Likewise, the treaty practice in India points to a consistent pattern
of behaviour when the signatory to an existing DTAA, points to the event of a
third state entering into OECD membership, and a resultant trigger event, the
beneficial effect given to the later third-party state has to be notified in the
earlier DTAA, as a consequential amendment, preceded by exchange of
communication (and perhaps, negotiation) and acceptance of that position by
India. The essential requirement of a notification under Section 90 of the
consequences of the trigger (or causative) event cannot be undermined.
V. Conclusions
88. In the light of the above discussion, it is held and declared that:
(a) A notification under Section 90(1) is necessary and a mandatory

condition for a court, authority, or tribunal to give effect to a DTAA,
or any protocol changing its terms or conditions, which has the 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,
59
and not a later date, when, after entering into DTAA with India, such
country becomes an OECD member, in terms of India’s practice.
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.
...............................................J.
[S. RAVINDRA BHAT]
..............................................J.
[DIPANKAR DATTA]
NEW DELHI,
OCTOBER 19, 2023.
NEUTRAL CITATION
C/SCA/21131/2019 JUDGMENT DATED: 03/10/2023
undefined
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 21131 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
==========================================================
1 Whether Reporters of Local Papers may be allowed

to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy

of the judgment ?
4 Whether this case involves a substantial question

of law as to the interpretation of the Constitution
of India or any order made thereunder ?
==========================================================
M/S RATNABHUMI DEVELOPERS LIMITED
Versus
THE ASST. COMMISSIONER OF INCOME TAX
==========================================================
Appearance:
MR.MOHIT BALANI, ADVOCATE for MR.ANKIT M TALSANIA(7300) for the
Petitioner(s) No. 1
MR.NIKUNT RAVAL, LD. SENIOR STANDING COUNSEL for MRS
KALPANA K RAVAL(1046) for the Respondent(s) No. 1
==========================================================
CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
Date : 03/10/2023
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV)
1. RULE returnable forthwith. Mr.Nikunt Raval
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learned Senior Standing Counsel for Mrs.
Kalpana Raval learned advocate waives service
of notice of Rule on behalf of the respondent.
2. With the consent of learned advocates for the
respective parties, the petition is taken up for
final hearing.
3. By way of this petition under Article 226 of the
Constitution of India, the petitioner has prayed to
quash and set aside the impugned notice under
Section 148 dated 30.03.2019.
4. Facts of the present case are as under:
4.1 The petitioner is a company incorporated
under the Companies Act, 1956 of which all of its
shareholders are citizens of India.
4.2 The petitioner filed his return of income on
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undefined
30.09.2012 declaring total income of
Rs.6,39,91,610/-.
4.3 The case of the petitioner was taken up for
scrutiny assessment, and accordingly, notice u/s
143(2) was issued on 13.08.2013.
4.4 During the course of the original assessment
proceedings, the petitioner had submitted
Audited accounts in the Form No.3CB & 3CD,
copy of Balance Sheet and Profit & Loss account.
4.5 During the course of the original assessment
proceedings, the then Assessing Officer had
asked the petitioner to justify the Lump Sum
Compensation of Rs.135 Lacs debited into the
Profit & Loss account. In connection thereto, the
petitioner vide letter dated 03.11.2014 furnished
copy of the order of the court and related
documents to justify the Lump Sum
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Compensation paid by the petitioner.
4.6 in furtherance to the queries raised by the
then Assessing Officer, the petitioner vide its
letter dated 22.12.2014 furnished the
Memorandum of Understanding entered into
between the petitioner and Ratna Developers,
ledger account of Lump Sum Compensation
account of Ratna Developers and Bank
Statements earmarking the payment made to
Ratna Developers.
4.7 The then Assessing Officer was satisfied
with the justifications given by the petitioner for
claiming Lump Sum Compensation and therefore
he did not make any addition thereto while
framing the assessment order u/s 143(3) of the
Act on 30.12.2014.
4.8 The assessment was reopened and the
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notice u/s 148 of the Act was issued on
18.08.2015 and the reassessment came to be
framed on 12.08.2016 without making any
addition.
4.9 On 30.03.2019, the Respondent issued the
impugned notice u/s. 148 of the Act to reopen
again the assessment for the A.Y. 2012-13. In
relation thereto, the petitioner filed its return of
income on 02.04.2019 in pursuant to the notice
issued u/s 148 of the Act.
4.10 The respondent did not provide any reasons
recorded to reopen the impugned assessment
year until the issue of notice u/s 142(1) of the Act
on 15.10.2019 by the Respondent, wherein, the
Respondent mentioned the reasons of re-opening
the impugned assessment year.
4.11 The petitioner vide its letter dated
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21.10.2019 raised objections for the reasons
recorded by the Respondent to reopen the
assessment proceedings for A.Y. 2012-13.
4.12 The respondent, vide order dated
31.10.2019 disposed off the objections raised by
the petitioner and held that the reopening is
valid.
5. Mr.Mohit Balani learned advocate appearing
through video conferencing for Mr.Ankit Talsania
learned advocate for the petitioner would make
the following submissions:
5.1 Mr. Ankit Talsania, learned advocate for the
petitioner invited the attention of the court to the
reasons recorded for reopening the assessment
to point out that in the reasons itself, the
Assessing Officer has recorded that as the
assessee company has never received the
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amount nor shown as income or in its books of
accounts, the expenditure of Rs.135.00 lakhs
claimed and allowed cannot be allowed at it does
not pertain to the business, which has resulted in
under assessment of Rs.135.00 lakh. It was
submitted that, therefore, even according to the
Assessing Officer, the claim has been allowed. It
was pointed out that during the course of
scrutiny assessment, lump sum compensation of
Rs.135.00 lakh was duly reflected and formed
part of the financial statement for the year under
consideration. It was pointed out that by its reply
dated 03.11.2014, in response to the notice
under section 143(2) of the Income Tax Act, 1961
(hereinafter referred to as “the Act”), the
petitioner had attached the order of the court
and related documents for reference by the
Assessing Officer to justify the lump sum
compensation paid by the company. It was
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pointed out that plaint of the suit as well as the
order passed thereon had been produced before
the Assessing Officer during the time of scrutiny
assessment. Reference was made to a
communication dated 22.12.2014 filed by the
petitioner in connection with the details and
explanation sought for by the Assessing Officer
wherein, at serial No. 1, the petitioner has dealt
with Agreement for Compensation and has
attached the memorandum of understanding
between Ratnabhumi Developers Private Limited
and Ratna Developers and also attached the
lump sum compensation account of Ratna
Developers along with the bank statements,
earmarking the payments made to Ratna
Developers for this compensation. It was
submitted that, after considering all the material
placed before him, the Assessing Officer, while
framing the assessment under section 143(3) of
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the Act, did not make any addition. It was
submitted that, now, the Assessing Officer seeks
to reopen the assessment on a mere change of
opinion. Referring to the reasons recorded, it
was pointed out that the Assessing Officer has
relied upon the very same documents which were
produced before the Assessing Officer at the time
of scrutiny assessment and no new tangible
material has been brought on record. In the
reasons recorded, there is not even a whisper
regarding any any failure on the part of the
petitioner to disclose fully and truly all material
facts necessary for its assessment.
5.2 It was further submitted that in this case,
assessment is sought to be reopened beyond a
period of four years from the end of relevant
assessment year.
6. On the other hand, learned counsel for the
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Revenue Mr.Nikunt Raval submitted that it is
noticed that the assessee company had debited
an amount of Rs.135.00 lakh in Note 19 on
account of lump sum compensation in profit and
loss account for the year 2011-12 relevant to A.Y.
2012-13. It was noticed from the records that
Ratna Developer (partnership firm) and others
have purchased substantial share holdings of the
assessee company and virtually became the
owner of the assessee company and they
approached Shri Keyur B. Thakkar, Jagruti K.
Thakkar and Harendrabhai V. Sukhadia., HUF
has paid Rs.400.00 lakh during the period
September, 2008 and December 2008 to the
partnership firm. The partnership firm has
agreed to get the allotment of the ground floor
and first floor space in joint ownership. Neither
assessee company nor the partnership firm has
allotted the space as agreed by the partnership
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firm. Shri Keyur B. Thakkar, Jagruti K. Thakkar
and Harendrabhai V. Sukhadia, HUF filed civil
suit no.1647 of 2011 for claiming the possession
of the property.
6.1 Mr.Raval further submits that in view of the
above, the department has the reason to believe
that income chargeable to tax to the extent of
Rs.1,35,00,000/- has escaped the assessment
within the meaning of section 147 of the I.T. Act
and it is a fit case to issue notice under Section
148 of the Act.
7. Having considered the submissions made by the
learned advocates for the respective parties and
having perused the reason to believe supplied to
the petitioner along with the notice under section
148 of the Act, what is evident is that during the
course of assessment proceedings, the petitioner
had filed letters dated 03.11.2014 and
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22.12.2014. He had also furnished the orders of
the Court and related documents such as
memorandum of understanding, entered into
between the petitioner and the Ratna developers,
ledger, account of the lump-sum compensation
and the bank statement showing that the
payment was made with regard to the lump sum
compensation. The Assessing Officer at the time
of original assessment proceedings after
satisfying himself about the correctness of the
lump-sum compensation had passed an
assessment order under section 143(3) of the
Act? In other words, there was no reason for the
author of the notice under section 148 of the Act
to have reason to believe or come to a conclusion
that the income had escaped assessment of the
year under consideration.
8. Reading of the annual report and the auditor’s
report indicates that in note 19 of other expenses
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and entry of lump-sum compensation of
Rs.1,35,00,000/- was made. Even in response to
the notice under Section 143(2) of the Act, a
specific response was given under the head-
lump-sum compensation, producing the orders,
the Court and relating documents to justify the
lump-sum compensation paid by the company.
Whereas the letter dated 22.12.2014 would
indicate that a reference was made to
memorandum of understanding between Ratna
Bhumi Developers Private Limited and Ratna
Developers along with bank statements
earmarking the payments made to Ratna
Developers for the compensation. In other words,
during the entire scrutiny assessment, the
question of the debit of an amount of Rs.135.00
lakhs was gone into. In fact, the reasons
recorded would indicate the fact that the very
records were sought to be claimed as the basis of
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information for reopening.
9. Reasons recorded indicate that there was no new
tangible material or information or fresh
evidence which came into the possession of the
assessing officer and the entire basis of the
reasons to believe was founded on the original
assessment proceedings. Even while disposing
the objections vide order dated 31.10.2019, it
was the case of the petitioner that when all the
documentary evidences were furnished during
the course of original assessment proceedings
with regard to the lump-sum compensation,
Assessing Officer could not have looked into the
material facts as noted in the reasons recorded.
Having built an opinion on the basis of the
original assessment records which did not call
for any clarifications and having accepted the
same, it was not open for the Assessing Officer to
review and recall that opinion and take a
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different stand based on the same set of facts
and having accepted the view after scrutiny, as
held by the Supreme Court in the decision in
case of Commissioner of Income Tax v.
Kelvinator of India Ltd. & (2) Eicher Ltd.
reported in (2010) 320 ITR 561 (SC). The said
judgement read as under:
“Heard learned counsel on both sides. A

