TaxTMI 
TaxTMI 
2023 (10) TMI 981
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....ukumar, AOR Mr. S Sukumaran, Adv. Mr. Bhupesh Kr. Pathak, Adv. Mrs. Ruche Anand, Adv. Mrs. Meera Mathur, AOR Ms. Meera Mathur, AOR Mr. Ayush Negi, AOR Mr. Rahul Gupta, AOR Mr. S Ganesh, Sr. Adv. Mr. Anand Sukumar, AOR Mr. S Sukumaran, Adv. Mr. Bhupesh Kr. Pathak, Adv. Mrs. Ruche Anand, Adv. Mr. Shankey Agrawal, AOR Mr. Mukesh Butani, Adv. Mr. Tarun Jain, Adv. Mr. Vansh Vermani, Adv. Ms. Shinjani Agnihotri, Adv. Ms. Shreya Wadhera, Adv. 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 B. The interpretation of the term "is".................................
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....ble' 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....
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..... This was based on the provision made in the preface of the Protocol which inter alia stated that the Protocol "shall form part an integral part of the Convention" i.e., the subject DTAA. It was argued that application of provisions of the DTAA (which followed subsequent to the India-Netherlands DTAA), contrary to the revenue's stand, no fresh notification was required. In support, reliance was placed upon the rulings in Court in Steria (India) Ltd. v. Commissioner of Income-Tax [2016] 386 ITR 390 (Delhi): Judgment dated 22.04.2021 passed by the Delhi High Court in WP (C) No. 9051/2020 and connected matters, the judgment of the Karnataka High Court in Apollo Tyres Ltd. v. Commissioner of Income Tax, International Taxation, [2018] 92 Taxmann.com 166 (Karnataka) and of another judgment of the Delhi High Court in EPCOS Electronic Components S.A. v. Union of India 2019 SCC OnLine Del 9113. 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 withho....
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.... 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 interpre....
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....ntions 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. 1984 [2] SCR 664 and Union of India (UOI) & Ors. v. Azadi Bachao Andolan & Ors. 2003 (Supp 4) SCR 222 to urge that the position in India is entrenched that without enabling legislation, any convention or event flowing from a convention, as in creation of rights and liabilities of third parties to conventions or treaties, do not operate on their own, and needs an intervening action by the Union, giving effect to such obligation. 9. The ASG relied on Section 90 which requires the issuance of a notification, to give effect to any treaty or convention. It is argued that in the absence of any law, mere entering into a treaty or convention or protocol cannot give rise to any right under the taxation laws having regard to the structure of Section 90. Therefore,....
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....owed 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 al....
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.... 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 contend....
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....-operative MFN clause. Undoubtedly if the amendment is as a consequence of a bilateral negotiation, then, a separate notification is required. To ascertain if any such requirement exists or otherwise, one will have to refer to the respective clauses itself. It is urged that the subject MFN clause in the Protocol to India- Netherlands DTAA has no such requirement. 20. The contrast between India's DTAAs with Netherlands and Switzerland, is that the relevant MFN clause in the India-Switzerland DTAA originally required initiation of negotiation, to apply the beneficial provision agreed with other OECD member. This was repealed by notification No. SO 2903(E), dated 27-12-2011 and both India-Switzerland agreed on the present MFN clause which does not require negotiation to give the benefit of reduced rate of tax, and it was argued applies automatically just like the India-Netherlands MFN. Counsel also highlighted that the MFN Clause in the Protocol to the India- Finland DTAA also clearly requires India to immediately inform the Finland authorities and notify such beneficial provision whenever the MFN clause gets triggered. Counsel also referred the MFN clause in the Protocol to the In....
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....ation as was done in the judgment impugned. It was submitted also, that the Karnataka High Court in Apollo Tyres Ltd. (supra) had similarly considered the same Protocol to the India-Netherlands DTAA; which as the revenue did not challenge - had, attained finality. 24. The assessees refute the revenue's argument that treaties with other OECD countries did not have a triggering consequence of the MFN clauses with the three countries in the present case. On the revenue's reference to the unilateral notification dated 30.08.1999, where the restricted scope of FTS is only given by India w.e.f. 01.04.1997, whereas the limited scope of FTS was agreed in the India-USA DTAA which came into force from 18.12.1990 - it is urged that this notification is unilateral and not a bilateral amendment by both states. The assessees highlight, in this regard that the notification nowhere clarifies that both states had agreed to its contents. In contrast Notification No. GSR 382(E)/ Notification No.2/2013 dated 14.1.2013 which notified the Protocol to India-Netherlands dated 10.5.2012 bilaterally amending the DTAA and states "India and Netherlands... Desiring to conclude a Protocol (hereinaft....
