DTAA can’t be be enforced unless notified under Income Tax Act: SC

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IN A significant ruling with respecttotheinterpretationofthe Double Taxation Avoidance Agreements (DTAAS), the Supremecourtthursdaystated thatanotificationundersection 90(1) of the Income Tax Act is “necessary and a mandatory” condition for a court, authority, or tribunal to give effect to a tax treatythathastheeffectofaltering existing provisions of law. The ruling essentially implies thatacountrycanclaimbenefits under DTAA from the time of its treaty pact and not a later date when some other country would have gained from entering into another treaty.

Thescrulingwasinacaserelated to bilateral treaties on issues linked to whether there is any right to invoke the mostfavoured nation (MFN) clause when the third country with which India has entered into a Dtaawasnotanoecdmember yet (at the time of entering into such DTAA); and secondly whetherthemfnclauseistobe given effect to automatically or if itistoonlycomeintoeffectafter a notification is issued.

Nestle SA, Concentrix Services Netherlands and other multinationalcompanieshadargued that Netherlands, Switzerland and France are membersoftheorganisationfor Economic Cooperation and Development and given that India’streatieswiththesecountries have the MFN clause, the beneficial 5 per cent withholdingrateintreatieswithslovenia, Lithuania and Columbia should also apply to them.

Amit Maheshwari, Tax Partner, AKM Global, said: “Many taxpayers had taken a concessional tax rate for remittancessuchasroyaltiesandfees fortechnicalservicesandfordividends after 1.04.2020 (post abolishingdividenddistribution tax). The decision of the apex court will have wide repercussions for the industry and could resultinmillionsofdollarsofadditionaltaxrevenueforthegovernment. The decision would also entail revival of pending matters in the form of fresh actionbytaxauthoritiesbyinitiating proceedings, raising demands or denying lower withholding in respect of these remittances made in the past. Thismaynotgowellwithourtax treaty partners.”

ITC’S revenue was up 2.6%. HUL’S revenue grew by 3.6%.