short question which arises for
determination in this batch of civil appeals
is, whether the concept of “change of
opinion” stands obliterated with effect from
1st April, 1989, i.e., after substitution of
Section 147 of the Income Tax Act, 1961 by
Direct Tax Laws (Amendment) Act, 1987? To
answer the above question, we need to note
the changes undergone by Section 147 of
the Income Tax Act, 1961 [for short, “the
Act”]. Prior to Direct Tax Laws
(Amendment) Act, 1987, Section 147 reads
as under:
“Income escaping assessment.
147. If--
[a] the Income-tax Officer has reason to

believe that, by reason of the omission or
failure on the part of an assessee to make a
return under section 139 for any assessment
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year to the Income-tax Officer or to disclose

fully and truly all material facts necessary
for his assessment for that year, income
chargeable to tax has escaped assessment
for that year, or
[b] notwithstanding that there has been no

omission or failure as mentioned in clause
(a) on the part of the assessee, the
Incometax Officer has in consequence of
information in his possession reason to
believe that income chargeable to tax has
escaped assessment for any assessment
year, he may, subject to the provisions of
sections 148 to 153, assess or reassess such
income or recompute the loss or the
depreciation allowance, as the case may be,
for the assessment year concerned
(hereafter in sections 148 to 153 referred to
as the relevant assessment year).”
After enactment of Direct Tax Laws

(Amendment) Act, 1987, i.e., prior to 1st
April, 1989, Section 147 of the Act, reads as
under:
“147. Income escaping assessment.-- If

the Assessing Officer, for reasons to be
recorded by him in writing, is of the
opinion that any income chargeable to
tax has escaped assessment for any
assessment year, he may, subject to the
provisions of Sections 148 to 153,
assess or reassess such income and
also any other income chargeable to tax
which has escaped assessment and
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which comes to his notice subsequently

in the course of the proceedings under
this section, or recompute the loss or
the depreciation allowance or any other
allowance, as the case may be, for the
assessment year concerned (hereafter
in this section and in Sections 148 to
153 referred to as the relevant
assessment year).”
After the Amending Act, 1989, Section 147

reads as under:
“Income escaping assessment.
147. If the Assessing Officer has reason

to believe that any income chargeable
to tax has escaped assessment for any
assessment year, he may, subject to the
provisions of sections 148 to 153,
assess or reassess such income and
also any other income chargeable to tax
which has escaped assessment and
which comes to his notice subsequently
in the course of the proceedings under
this section, or recompute the loss or
the depreciation allowance or any other
allowance, as the case may be, for the
assessment year concerned (hereafter
in this section and in sections 148 to
153 referred to as the relevant
assessment year).”
On going through the changes, quoted