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....n 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, Sl....
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....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 argu....
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....on 05.07.2018. Likewise, the India-Colombia DTAA was signed on 13.05.2011 and notified on 23.09.2014; Colombia entered OECD on 28.04.2020. These two DTAAs provided lower rates of taxation, as compared with the India- Switzerland DTAA. It was argued that the purpose of amending the relevant provisions of the DTAA, by the third Protocol was to automatically provide the same treatment to Switzerland; counsel relies on the expression that the lower rate given to the later OECD member by India "shall also apply between both Contracting States under this Agreement as from the date on which such Convention, Agreement or Protocol enters into force". Counsel contrasts this with similar provisions in the third Protocol. The latter require the contracting states to enter into negotiations. Nestle underlines that the first and second Protocol, were worded differently. Earlier, in respect of the same event, i.e. India's entering into an agreement with another contracting state, granting lower rate of 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....
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.... 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 subsection (1) applies, s....
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....rticle 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. Hollis Duncan Hollis: Executive Federalism : Forging New Federalist Constraints on the Treaty Power" Legal Studies Research Paper Series available at, 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 More 1969 (1) SCR 320, this court held that the executive may make treaties with foreign States for the extradition of criminals, but those treaties can only be carried into effect by Act of Parliament, for the executive has no power, without statutory authority, to seize an alien here and deliver him to a forei....
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....o & Ors. [1937] A.C. 326 (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 : b....
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...., 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 ....
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....subject to the provisions of this Act", which would include Section 90 of the Act. As to what would happen in the event of a conflict between the provision of the Income Tax Act and a notification issued Under Section 90, is no longer res integra. ************** **************** 26. A survey of the aforesaid cases makes it clear that the judicial consensus in India has been that section 90 is specifically intended to enable and empower the Central Government to issue a notification for implementation of the terms of a double taxation avoidance agreement. When that happens, the provisions of such an agreement, with respect to cases to which where they apply, would operate even if inconsistent with the provisions of the Income Tax Act. We approve of the reasoning in the decisions which we have noticed. If it was not the intention of the legislature to make a departure from the general principle of chargeability to tax under section 4 and the general principle of ascertainment of total income under section 5 of the Act, then there was no purpose in making those sections "subject to the provisions" of the Act". The very object of grafting the said two sections with th....
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....arties, 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: SUMMARIES OF DTAAs, PROTOCOLS & NOTIFICATIONS IN TABULAR FORMAT Contracting State #2 signing of/ entry into treaty date of entry into force Notification , if any Date of signing relevant amending protocol Effective date of said amendment/ protocol Notification if any Whether member of OECD Netherlands Treaty & Protocol - 13.07.198 8 21.01.1989 27.03.1989 13.08.1999 .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). 01.04.1997 or 01.04.1991 or 01.04.1998 or 01.04.1995 (based on the provision, in relation to the concerned country) 30.08.1999 Yes (13 November 1961) 10.05.2012 02.11.2012 14.01.2013 - giving effect from 02.11.2012 USA [earlier agreement dated 15.06.1989; also see instruction dated 28.04.2003 a....
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....6 date of entry into force is 21.12.2016 Notification dated 27.10.2017 - to have effect from 01.03.2017 Yes (21 July 2010) Finland Treaty & Protocol: 15.01.201 0 19.04.2010 20.05.2010 - with effect from 01.04.2011 NA NA Yes (28 January 1969) Lithuania Treaty & Protocol: 26.07.201 1 10.07.2012 25.07.2012: to have effect from 01.04.2013 NA NA Yes (05 July 2018) Colombia Treaty & Protocol: 13.05.201 1 07.07.2014 23.09.2014 NA NA Yes (28 April 2020) C. The interpretation of the term "is" 48. The High Court had interpreted the term "is" occurring in the DTAAs [see Clause IV(2) "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 r....
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....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 "res....
