TAXATION) 2(2)(2) NEW DELHI vs M/S NESTLE SA

Bench: 2 — S. Ravindra Bhat, Dipankar Datta

In Brief

India's Supreme Court held that Double Tax Avoidance Agreement (DTAA) Most Favoured Nation (MFN) clauses do not operate automatically to grant lower withholding tax rates to countries when third nations later gain OECD membership. Even where an MFN clause provides that similar treatment should apply, a separate notification under Section 90 of the Income Tax Act, 1961 is mandatory to give effect to such benefits. The Court ruled that India's dualist constitutional structure requires legislative assimilation of treaties into domestic law; that an MFN clause's reference to a country being an OECD member must be assessed at the time it entered into the DTAA with India, not at later dates of OECD accession; and that India's consistent treaty practice supports requiring explicit notifications rather than automatic application of MFN benefits.

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Double Taxation Avoidance Agreements Most Favoured Nation Clause Treaty Interpretation Income Tax Law Constitutional Law International Treaty Law Section 90 Income Tax Act OECD Membership

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