above, made to Section 147 of the Act, we
find that, prior to Direct Tax Laws
(Amendment) Act, 1987, re-opening could
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be done under above two conditions and

fulfillment of the said conditions alone
conferred jurisdiction on the Assessing
Officer to make a back assessment, but in
section 147 of the Act [with effect from 1st
April, 1989], they are given a go-by and only
one condition has remained, viz., that where
the Assessing Officer has reason to believe
that income has escaped assessment,
confers jurisdiction to reopen the
assessment. Therefore, post-1st April, 1989,
power to re-open is much wider. However,
one needs to give a schematic interpretation
to the words “reason to believe” failing
which, we are afraid, Section 147 would
give arbitrary powers to the Assessing
Officer to re-open assessments on the basis
of “mere change of opinion”, which cannot
be per se reason to re-open. We must also
keep in mind the conceptual difference
between power to review and power to re-
assess. The Assessing Officer has no power
to review; he has the power to re-assess.
But re-assessment has to be based on
fulfillment of certain pre-condition and if the
concept of “change of opinion” is removed,
as contended on behalf of the Department,
then, in the garb of re-opening the
assessment, review would take place. One
must treat the concept of “change of
opinion” as an in-built test to check abuse of
power by the Assessing Officer. Hence, after
1st April, 1989, Assessing Officer has power
to re-open, provided there is “tangible
material” to come to the conclusion that
there is escapement of income from
assessment. Reasons must have a live link
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with the formation of the belief. Our view

gets support from the changes made to
Section 147 of the Act, as quoted
hereinabove. Under the Direct Tax Laws
(Amendment) Act, 1987, Parliament not only
deleted the words “reason to believe” but
also inserted the word “opinion” in Section
147 of the Act. However, on receipt of
representations from the Companies against
omission of the words “reason to believe”,
Parliament re-introduced the said
expression and deleted the word “opinion”
on the ground that it would vest arbitrary
powers in the Assessing Officer. We quote
hereinbelow the relevant portion of Circular
No.549 dated 31st October, 1989, which
reads as follows:
“7.2 Amendment made by the Amending

Act, 1989, to reintroduce the expression
`reason to believe' in Section 147.--A
number of representations were received
against the omission of the words `reason to
believe' from Section 147 and their
substitution by the `opinion' of the
Assessing Officer. It was pointed out that
the meaning of the expression, `reason to
believe' had been explained in a number of
court rulings in the past and was well
settled and its omission from section 147
would give arbitrary powers to the
Assessing Officer to reopen past
assessments on mere change of opinion. To
allay these fears, the Amending Act, 1989,
has again amended section 147 to
reintroduce the expression has reason to
believe' in place of the words for reasons to
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be recorded by him in writing, is of the

opinion'. Other provisions of the new section
147, however, remain the same.”
For the aforestated reasons, we see no

merit in these civil appeals filed by the
Department, hence, dismissed with no order
as to costs.”
10.Apparently, the twin condition i.e. existence of
new tangible material and failure
on the part of the assessee to disclose all
material facts (truly and fully), does not exist.
Thus, jurisdiction under Section 148 cannot be
exercised.
11.For the aforesaid reasons, the petition is allowed
and the notice under Section 148 of the Act
dated 30.03.2019 is quashed and set aside. Rule
is made absolute.
(BIREN VAISHNAV, J)
(BHARGAV D. KARIA, J)
ANKIT SHAH
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C/TAXAP/585/2023 ORDER DATED: 06/09/2023
2023:GUJHC:57038-DB
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 585 of 2023

================================================================
THE PRINCIPAL COMMISSIONER OF INCOME TAX 3
Versus
M/S SHANTI SUPER BUILDCON
===============================================================
Appearance:
MRS KALPANA K RAVAL(1046) for the Appellant(s) No. 1
for the Opponent(s) No. 1
===============================================================
CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV

and
Date : 06/09/2023
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr.Nikunt Raval for
learned advocate Mrs.Kalpana K. Raval for the
appellant.
2. By this Tax Appeal under Section 260A of
the Income Tax Act, 1961 (for short ‘the
Act’), the appellant-Revenue has raised the
following substantial question of law arising
out of the order dated 22nd February, 2023
passed by the Income Tax Appellate Tribunal,
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‘D’ Bench, Ahmedabad (for short ‘the
Tribunal’) in ITA No.2764/AHD/2017 for
Assessment Year 2013-14 :
“Whether on the facts and circumstances

of the case and in law, the Appellate
Tribunal has erred in deleting the
addition of Rs.8,21,50,309/- made by
the AO by invoking the provisions
u/s.41(1) of the IT Act?”
3. The brief facts of the case are as under :
3.1. The assessee filed its return of
income on 28.09.2013 declaring total income of
Rs.92,08,040/-. During the course of
assessment proceedings, the Assessing Officer
found that the assessee failed to prove
genuineness of the outstanding credit balance
pertaining to one Shri Jatin Priyankant Shah
proprietor of Paper Star Marketing amounting
to Rs.8,21,50,309/-.
3.2. The Assessing Officer noted that the
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said party vide letter dated 16.01.2016
categorically denied to have entered into any
transaction at any time with the assessee. It
was further found that even the bank statement
of the said party revealed no transaction
undertaken with the assessee. Accordingly, a
show-cause notice was issued to show cause as
to why the said sum relating to the said party
outstanding as on 31.03.2013 should not be
added to the income of the assessee as per the
provisions of Section 41(1) of the Act.
3.3. The respondent-assessee filed a reply
stating that outstanding balance of the said
party pertains to the transaction undertaken
by the assessee with the said party in the
preceding year i.e. Assessment Year 2012-13
and the same was completely scrutinized in the
assessment proceedings and was not found to be
sham or bogus by the Assessing Officer. It was
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also contended that genuineness of the
outstanding balance is further proved by the
fact that the assessee had made payment of
Rs.45 Lakhs to the said party in the by cheque
in the years under consideration. The assessee
also filed copy of the bank statement and the
evidence contending that no addition in any
case could be made under Section 41(1) of the
Act as the assessee had not written off any
outstanding liabilities in its books and
provisions of Section 41(1) of the Act are
attracted only when there was cessation or
remission of any liability. Reliance was also
placed on the decision in the case of CIT-III
Versus Bhogilal Ramjibhai Atara in Tax Appeal
No.588 of 2013 dated 04.02.2014 of this Court.
3.4. The Assessing Officer considering the
submissions of the assessee held that the
assessee failed to prove the genuineness of
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transaction undertaken with the said party and
the factum of payment of Rs.45 Lakhs to the
said party did not appear to be correct since
said transaction is not reflected in the bank
account of the said party. The Assessing
Officer also noted that the proprietor of the
said concern has categorically denied any
transaction with the assessee and the assessee
had also failed to produce any agreement
regarding the contract entered with the said
party. The Assessing Officer therefore came to
the conclusion that the said party was a bogus
creditor and outstanding balance reflected in
the account of the said party amounting to
Rs.8,21,50,309/- was added as income of the
assessee by invoking provisions of Section
41(1) of the Act holding that such liability
had ceased to exist.
3.5. Being aggrieved, the assessee preferred
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the Appeal before the CIT (Appeals) who
deleted the addition considering the facts of
the case and provisions of Section 41(1) of
the Act as it has been established that no
addition can be made under the said provisions
unless the liability ceased to exist and that
too during the previous year, the assessee
write off the same in its books of account.
The CIT (Appeals) held that the assessee made
the payment to the said party in the next
assessment year 2014-15 and therefore, it
cannot be said that liability in respect of
the said party has ceased to exist during
assessment year 2013-14 nor the appellant has
written off the same in the books of accounts.
3.6. The appellant-Revenue challenged the
order of the CIT (Appeals) before the Tribunal
contending that the Assessing Officer has
rightly invoked the provisions of Section
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41(1) of the Act because assessee was found to
have incorrectly claimed expenses in relation
to the purchases made from the party in the
preceding Assessment Year i.e. Assessment Year
2012-13 and since the said party had denied
any liability for outstanding dues to be paid
to the assessee, there was clear cessation of
liability.
3.7. The Tribunal after considering the
submissions made by both the sides and after
analysing the provisions of Section 41(1) of
the Act, confirmed the order passed by the CIT
(Appeals) deleting the addition recording the
relevant facts emerging from the record as
under:
“Section 41(1) has been invoked with

