Section 90 notification is mandatory for DTAA changes; MFN clauses do not automatically import later treaty benefits.

A treaty or protocol altering tax liability does not take effect in India merely by signature or international obligation; it becomes enforceable only when notified under Section 90(1). The Court held that an MFN clause in an earlier DTAA does not automatically import a later beneficial treaty provision into domestic law, and a separate notification is required to give it effect. It further held that where the MFN wording uses "is", the third State must be an OECD member on the date India enters into the relevant treaty with that State. The assessees were therefore denied automatic MFN-based relief without fresh notification.

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Issues: (i) Whether a notification under Section 90(1) of the Income-tax Act, 1961 is mandatory for giving effect to a DTAA or protocol that alters the existing domestic legal position; (ii) whether an MFN clause in an earlier DTAA operates automatically to import a later beneficial treaty provision or requires a separate notification; (iii) whether, for an MFN clause using the word "is", the relevant OECD membership must exist when the third-state treaty is entered into with India.

Issue (i): Whether a notification under Section 90(1) of the Income-tax Act, 1961 is mandatory for giving effect to a DTAA or protocol that alters the existing domestic legal position.

Analysis: The treaty-making power of the Union and the power of Parliament to implement treaties were distinguished. A treaty or protocol does not, by its own force, become enforceable in municipal law. Section 90 is the enabling provision through which the Central Government may notify an agreement and thereby make it operational in India. The Court relied on settled precedent to hold that, absent such notification, treaty obligations that affect domestic rights do not become enforceable against assessees.

Conclusion: A notification under Section 90(1) is necessary before a DTAA or protocol altering tax liability can be given effect in India.

Issue (ii): Whether an MFN clause in an earlier DTAA operates automatically to import a later beneficial treaty provision or requires a separate notification.

Analysis: The Court examined India's treaty practice with the Netherlands, France and Switzerland, and held that the earlier treaties and protocols did not self-execute in domestic law. The beneficial treatment granted in later treaties with OECD member States had always been implemented through express notifications under Section 90. The Court held that an MFN clause may create an international obligation, but the corresponding domestic effect in India still requires formal notification when the clause changes the existing legal position.

Conclusion: The MFN clause does not automatically incorporate the later beneficial provision into the earlier DTAA; a separate notification under Section 90 is required.

Issue (iii): Whether, for an MFN clause using the word "is", the relevant OECD membership must exist when the third-state treaty is entered into with India.

Analysis: The Court held that the word "is" bears present signification and must be read contextually. On that construction, the third State must be an OECD member when it enters into the relevant treaty with India if the earlier treaty beneficiary seeks parity under the MFN clause. Later acquisition of OECD membership by that third State does not satisfy the treaty condition. The Court rejected the view that the clause could be triggered by later OECD membership after the third-state treaty had already been concluded.

Conclusion: The relevant date is when India enters into the treaty with the third State, and the third State must be an OECD member on that date.

Final Conclusion: The impugned judgments were set aside, the Revenue's appeals were allowed, and the assessees were held not entitled to automatic MFN-based relief without a fresh notification under Section 90.

Ratio Decidendi: A treaty or protocol that changes tax liability is enforceable in India only upon notification under Section 90, and an MFN clause does not by itself import later treaty benefits into an earlier DTAA unless the treaty condition is satisfied on the relevant date and the domestic law is duly notified.

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