Supreme Court: Double Taxation Avoidance Agreements Cannot Be Enforced Unless Notified by Central Government

Supreme Court: Double Taxation Avoidance Agreements Cannot Be Enforced Unless Notified by Central Government

The Supreme Court has ruled that a Double Taxation Avoidance Agreement (DTAA) cannot be enforced by any court, authority, or tribunal unless it has been notified by the Central Government under Section 90 of the Income Tax Act.

A two-judge bench of the Supreme Court, comprising Justices S Ravindra Bhat and Dipankar Datta, ruled in favour of the Income Tax Department in a batch of appeals against the judgments of the Delhi High Court.

Justice Ravindra Bhat stated in his oral judgment that the court had considered the arguments related to the requirement of Section 90, as well as the treaty practices of India and other countries. In light of international treaty practice, especially Article 31(3)(b), the court found that treaty practice can be unilateral, not just bilateral. The Court also held that Indian courts are bound by a DTAA as long as the Government of India has issued a notification under Section 90 of the Income Tax Act. Until then, the court opined that a DTAA is not automatically enforceable in Indian courts.

The Court concluded that a notification under Section 90 of the Income Tax Act is necessary and mandatory for a court, authority, or tribunal to give effect to a DTAA or any protocol changing its terms and conditions, which has the effect of altering the existing provisions of law.

It observed that if a stipulation in a DTAA or protocol with one country requires the same treatment concerning a matter covered by its terms after its being entered into when another country, which is a member of a multilateral organisation such as the OECD, is given better treatment, this does not automatically lead to the integration of such a term extending the same benefit regarding a matter covered in the DTAA of the first country, which entered into a DTAA with India. In such an event, the terms of the earlier DTAA must be amended through a separate notification under Section 90.

The Court further held that the interpretation of the expression "is" has present signification. Therefore, for a party to claim the benefit of a "same treatment" clause, based on the entry of a DTAA between India and another country that is a member of the OECD, the relevant date is the date of entry into the treaty with India, and not a later date, when, after entering into a DTAA with India, such country becomes an OECD member.

Justice Bhat referred to many precedents and Articles 253 and 73 of the Constitution in the judgment, which said: "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 protocols do not therefore, confer rights upon parties, till such time, as appropriate notifications are issued, in terms of Section 90(1)"

Consequently, the Supreme Court overturned the Delhi High Court's judgment of April 22, 2021, in Concentrix Services Netherlands B V v. Income Tax Officer TDS & Anr (W.P.(C) 9051/2020) and all subsequent judgments based on it.