respect to the outstanding liability in
the books of the assessee as at the end
of the impugned year relating to one
party, M/s.Paper Star Marketing (PSM)
amounting to Rs.8,21,50,309/-. The
transaction leading to the impugned
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outstanding balance were undertaken by

the assessee with the said party in the
preceding year i.e. Asst. Year 2012-13
when it was examined by the AO who had
held that the purchases from PSM could
not be held as non-genuine. Copy of the
order of the AO for the said year Le.
Asst. Year 2012-13 was placed before us
giving this finding, and this has been
noted by the Ld. CIT(A) also in para
4.3 of his order which the ld. DR has
accepted and admitted to also before
us.”
3.8. The Tribunal confirmed the order
passed by the CIT (Appeals) considering the
assessment order for Assessment Year 2012-13
passed under Section 143(3) of the Act wherein
the Assessing Officer found that the
transaction entered into between the assessee
and M/s.Paper Star Marketing was a genuine
transaction in paragraph No.6 of the
assessment order for the preceding year which
reads as under :
“6.The assessee’s reply has been

carefully considered. The assessee has
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submitted that assessee has sub-

contracted the work to M/s. Paper Star
Marketing to the tune of
Rs.8,29,80,110/- and the assessee has
maintained proper stock records sales
and purchases. The assessee also made
statutory deduction of TDS and
deposited the same to the government as
required under the Income Tax Act and
has submitted the TDS certificate.
Further, assessee submitted that
“assessee has maintained the paper
stock records and TDS have been
deducted as per the provisions of the
Act. There is no foul play on the part
of the assessee. Assessee has made
proper purchase from M/s. Paper Star
Marketing cannot be held bogus.
Assessee also submitted numerical
calculation Stating that there is no
sense taking bogus bills as the
assessee is incurring more tax burden
in accepting bogus bills."
3.9. The Tribunal therefore considering the
above findings held that the sundry credit
balance again could not have been found non-
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genuine for the very same reason that the said
party has not entered into any transaction
with the assessee and therefore no transaction
was reflected in the bank account of the said
party with the assessee. The Tribunal
considering the findings of the Assessing
Officer in the preceding Assessment Year 2012-
13 where it was examined by the Assessing
Officer and found the transaction to be
genuine held that on the very same basis, the
outstanding balance pertaining to the same
transaction cannot be held to be non-genuine.
The Tribunal therefore confirmed the order
passed by the CIT (Appeals) as under:
“15. When this adverse material

relating to the PSM was found to be of
no relevance to its transaction
undertaken with the assessee in Asst.
Year 2012-13 which was examined by the
AO and found to be genuine, we fail to
understand how on the basis of this
very same adverse material, the
outstanding balance pertaining to the
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said transaction can now be stated to

be ingenuine. Since the AO in the
preceding year, had after conducting
inquiry found that these adverse
materials did not lead to the
conclusion that the transactions of the
assessee with the said party was
ingenuine, the same adverse material
cannot now form the basis of holding
the outstanding balance pertaining to
the party in relation to very same
transaction to be ingenuine. For this
reason alone, we hold that the ld.
CIT(A) has rightly deleted the addition
made by the AO amounting to
Rs.8,21,20,309/- by invoking section
41(1) of the Act.
16. We therefore do not find any

infirmity in the order of the ld.
CIT(A) deleting the addition made under
section 41(1) of the Act. This ground
of appeal of the Revenue is dismissed.”
4. Considering the concurrent findings of
fact arrived at by the CIT (Appeals) and the
Tribunal to the effect that when the
transaction between the assessee and the
M/s.Paper Star Marketing was found to be
genuine in the preceding Assessment Year 2012-
13 as per the assessment order after the same
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being examined by the Assessing Officer, then
the outstanding balance pertaining to the same
transaction could not have been stated to be
non-genuine since the Assessing Officer in
preceding year after conducting inquiry had
found that the adverse material on record in
form of denial by the said party did not lead
to the conclusion that the transaction of the
assessee with the said party was non-genuine.
The Tribunal therefore has rightly come to the
conclusion that for such reason only the CIT
(Appeals) has rightly deleted the addition
made by the Assessing Officer amounting to
Rs.8,21,50,309/- by invoking Section 41(1) of
the Act. Section 41(1) of the Act reads as
under :
“41. Profits chargeable to tax.—(1)

Where an allowance or deduction has
been made in the assessment for any
year in respect of loss, expenditure or
trading liability incurred by the
assessee (hereinafter referred to as
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the first-mentioned person) and

subsequently during any previous year,—
(a) the first-mentioned person has

obtained, whether in cash or in any
other manner whatsoever, any amount in
respect of such loss or expenditure or
some benefit in respect of such trading
liability by way of remission or
cessation thereof, the amount obtained
by such person or the value of benefit
accruing to him shall be deemed to be
profits and gains of business or
profession and accordingly chargeable
to income-tax as the income of that
previous year, whether the business or
profession in respect of which the
allowance or deduction has been made is
in existence in that year or not; or
(b) the successor in business has

obtained, whether in cash or in any
other manner whatsoever, any amount in
respect of which loss or expenditure
was incurred by the first-mentioned
person or some benefit in respect of
the trading liability referred to in
clause (a) by way of remission or
cessation thereof, the amount obtained
by the successor in business or the
value of benefit accruing to the
successor in business shall be deemed
to be profits and gains of the business
or profession, and accordingly
chargeable to income-tax as the income
of that previous year.
[Explanation 1—For the purposes of this
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sub-section, the expression “loss or

