MFN clause in tax treaty requires OECD membership and notification before a lower dividend rate can be imported.

The Most Favoured Nation clause in the India-Netherlands DTAA Protocol applies only where the later treaty is with an OECD member at the relevant time and the imported concession has been brought into force in India through a notification under section 90(1). Applying the binding Supreme Court approach on MFN clauses, the article notes that Slovenia was not an OECD member when its treaty with India entered into force and no notification imported the lower dividend rate into the Netherlands treaty. The lower 5% dividend tax rate was therefore unavailable, and the 10% rate under Article 10 remained applicable.

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Issues: Whether the assessee was entitled, by invoking the Most Favoured Nation clause in the India-Netherlands DTAA Protocol, to apply the 5% dividend tax rate from the India-Slovenia DTAA instead of the 10% rate under Article 10 of the India-Netherlands DTAA.

Analysis: The MFN clause was held to operate only when the later treaty relied upon was with an OECD member at the relevant time and the imported benefit had been brought into force in India through the required notification under section 90(1) of the Income-tax Act, 1961. The Court followed the binding Supreme Court ruling on MFN clauses and noted that Slovenia was not an OECD member when its treaty with India entered into force, and no notification had been issued importing the alleged benefit into the Netherlands treaty. The assessee therefore could not claim the lower 5% rate merely on the basis of the protocol reference.

Conclusion: The assessee was not entitled to the 5% dividend rate under the MFN clause, and taxation of the dividend at 10% was upheld.

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