ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2(2)(2) NEW DELHI vs. M/S NESTLE SA

1 REPORTABLE IN THE SUPREME COURT OF INDIA 2023 INSC 928 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. 1426/2023, Civil Appeal No. 1427/2023, Civil Appeal No. 1428/2023, Civil Appeal No. 1429/2023, Civil Appeal No. 1430/2023, Civil Appeal No. 1431/2023, Civil Appeal No. 1432/2023 J U D G M E N T 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 Signature Not Verified III. Relevant statutory provisions.............................................20 Digitally signed by VISHAL ANAND Date: 2023.10.19 13:47:24 IST Reason: 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 1 2. One of the first judgments 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 2 assessees (writ petitioners before the High Court ) 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 3 the rulings in Court in Steria (India) Ltd. v. Commissioner of Income-Tax , the judgment of the Karnataka High Court in Apollo Tyres Ltd. v. Commissioner of 4 Income Tax, International Taxation , and of another judgment of the Delhi High 5 Court in EPCOS Electronic Components S.A. v. Union of India . 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 6 Nestle SA v. Assessing Officer Circle (International Taxation) which is also 7 under challenge . In the revenue’s appeals 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 8 treaties are unenforceable, having regard to the express terms of Article 253 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. 9 Birendra Bahadur Pandey & Ors. and Union of India (UOI) & Ors. v. Azadi 10 Bachao Andolan & Ors. 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 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. 11 15. The learned ASG cited Ram Jethmalani v. Union of India , 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 12 Revenue . 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

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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

India-Netherlands DTAA; which as the revenue did not challenge - had, attained finality.

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

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

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

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.

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

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.

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.

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

15 [2020] 14 SCR 372 16 (2021) 432 ITR 471(SC) 16

cannot alter the law under the DTAA.

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

following the date of entry into force of the India-USA DTAA).

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.

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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:

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.

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,

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.

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

of OECD" is literally interpreted, it would mean Slovenia, Lithuania, and

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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

members only when the benefit of the MFN clause is invoked. 34. Learned senior counsel appearing for Nestle argued in addition, that the 18 third Protocol, between India and the Swiss Confederation , 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, 19 the same lower rate of taxation was to be given to Swiss tax entities. 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

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

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

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 20 36. Section 90 of the Income Tax Act reads as follows: 1 “90. Agreement with foreign countries or specified territories. (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

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 4 agreement unless 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 th the Constitution, and the relative entries in the Union List (List I, VII 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.

may make treaties with foreign States for the extradition of criminals, but those

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

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.

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 & 25 Ors. followed the ruling of the Privy Council in Attorney-General for Canada

24 26 v. Attorney-General for Ontario & Ors. (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.” 27 In Gramaphone Co. of India Ltd. v. Birendra Bahadur Pandey & Ors. 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 th corresponding Entries - Nos. 10, 13 and 14 of List I of the VII 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 28 India (UOI) & Ors. v Azadi Bachao Andolan & Ors . Apart from noticing the decisions of various High Courts (i.e. Commissioner of Income Tax v. 29 Visakhapatnam Port Trust , Commissioner of Income Tax v. Davy Ashmore 30 India Ltd. , Leonhardt Andra Und Partner, Gmbh v. Commissioner of Income 31 32 Tax , Commissioner of Income Tax v. R.M. Muthaiah and Arabian Express 33 Line Ltd. of United Kingdom & Ors. v. Union of India ) 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.

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

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

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 36 [see Clause IV(2) 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 37 notified on 25.07.2012 . 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.

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. 38 50. In Jagir Kaur v. Jaswant Singh 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.” 39 In P. Anand Gajapati Raju v. P.V.G Raju in the context of the Arbitration and Conciliation Act, 1996, this court explained that “is” normally has present signification:

38 (1964) 2 SCR 73 39 (2000) 4 SCC 539 33

same view, that “is” refers to the present:

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 royalties and fees for technical services referred to in paragraph III above the following paragraph shall be read : "2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties, or fees for technical services, the tax so charged shall not exceed 10 per cent. of the gross amount of the royalties or the fees for technical services." VI. With effect from April 1, 1998, for paragraph 4 of article 12 relating to royalties and fees for technical services referred to in paragraph III above the following paragraph shall be read : 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:

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 41 through a notification in July, 2000 . The recital to the said notification of 2000 reads as follows:

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

Notification No. S.O. 650(E), dated 10-7-2000 41 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

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

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.

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

40 granted through the later instrument. Therefore, the benefit which India granted

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

other DTAAs might be different; the coverage and definition of certain terms (FTS, permanent establishment, etc.) might be dissimilar. The revenue’s

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:

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

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

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.”