expenditure or some benefit in respect
of any such trading liability by way of
remission or cessation thereof” shall
include the remission or cessation of
any liability by a unilateral act by
the first mentioned person under clause
(a) or the successor in business under
clause (b) of that sub-section by way
of writing off such liability in his
accounts.]
Explanation 2—For the purposes of this

sub-section, “successor in business”
means,—
(i) where there has been an

amalgamation of a company with another
company, the amalgamated company;
(ii) where the first-mentioned person

is succeeded by any other person in
that business or profession, the other
person;
(iii) where a firm carrying on a

business or profession is succeeded by
another firm, the other firm;]
(iv) where there has been a demerger,

the resulting company.]”
5. Considering the provision of Section 41(1)
of the Act, no addition can be made under the
said provision unless the liability ceased to
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exist during the previous year and the
assessee write off the same in its books of
accounts. It is also found as a matter of fact
that the assessee has made payment to the said
party in the next year i.e. Assessment Year
2014-15 so the liability cannot be said to
have ceased to exist during the year under
consideration and the appellant has also not
written out the same in its books of accounts.
6. In view of the foregoing reason, we are of
the opinion that no question of law much-less
any substantial question of law arises from
the impugned judgment and order passed by the
Tribunal. The appeal is accordingly dismissed.
No orders as to cost.
(BIREN VAISHNAV, J)
(BHARGAV D. KARIA, J)
PALAK
Page 15 of 15

* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 10th October, 2023
Pronounced on: 18th October, 2023
+ W.P.(C) 1879/2023
SINOGAS MANAGEMENT PTE LTD ..... Petitioner
Through: Mr. Ashish Mehta, Advocate.
versus
DEPUTY COMMISSIONER OF INCOME TAX & ANR.

..... Respondents
Through: Mr. Aseem Chawla, Senior Standing
Counsel with Mr. Viplav Acharya,
Ms. Pratishtha Chaudhary and Mr.
Aditya Gupta, Advocates for ITD.
Ms. Bakshi Vinita, Senior Panel
Counsel for UOI.
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE SANJEEV NARULA
JUDGEMENT
SANJEEV NARULA, J.
1. The Petitioner, Sinogas Management PTE. Ltd., challenges the order

dated 23rd June, 2022 (“impugned order”), issued by Respondent No. 1 –
Deputy Commissioner of Income Tax. This order, rendered under Section
143(3) read with Section 263 of the Income Tax Act, 1961 (“the Act”), and
the consequent demand and penalty notices flowing from it,1 are assailed on
1
Dated 23rd June, 2022 and 24th June, 2022, respectively.
W.P.(C) 1879/2023 Page 1 of 10

a jurisdictional ground that the mandate of Section 144C for issuance of
draft assessment order, was not followed.
Case set up by the Petitioner

2. The facts and the arguments laid out by Mr. Ashish Mehta, counsel
representing the Petitioner, are detailed below:
2.1 The Petitioner-company, incorporated under the legal framework of
Singapore, is primarily engaged in the business of operating ships. It is a tax
resident of Singapore, and thus, it filed its return of income in India,
declaring its total income as nil for the Assessment Year (“AY”) 2017-18.
2.2 On 23rd August, 2018, the return of income filed by Petitioner was
selected for scrutiny under Section 143(2) of the Act and a notice requiring
the Petitioner to furnish certain details, such as the nature of business
activities, tax residency certificate, copy of agreements with Indian
customers, financial statements, details of permanent establishment in India
etc., was issued on 08th November, 2019. The Petitioner responded to the
above queries vide correspondence dated 15th November, 2019, asserting
that it does not have a permanent establishment in India. A tax residency
certificate was also submitted with the response. Petitioner further stated that
its income fell within the purview of Article 8 of the India-Singapore
Double Taxation Avoidance Agreement (“DTAA”), and thus, the same is
taxable only in Singapore. Accordingly, the return was filed declaring
income in India as nil. In addition, Respondent No. 1 was informed of a time
charter agreement executed between Petitioner and Hindustan Petroleum
Corporation Limited for transportation of LPG. After considering the
Petitioner’s reply, on 03rd December, 2019, Respondent No.1 passed an
W.P.(C) 1879/2023 Page 2 of 10

assessment order under Section 143(3) of the Act, granting benefit of Article
8 of the DTAA to Petitioner. The return of income filed by Petitioner was
thus accepted, without making any additions to the total income declared.
2.3. However, on 06th January, 2022, the Commissioner of Income Tax
(“CIT”) issued a notice under Section 263 of the Act, proposing to revise
the assessment order of 03rd December, 2019 for AY 2017-18, on the
grounds that the Assessing Officer (“AO”) had failed to appreciate various
relevant factual and legal aspects before accepting the Petitioner’s
computation. The said notice was responded to by the Petitioner on 17th
January, 2022, maintaining that the assessment order dated 03rd December,
2019 is neither erroneous nor prejudicial to the interest of revenue, and thus,
cannot be reviewed under Section 263.
2.4. In exercise of their power under Section 263 of the Act, after
reviewing the material furnished by the Petitioner, on 24th March, 2022, the
CIT held that the assessment order passed by Respondent No. 1 was not
only flawed, but also detrimental to revenue’s interest. Consequently, the
CIT remanded the matter back to Respondent No. 1 with instructions to
revise the assessment order dated 03rd December, 2019, and tax the income
received by Petitioner, as per the provisions of the Act.
2.5. Consequently, Respondent No. 1 issued the impugned order on 23rd
June, 2022, overruling the earlier assessment order dated 03rd December,
2019, whereby the Petitioner’s claim to benefits under the DTAA was
negated, and its income was assessed to tax under the Act.
2.6. Section 144C(1) of the Act mandates the AO to first issue a draft
assessment order to an “eligible assessee”, as defined in Section
144C(15)(b). However, Respondent No. 1 has bypassed this statutory
W.P.(C) 1879/2023 Page 3 of 10

mandate. As the Petitioner is a foreign entity incorporated under laws of
Singapore, it qualifies as an ‘eligible assessee’ and Respondent No. 1 ought
to have issued a draft assessment order before passing a prejudicial order, in
compliance with Section 144C(1) of the Act. The requirement of supplying
a draft order affords the assessee a fair opportunity to raise objections before
the Dispute Resolution Panel (“DRP”). However, the Petitioner has been
deprived of this recourse by Respondent No. 1. Furthermore, pursuant to the
impugned order, a notice imposing a staggering demand of INR
10,51,97,960/-, has also been issued to the Petitioner. Penalty proceedings
for misreporting the income have also been initiated, in terms of Section
270A of the Act. Given the non-adherence to Section 144C(1) of the Act,
such actions are inherently flawed and lack legal standing.
2.7. It is an established legal principle that any order passed by the AO
during remand proceedings, or in adherence to instructions of a higher-
ranking authority, qualifies as an assessment order under Section 143(3) of
the Act. This conclusion is further bolstered by Respondent No. 1’s notice,
raising a demand of INR 10,51,97,960/- and imposition of a penalty under
Section 270A of the Act, on the basis of findings of the order dated 23 rd
June, 2022. The communication issued to the Petitioner, informing them of
their right to contest the order before an appellate authority, also underscores
the nature of the order.
Respondent’s arguments
3. Counter arguments presented by Mr. Aseem Chawla, Senior Standing
Counsel for Respondent No. 1, are as follows:
3.1 The impugned order and resultant proceedings were initiated against
W.P.(C) 1879/2023 Page 4 of 10