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....n or Agreement enters into force the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention" 53. The DTAA between India and Germany entered into force on 26.10.1996; the DTAA between India and Sweden entered into force on 25.12.1997, the India-Swiss Confederation DTAA entered into force on 19.10.1994, and the DTAA between India and the United States of America entered into force on 18.12.1990. These states were members of the OECD. The Union limited the taxation at source on dividends, interest, royalties, fees for technical services and payments for the use of equipment to a rate lower or a scope more restricted than that provided in the DTAA between India and the Netherlands on the said items of income. Consequently, the notification dated 30.08.1999, provided the following benefits expressly on different dates, having regard to the fact that India entered into DTAAs with OECD members and gave them effect, subsequently: "Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby directs that the following modific....
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....b-division or a public sector company ; and (B) 20 per cent, of the gross amount of the royalties or fees for technical services in all other cases ; and (ii) during the subsequent years, 15 per cent. of the gross amount of royalties or fees for technical services ; and (b) in the case of royalties referred to in sub-paragraph (b) of paragraph 4 and fees for technical services as defined in this article that are ancillary and subsidiary to the enjoyment of the property for which payment is received under paragraph 4(b) of this article, 10 per cent. of the gross amount of the royalties or fees for technical services. 3. The competent authorities of the States shall by mutual agreement settle the mode of application of paragraph 2. 4. The term "royalties" as used in this article means: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including motion picture films and works on film or video-tape for use in connection with television, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning ....
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....ctively 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 ....
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....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 ....
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....on 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 Notification No. S.O. 650(E), dated 10-7-2000. 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 a....
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....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 Article....
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.... 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 Swit....
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....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 ....
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....e 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 Global Decision of 28 February 2012, No. IFZ 2012/54M, Tax treaties: India, issued by the Director General, Fiscal Affairs, Kingdom of Netherlands 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. ....
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....spect 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) a....
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....to sign the treaty and bring it into force as well; (b)Some treaties require prior approval of the Parliament to be enforceable; (c) In some cases, the treaty is subjected to optional referendum provided under Article 89 (3) of the Constitution; (d) In some cases, the international agreement needs sanction through compulsory referendum in terms of Article 89 (5) of the Constitution Article 89 of the Federal Constitution of the Swiss Federation, available at: (accessed on 11.10.2023). 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 requir....
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....d 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 t....
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....omulgation 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. See, e.g., Canadian Supreme Court of 28 September 1982, The Queen v. Melford Development Inc., D.T.C. 6281 (1982), at 6285 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. 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 inner....
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.... 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." 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. 75. In 2018, the International Law Commission (ILC) adopted its Draft Conclusions on Subsequent A....
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....f Treaties (Brill, 1985), para 19, and patterns of treaties, for instance when considering whether the conclusion of a large number of Bilateral Investment Treaties (BITs) could collectively amount to subsequent practice. See eg., SM Schwebel, ʻThe Influence of Bilateral Investment Treaties on Customary International Lawʼ (2004) 98 ASIL Proc 27; JE Alvarez, ʻA BIT on Customʼ (2009) 42 NYU J Intl L & Pol 17 77. The International Court of Justice (ICJ) has accepted a wide variety of activities as interpretive conduct by states. It has referred to domestic legislation 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), diplomatic correspondence 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....
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....tional Law Commission's Return to the Law of Sources of International Law, 13 FIU L. Rev. 989 (2019) 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). Id. 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. 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). 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. Steven Ratner, 'International Law Rules on Treaty Interpretation' in The Law and Prac....
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....ng', and 'integration'. With regard to the principle of subsequent practice, Fitzmaurice remarked, as early as then, that: "Where the practice has brought about a change or development in the meaning of the treaty through a revision of its terms by conduct, it is permissible to give effect to this change or development as an agreed revision..." 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 83. The ICJ in its decision in Case Concerning the Land, Island and Maritime Frontier Dispute (El Salvador v Hondurus) ICJR (1992) 351 - Decision dated 12-09-1992, [General List No. 75] 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 ordi....
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.... 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 Namibia [1999] ICJ Rep 1045; (General List No. 98) 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, ....
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....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 practicewhich is, as the previous discussion demonstrates, not bilateral or joint practice, but practice by one, accepted generally by the international community as operating in tha....