44

services paid by a resident of India to a resident of Canada where the royalties

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 42 Optum Global 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.” 43 The decree issued by the Swiss Federation 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 und er 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 44 Constitution . 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 45 be enforceable. 71. The Kingdom of Netherland is party to a number of treaties, international Agreements and Conventions. Such treaties have to receive approval of the

treaty is in conflict with the Constitution, a two-thirds majority of the houses is 46 mandatory (Article 91 paragraph 3 Constitution ). The Netherlands government and its courts are not bound by a treaty until the States General have ratified it.

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,

47 73. Klaus Vogel (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:

47 Klaus Vogel on Double Taxation Conventions 49

GATT has been held by the German Bundesfinanzhof not to be ‘self-executing’: 25 February, 1959, BStBl. 48 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. Van Raad, K., 47 MBB 49 (1978). 52 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

F. Vienna Convention on Law of Treaties 57 74. Article 31 of the VCLT 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.

51 75. In 2018, the International Law Commission (ILC) adopted its Draft Conclusions on Subsequent Agreements and Subsequent Practice in relation to 58 the Interpretation of Treaties (“ILC Draft Conclusions”). 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 59 treaties. 76. The ILC Draft Conclusions define ‘subsequent agreement’ as an agreement between parties, reached after the conclusion of a treaty, regarding 60 the interpretation of a treaty and its provisions. 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 61 interpretation of the treaty. Such subsequent practice under Articles 31 and 32 may consist of any conduct of a party in the application of a treaty, whether in 62 the exercise of its executive, legislative, judicial or other functions, and may 63 take several forms. ‘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 64 relations with one another’ . In a more dynamic sense, it represents the process of continuous interaction between States. It also covers subsequent treaties with 65 third States , 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. 61 Conclusion 4(2), Id. 62 Conclusion 5(1), Id. 63 Conclusion 6(2), Id. th JL Brierly, The Law of Nations, 6 Ed. (Oxford University Press, 1963), 59. 64 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, Custom as a Source of ʻ 52 conclusion of a large number of Bilateral Investment Treaties (BITs) could 66 collectively amount to subsequent practice. 77. The International Court of Justice (ICJ) has accepted a wide variety of activities as interpretive conduct by states. It has referred to domestic 67 68 legislation , diplomatic correspondence , 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 69 70 officials. In the Asylum Case , Colombian failure to raise the Havana Convention in diplomatic correspondence was used to show that Colombia did 71 not construe the convention as applicable. In the Corfu Channel Case , 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 72 for it to be taken into account. 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 Law (1974-75) 47 BYBIL 1, 43; ME Villiger, ʼ 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, The Influence of Bilateral Investment Treaties on Customary International Law ʻ ʼ (2004) 98 ASIL Proc 27; JE Alvarez, A BIT on Custom (2009) 42 NYU J Intl L & Pol 17. ʻ ʼ 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. 72 Conclusion 10(1), Id. 53 acceptance of the subsequent practice when the circumstances call for some 73 reaction. 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 74 conduct’). 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) 75 opinio juris exists. As of 2019, the ICJ had relied expressly on the ILC’s work 76 in 22 cases (19 decisions in contentious proceedings and 3 advisory opinions). 80. The provisions of the ILC Draft Conclusions on subsequent practice were drafted and adopted by consolidating the writings of eminent publicists in 77 international law, pursuant to extensive research on evolving state practice. 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 78 understanding of the parties to the treaties. As James Crawford has pointed 79 out, from the perspective of international law, ‘the parties…own the treaty’ . 73 Conclusion 10(2), Id. 74 ILC, Third Report on the Law of Treaties, UN Doc A/CN.4/167, 59 para 24; See also ME Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (Brill, 2009), 431. 75 Danae Azaria, The International Law Commission’s Return to the Law of Sources of International Law, 13 FIU L. Rev. 989 (2019). 76 Id. 77 See for eg., ILC, Reports on Subsequent Agreements and Subsequent Practice in Relation to Treaty Interpretation, by Georg Nolte, Special Rapporteur, UN Doc A/CN.4/660 (2013); UN Doc A/CN.4/671 (2014); UN Doc A/CN.4/683 (2015), UN Doc A/CN.4/694 (2016), UN Doc A/CN.4/715 (2018). 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 80 interpretation. 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 81 common to, or accepted by, all the parties. 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 82 interpreted. 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 83 revision...” 83. The ICJ in its decision in Case Concerning the Land, Island and 84 Maritime Frontier Dispute ( El Salvador v Hondurus ) 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

85. Donald Regan, in a paper “ Understanding What the Vienna Convention Says About Identifying and Using 'Sources for Treaty Interpretation' Identifying 86 and Using 'Sources for Treaty Interpretation' 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

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.