the Petitioner upon the direction of CIT, in exercise of their power under
Section 263 of the Act. These proceedings were predicated on the premise
that the assessment order (dated 03rd December, 2019) was both, erroneous
and prejudicial to the interest of revenue.
3.2 Scheme of Dispute Resolution under Section 144C of the Act inter-
alia envisions an opportunity to file objections to the assessee, which are
then considered by the Dispute Resolution Panel, i.e., a collegium
comprising of three Principal Commissioners or Commissioners of Income
Tax, constituted by the Central Board of Direct Taxes. Further, Section
144C(14A) makes it explicitly clear that provisions of the section shall not
apply to any assessment/ re-assessment order passed by the AO with the
prior approval of Principal Commissioner or Commissioner, as provided in
terms of Section 144BA(2) of the Act.
3.3. Section 144C would not apply to revisionary powers exercisable
under Section 263, as the purpose of the latter is disparate from the former.
Schematic method of interpretation should be used, with the design or
purpose of the relevant provisions in mind, rather than the letter of the
legislation. Thus, the applicable provisions must be construed in a manner
that would give effect to the objective which was sought to be achieved with
their enactment. In such a case, it is necessary to avoid a literal interpretation
of the relevant provisions. Reliance was placed upon the judgement of the
Supreme Court in Fuzlunbi v. K. Khader Vali and Another,2 wherein it was
observed that: “the ‘schematic and teleological’ method of interpretation…
is not really so alarming as it sounds. All it means is that the judges do not
go by the literal meaning of the words or by the grammatical structure of the
W.P.(C) 1879/2023 Page 5 of 10

sentence. They go by the design of purpose which lies behind it.”
3.4. An efficacious alternate remedy exists, the Petitioner can assail the
impugned order or the revisional order passed by the CIT under Section 263
of the Act (pursuant to which the impugned order has been passed), before
the Income Tax Appellate Tribunal.
Analysis and findings

4. We have deliberated on the afore-noted contentions. The crux of the
dispute hinges on the procedural compliance of Section 144C(1) of the Act
by Respondent No. 1. The question that arises for consideration is whether
the failure to pass a draft assessment order before the final assessment, as
required for a foreign company such as the Petitioner, invalidates the
impugned order dated 23rd June, 2022 and the ensuing proceedings.
5. For the sake of convenience, relevant portion of Section 144C above
is extracted hereunder:
“144C. Reference to dispute resolution panel - (1) The Assessing
Officer shall, notwithstanding anything to the contrary contained in this
Act, in the first instance, forward a draft of the proposed order of
assessment (hereafter in this section referred to as the draft order) to
the eligible assessee if he proposes to make, on or after the 1st day of
October, 2009, any variation in the income or loss returned which is
prejudicial to the interest of such assessee.
(2) On receipt of the draft order, the eligible assessee shall, within
thirty days of the receipt by him of the draft order,—
(a ) file his acceptance of the variations to the Assessing Officer; or
(b )file his objections, if any, to such variation with,—
(i) the Dispute Resolution Panel; and
(ii) the Assessing Officer.
.
.
.
(15) For the purposes of this section,—
2
(1980) 4 SCC 125.
W.P.(C) 1879/2023 Page 6 of 10

(a) "Dispute Resolution Panel" means a collegium comprising of
three Principal Commissioners or Commissioners of Income-tax
constituted by the Board for this purpose;
(b) "eligible assessee" means,—
(i) any person in whose case the variation referred to in sub-
section (1) arises as a consequence of the order of the Transfer
Pricing Officer passed under sub-section (3) of section 92CA;
and
(ii) any non-resident not being a company, or any foreign
company.
6. The provisions of Section 144C(1) of the Act provides that in case of

an ‘eligible assessee’, an AO proposing to pass an assessment order, shall at
the first instance, forward a draft assessment order to the assessee, in case
they wish to make variations prejudicial to the interest of the assessee. On
receipt of the draft assessment order, the eligible assessee has a remedy of
filing objections before the DRP. It is undisputed and manifestly clear that
no draft assessment order, as envisioned by Section 144C(1) of the Act, was
ever framed in the present case. While the CIT exercised the revisionary
powers enshrined under Section 263 of the Act, this action was primarily
rooted in the belief that the original assessment was erroneous and
potentially detrimental to the revenue’s interests. However, on remand, the
AO passed the impugned order, revising the Petitioner’s income, and
increased its tax liability. Thus, the impugned order is clearly prejudicial to
the interest of the assessee and a draft order should have been made
available to the assessee.
7. The mention of ‘schematic and teleological’ method of interpretation
by Mr. Chawla underscores the significance of understanding the larger
purpose behind a provision, rather than adopting a strictly literal
interpretation. It must therefore be ascertained whether bypassing the
W.P.(C) 1879/2023 Page 7 of 10

procedures of Section 144C(1) would align with such an interpretative
approach. In our opinion, the answer has to be in the negative. Section 144C
commences with a non-obstante clause and overrides other provisions of the
Act. It prescribes a special procedure for passing an assessment in case of an
eligible assessee. The process outlined in Section 144C(1) of the Act is not
discretionary, but mandatory. It must be adhered to even when the
assessment order is issued in line with directions from a higher authority.
While Mr. Chawla argued that the provisions of Section 144C shall not
apply to orders issued under Section 263, in our opinion, the exercise of
revisionary powers does not dilute the requirement of compliance with
Section 144C of the Act. The exception carved out in Section 144C(14A)
extends to assessment/ re-assessment orders passed by the AO with the prior
approval of the Principal Commissioner or Commissioner, as per Section
144BA(12) of the Act. The nature of proceedings initiated under Section
144BA differs from the ones commenced under Section 263. Thus, Mr.
Chawla’s reliance upon this provision is misconceived, and does not aid the
Respondents’ case. Section 144C(14A) does not dispense with the AO’s
obligation to intimate a draft order to an eligible assessee, which term
includes foreign companies like Petitioner.
8. Respondent No. 1 failed to discern the true nature and essence of the
impugned order. Although this order was passed in remand proceedings to
give effect to the directions of the CIT, issued under Section 263 of the Act,
yet it qualifies as a fresh assessment order within the ambit of Section
143(3) of the Act. Given this characterization, it was incumbent upon
Respondent No. 1, not just as a matter of procedure, but also as a matter of
law, to adhere to the special provisions delineated in Section 144C(1) of the
W.P.(C) 1879/2023 Page 8 of 10

