The Supreme Court of India in the case of Assessing Officer vs. M/s Nestle SA and Others, elucidated law relating to applicability of the Most Favoured Nation ("MFN") clause in the protocol(s) for availing benefit of a DTAA entered into by India which are beneficial and restricted in scope. The Supreme Court in its decision laid down that issuing a notification by Indian Government is a mandatory precondition for implementation of the MFN clause in the Tax Treaties.
India like other common law jurisdictions, does follow 'dualist practice', as opposed 'monist practice', whereby treaties including Tax Treaties would lack legal force without an enabling legislation. Section 90 of the Act provides for the necessary enabling legislation in terms of Article 253 of the Constitution for entering into and application of the Tax Treaties. Section 90(1) of the Act enables the central government to enter into an agreement with the government of any other country outside India for avoidance of double taxation, and central government "..may by notification in official gazette make such provision as may be necessary for implementing the agreement." In the opinion of the authors the operative portion of section 90(1) using 'may' twice in the sentence cannot be read as laying down a mandatory condition or requirement. In the opinion of the authors there is no leeway or privilege in the bilateral agreement, or the municipal law as contained in the Constitution read with the Income-tax Act, not to implement MFN clause in the protocol. The conclusions of the Supreme Court appears to be in conflict with the decisions of the Constitution Benches of the Supreme Court in the cases of in the cases of Kesavananda Bharti and Shivakant Shukla, which are in sync with the legal position and international convention.
An incisive analysis of the decision of the Supreme Court by Mr. Neeraj K Jain and Mr. Kunal Pandey.
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