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.

The following principles are settled by decisions of the court :

(i) The terms of a treaty ratified by the Union do not ipso facto acquire enforceability. (ii) The Union has exclusive executive power to enter into international treaties and conventions under article 73 (read with corresponding entries 10, 13 and 14 of List I of the Seventh Schedule to the Constitution of India) and Parliament holds the exclusive power to legislate upon such conventions or treaties. (iii) Parliament can refuse to perform or give effect to such treaties. In such event, though such treaties bind the Union, vis a vis, the other contracting States, leaving the Union in default. (iv) The application of such treaties is binding upon the Union. Yet, they “are not by their own force binding upon Indian nationals”. (v) Law-making by Parliament in respect of such treaties is required if the treaty or Agreement restricts or affects the rights of citizens or others or modifies the law of India. (vi) If citizens’ rights or others’ rights are not unaffected, or the laws of India are not modified, no legislative measure is necessary to give effect to treaties. (vii) In the event of any ambiguity in the provision or law, which brings into force the treaty or obligation, the court is entitled to look into the international instrument, to clear the ambiguity or seek clarity.

Upon India entering into a treaty or Protocol that 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).

The status of treaties and conventions and the manner of their assimilation in various countries is radically different from what the Constitution of India mandates. In each of the three countries, Netherlands, France, and Switzerland, every treaty entered into the executive Government needs ratification. Importantly, in Switzerland, some treaties have to be ratified or approved through a referendum. These mean that after intercession of Parliamentary or legislative process, the treaty is assimilated into the body of domestic law, enforceable in courts. However, in India, either the treaty concerned has to be legislatively embodied in law, through a separate statute, or get assimilated through a legislative device, i. e., notification in the gazette, based upon some enacted law. Absent this step, treaties and protocols are per se unenforceable.

State practice subsequent to the adoption of a treaty confirms and solidifies the intent of the parties to the treaty. The goal of treaty interpretation under the Vienna Convention on Law of Treaties is to determine the meaning of the treaty viewed from the perspective of the contemporary shared understanding of the parties to the treaties. However precise the treaty text appears to be, the way in which it is actually applied by the parties is usually a good indication of what they understand it to mean, provided the practice is consistent, and is common to, or accepted by, all the parties. Whilst considering treaty interpretation, it is vital to take into account practice of the parties. There is no dispute that treaties constitute binding obligations upon their signatories. Yet, like all compacts, how the parties to any specific instrument view them, give effect to its provisions, and the manner of acceptance of such conventions or compacts are in the domain of bilateral relations and diplomacy. Much depends upon the relationship of the parties, the mutuality of their interests, and the extent of co-operation or accommodation they extend to each other. In this, a range of interests combine. The issue of treaty interpretation and treaty integration into domestic law is driven by constitutional and political factors subjective to each signatory. Therefore, domestic courts cannot adopt the same approach to treaty interpretation in a black letter manner, as is required or expected of them, while construing enacted binding law. The role of practice which is not bilateral or joint practice, but practice by one, accepted generally by the international community as operating in that particular sphere, which is relevant, and at times determinative.

The treaty practice of Switzerland, Netherlands and France is dictated by conditions peculiar to their constitutional and legal regimes. In the event of failure of the Swiss Confederation to secure the requisite majority in a referendum or approval by the Swiss Parliament, or in the absence of approval by both houses of the States General in the Netherlands, a Double Taxation Avoidance Agreement provision or trigger event could not be assimilated into executive decrees. Likewise, the treaty practice in India points to a consistent pattern of behaviour when the signatory to an existing Double Taxation Avoidance Agreement, points to the event of a third State entering into Organisation for Economic Co-operation and Development membership, and a resultant trigger event, the beneficial effect given to the later third-party State has to be notified in the earlier Double Taxation Avoidance Agreement, as a consequential amendment, preceded by exchange of communication (and perhaps, negotiation) and acceptance of that position by India. The essential requirement of a notification under section 90 of the consequences of the trigger (or causative) event cannot be undermined.