Act. The omission to do so renders the subsequent actions and orders/
notices ensuing from this foundational oversight, as unlawful. Failure to do
so renders the order dated 23rd June, 2022 void of jurisdiction.
Consequently, the demand and penalty notices issued under Sections 156
and 270A of the Act, respectively, are also bereft of jurisdiction.
9. It is essential to highlight that the omission by Respondent No. 1 in
passing a draft assessment order has effectively denied the assessee an
opportunity to seek adjudication before the Dispute Resolution Panel, as
stipulated in Section 144C(1) of the Act. Had Respondent No. 1 followed
this mandated procedure and issued a draft assessment order, it would have
enabled the Petitioner to raise objections before the Panel, especially
concerning the allegations detailed in the assessment order dated 23rd June,
2022. This procedural route would have granted the Petitioner an avenue to
submit additional evidence for a comprehensive adjudication before the
Panel. This would have then shifted the adjudication to an entirely distinct
statutory forum. The direct issuance of final impugned assessment order has,
in effect, unjustly deprived the Petitioner of a choice of a forum, that the Act
rightfully grants them.
10. Lastly, while the existence of an alternate remedy, as argued by the
Respondents, is acknowledged, it is essential to reiterate that procedural
lapses, especially ones that could impact the jurisdiction of an order, need
rectification at the earliest stage. Delaying this to appellate stages, results in
unnecessary procedural complexities and prolonged litigation, which is
contrary to the principles of effective and efficient justice delivery.
Respondent No. 1’s omission to pass a draft assessment order is not merely
a procedural oversight, but a substantive lapse, which renders the subsequent
W.P.(C) 1879/2023 Page 9 of 10

impugned order devoid of jurisdiction. The question whether the final
assessment order stands vitiated for failure to adhere to the mandatory
requirement of first passing the draft assessment order in terms of Section
144C(1) of the Act is no longer res integra; there is a long series of
decisions where the Court has explained the legal provision/ position.3
11. For the foregoing reasons, we hold that failure by Respondent No. 1
to adhere to the mandatory requirement of Section 144C(1) of the Act and
pass a draft assessment order, would result in invalidation of the final
assessment order and the consequent demand notice and penalty
proceedings.
12. The present petition is therefore, allowed with following directions:
12.1 Impugned order dated 23rd June, 2022, demand notice dated 23rd June,
2022, and penalty notice dated 24th June, 2022, issued by Respondent No. 1,
are quashed.
12.2 The matter is remanded back to AO to proceed in terms of order dated
24th March, 2022 passed by CIT under Section 263 of the Act.
13. Disposed of.
SANJEEV NARULA, J
SATISH CHANDRA SHARMA, CJ

OCTOBER 18, 2023
d.negi
3
See: Turner International India Pvt. Ltd. v. Dy. CIT, DHC Neutral Citation: 2017:DHC:2668-DB, and
Nokia India Pvt. Ltd. v. Additional CIT, dated 07th September, 2017 in W.P(C) 3629/2017.
W.P.(C) 1879/2023 Page 10 of 10

2023:BHC-OS:10166-DB
1/6 203-3-oswp-2715-2014 with oswp-2755-2014-J.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 2715 OF 2014

Mr. Shantilal L. Chandaliya,
G – 6/7, Amit Indl. Estate,
Dr. S. S. Rao Road, Parel (East),
Mumbai – 400 012. …Petitioner
Versus
Income Tax Officer – 11(3)(3),
4th Floor, R. No. 448,
Aayakar Bhavan, M. K. Road,
Mumbai – 400 012. …Respondent
WITH
WRIT PETITION NO. 2755 OF 2014
Mr. Manoj Shantilal Chandaliya,
G – 6/7, Amit Indl. Estate,
Dr. S. S. Rao Road, Parel (East),
Mumbai – 400 012. …Petitioner
Versus
Income Tax Officer – 11(3)(1),
4th Floor, R. No. 474,
Aayakar Bhavan, M. K. Road,
Mumbai – 400 020. …Respondent
Mr. P. J. Pardiwala, Sr. Advocate a/w Ms. Rutuja N. Pawar & Ms.
Sneha More for Petitioners.
Mr. Suresh Kumar for Respondents-Revenue.
CORAM: K. R. SHRIRAM &

DR. N. K. GOKHALE, JJ.
DATED: 15th September 2023
ORAL JUDGMENT : (Per K. R. Shriram, J.)
1. Petitioners are individually impugning the notices dated 21 st
March 2014 and 24th March 2014 respectively, issued under Section
148 of the Income Tax Act, 1961 (“the Act”) on the basis that there
can never be a reason to believe that any income has escaped
Gitalaxmi
::: Uploaded on - 21/09/2023 ::: Downloaded on - 25/11/2023 15:35:12 :::

assessment.
2. Petitioners had filed returns of income on 10 th August 2007 for
Assessment Year 2007-2008 declaring total income of Rs. 2,95,990/-
and Rs. 3,95,940/-, respectively. The returns of income were
processed under Section 143(1) of the Act but no intimation under
Section 143(c) of the Act was served on Petitioners.
3. Petitioners received notices dated 21st March 2014 and 24th
March 2014, respectively, under Section 148 of the Act. Petitioners
replied raising objections to the notices and asked for a copy of
recorded “reasons to believe”. The reason to believe was furnished
by Respondents. Petitioners filed objections on 4 th June 2014 to the
re-opening, which came to be summarily rejected by the
communications dated 15th September 2014 and 14th August 2014,
respectively. The reasons to believe indicate that the notices issued to
Petitioners under Section 148 of the Act was at the behest of
Assessing Officer (“AO”) of Crown Consultants Private Limited
(“Crown”), mechanically and without application of mind. The
reasons also indicate that because AO of Crown informed AO of both
Petitioners that cash worth of Rs. 7,00,000/- had been deposited in
the bank accounts of Petitioners and immediately the amount was
transferred through cheque in the bank account of Crown and
Petitioners were a director/family member of Crown, it was required
Gitalaxmi

to examine the case of assessee for Assessment Year 2007-2008 so
that such unaccounted money could be brought to tax. The reason
pre-supposes that the amount of Rs. 7,00,000/-, which was deposited
in the account of each Petitioner was unaccounted money without
any basis. Moreover, it indicates that he had no reason to believe
income has escaped assessment but wanted to investigate or examine
the matter further. Whether that would qualify to cross the threshold
of “reason to believe”, is what we have to consider amongst other
things.
4. Petitions were admitted on 29th September 2014 and Rule
issued.
5. In our view, therefore, the notice under Section 148 of the Act
issued by AO is inconsistent with the scheme of the Act inasmuch as
the same has been issued without satisfying the requirement in this
behalf as laid down in the provisions of Section 147 of the Act. The
impugned notice under Section 148 of the Act has been issued for the
assessment of the alleged escaped income which has already been
assessed in the reassessment for Assessment Year 2007-2008 of
Crown. The same income cannot be simultaneously assessed in the
hands of two different assessees. Reasons for re-opening says “Thus,
it was alleged that the company had introduced its unaccounted
Gitalaxmi

