A notification under section 90(1) of the Income-tax Act, 1961 , is necessary and a mandatory condition for a court, authority, or Tribunal to give effect to a Double Taxation Avoidance Agreement, or any Protocol changing its terms or conditions, which has the effect of altering the existing provisions of law.

The fact that a stipulation in a Double Taxation Avoidance Agreement or a Protocol with one nation, requires the same treatment in respect to a matter covered by its terms, subsequent to its being entered into, when another nation (which is a member of a multilateral organization such as the Organisation for Economic Co-operation and Development), 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 Double Taxation Avoidance Agreement of the first nation, which entered into the Agreement with India. In such event, the terms of the earlier Agreement require to be amended through a separate notification under section 90 .

The interpretation of the expression “is” has present signification. Therefore, for a party to claim the benefit of the “same treatment” clause, based on entry into a Double Taxation Avoidance Agreement between India and another State which is a member of the Organisation for Economic Co-operation and Development, the relevant date is that of entering into treaty with India, and not a later date, when, after entering into a Double Taxation Avoidance Agreement with India, such country becomes an Organisation for Economic Co-operation and Development member, in terms of India’s practice.

The “most favoured nation” clause contained in various Indian treaties with countries that are members of the Organisation for Economic Co-operation and Development provides for lowering of the rate of taxation at source on dividends, interest, royalties or fees for technical services as the case may be, or restriction of the scope of royalty or fees for technical services in the treaty, similar to concessions given to another Organisation for Economic Co-operation and Development country subsequently.

There is no right to invoke the most favoured nation clause when the third country with which India has entered into a Double Taxation Avoidance Agreement was not yet a member of the Organisation for Economic Co-operation and Development (at the time of entering into such Double Taxation Avoidance Agreement). The most favoured nation clause comes into effect after a notification is issued.