money in the Balance Sheet……”. Company is Crown. The
requirement of the provisions of Section 147 of the Act is that there
should be reasons to believe that income chargeable to tax has
escaped assessment in the case of Petitioners to whom notices under
Section 148 of the Act have been issued whereas in the reasons
recorded allegedly, it is the company viz. Crown, who introduced its
unaccounted money in the name of Petitioners. The provisions of
Section 147 of the Act cannot be pressed into service for the purpose
of making an inquiry as to whether or not there is escapement of
income chargeable to tax from assessment. The inquiry as regards
escapement of income chargeable to tax has to precede the initiation
of the proceedings under Section 147 of the Act and not follow the
issue of notice under Section 148 of the Act. AO has issued the
impugned notice under Section 148 of the Act mechanically and
without application of mind at the behest of AO of Crown, whereas
for the purpose of the initiation of proceedings under Section 147 of
the Act, AO who issues the notice under Section 148 of the Act
himself should have his own satisfaction and reasons to believe that a
particular income of his assessee has escaped assessment for a
particular assessment year. As held by this Court in Jainam
Investments v. Assistant Commissioner of Income Tax, Central Circle-
8(1) and Others1, the reasons for re-opening an assessment should be
that of the AO alone who is issuing the notice and he cannot act
1. Writ Petition No. 2760 of 2019 dated 24th August 2021.
Gitalaxmi

merely on the dictates of any other person in issuing the notice. The
impugned notice under Section 148 of the Act has been issued
without ascertaining the income that has escaped assessment and AO
has merely stated, “I have reason to believe that income of Rs.
7,00,000/- chargeable to tax in assessee’s case….. has escaped
assessment,” which shows that proceedings have been initiated in a
casual manner so as to conduct roving inquiries. The AO in his letter
dated 15th September 2014 and 14th August 2014 respectively
rejecting the objections raised by Petitioners, has given fresh reasons
not included in the reasons as recorded under Section 148(2) of the
Act, which Courts have time and again held cannot be done. As held
in First Source Solutions Limited v. Assistant Commissioner of Income
Tax, Central Circle-12(2)(1) and Others 2, the reasons for re-opening
an assessment has to be tested/examined only on the basis of the
reasons recorded at the time of issuing a notice under Section 148 of
the Act seeking to re-open an assessment. These reasons cannot be
improved upon and/or supplemented much less substituted by
affidavit and/or oral submissions. Just because some information has
been received from the Investigation Wing, do not entitle
Respondents to re-open assessment.
6. The reasons must be founded on the satisfaction of AO that
income chargeable to tax has escaped assessment. Once that is not to

2. Writ Petition No. 2762 of 2019 dated 31st August 2021.
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be found, then, the impugned notice cannot be sustained. What we
find is that there are no reasons to believe but, only reasons to
suspect. Hence, re-opening of assessment is not satisfactory.
7. In the circumstances, we hereby quash and set aside the
impugned notices dated 21st March 2014 and 24th March 2014
respectively, issued under Section 148 of the Act and the
consequential orders rejecting the objections.
8. Rule made absolute accordingly.
(DR. N. K. GOKHALE, J.) (K. R. SHRIRAM, J.)
Digitally signed
by GITALAXMI
GITALAXMI KRISHNA
KRISHNA KOTAWADEKAR
KOTAWADEKAR Date:
2023.09.21
17:06:47 +0545
Gitalaxmi

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OCTOBER

TAX LAW IN ACTION

INCOME TAX BAR ASSOCIATION

/itbarahm @ITBA_ABAD @ITBA_abad @incometaxbarassociationahm4864

CA Shivam K. Bhavsar CA Maulik B. Patel

:: About the Contributors ::

Civil Appeal NO(S). 1420 of 2023 (SUPREME COURT)

FACTS OF THE CASE

SYNOPSIS OF THE JUDGMENT

TO VIEW THE FULL JUDGEMENT CLICK HERE

S. 147 – Where there is no fresh tangible material received by the Assessing

RATNABHUMI DEVELOPERS LTD. vs. ACIT

SCA No. 21131 of 2019 (GUJARAT HIGH COURT)

FACTS OF THE CASE

QUESTION BEFORE THE HIGH COURT

TO VIEW THE FULL JUDGEMENT CLICK HERE

S. 41(1) : Transaction between the assessee and creditor found to be genuine

PCIT vs. M/s SHANTI SUPER BUILDCON

R/Tax Appeal No. 585 of 2023 (GUJARAT HIGH COURT)

FACTS OF THE CASE

QUESTION BEFORE THE HIGH COURT

SYNOPSIS OF THE JUDGMENT

TO VIEW THE FULL JUDGEMENT CLICK HERE

S.144C – Final assessment order passed without issuing draft assessment

Sinogas Management PTE Ltd. vs. DCIT

W.P. (C) No. 1879 of 2023 (DELHI HIGH COURT)

FACTS OF THE CASE

QUESTION BEFORE THE HIGH COURT

TO VIEW THE FULL JUDGEMENT CLICK HERE

Shantilal L. Chandaliya Vs. ITO

Writ Petition No. 2715 of 2014 (BOMBAY HIGH COURT)

FACTS OF THE CASE

QUESTION BEFORE THE HIGH COURT

SYNOPSIS OF THE JUDGMENT

TO VIEW THE FULL JUDGEMENT CLICK HERE

2023 INSC 928 REPORTABLE

CIVIL APPEAL NO(S). 1420 OF 2023

ASSESSING OFFICER CIRCLE (INTERNATIONAL

M/S NESTLE SA …RESPONDENT(S)

Civil Appeal No. 1423/2023, Civil Appeal No. 1421-1422/2023,

B. The interpretation of the term “is”...........................................30

2. One of the first judgments1 challenged, in this batch of appeals by special

followed subsequent to the India-Netherlands DTAA), contrary to the revenue’s

The judgment then considered the executive decree issued by Netherlands,

6. The judgment in Concentrix was followed subsequently, in the case of

6 W.P. (C) No. 3243 of 2021 decided on 04.06.2021

II. Arguments of parties

9. The ASG relied on Section 90 which requires the issuance of a

11 [2011] 339 ITR 107 (SC)

17. Responding to the linguistic interpretation of “is” by the impugned judgments,

were preceded by negotiations, communications and letters, exchanged between

B. Contentions of the assessees/Respondents

required initiation of negotiation, to apply the beneficial provision agreed with

21. Learned counsel submitted that the difference in language, is

22. There is no requirement in the subject MFN clause to issue any

The use of different language in the DTAA by the two

GSR 382(E)/ Notification No.2/2013 dated 14.1.2013 which notified the

27. Counsel submit that the absence of a unilateral notification which

17 (2016) 382 ITR 114

Country DTAA DTAA Date Notified OECD Dividend Art. 10

18 Notified by the Indian government on 13.08.2011

III. Relevant statutory provisions

36. Section 9020 of the Income Tax Act reads as follows: