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Enforceability of treaty
Category: Case Laws , Posted on: 22/10/2023 , Posted By: CA. AJAY KUMAR AGRAWAL
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Enforceability of treaty - Necessary notification not issued by the Government for brining the treaty into force - Most Favoured Nation (MFN) -

Indian treaties with countries that are members of the Organisation for Economic Cooperation and Development (‘OECD’) - protocol for changing terms or conditions in treaty - lowering of rate of taxation at source on dividends, interest, royalties or fees for technical services (hereafter ‘FTS’) - bilateral treaties in question are between India and Netherlands, France, and Switzerland, respectively - whether there is any right to invoke the MFN clause when the third country with which India has entered into ‘DTAA’ was not an OECD member yet (at the time of entering into such DTAA) - whether the MFN clause is to be given effect to automatically or if it is to only come into effect after a notification is issued?                                                                                   SUPREME COURT :-ASSESSING OFFICER CIRCLE (INTERNATIONAL TAXATION) 2 (2) (2) NEW DELHI VERSUS M/S NESTLE SA, No.- CIVIL APPEAL NO(S). 1420 OF 2023
Dated.- October 19, 2023                                                                                                     HELD THAT:- 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).

The interpretation of the term “is” - Expression “is” has a present signification and it derives meaning from the context. Given this interpretation, the conclusion is that when a third-party country enters into DTAA with India, it should be a member of OECD, for the earlier treaty beneficiary to claim parity.                                                       

Treaty practice of India, in relation to DTAAs and their Protocol, and practices of Netherlands, France and Switzerland - The status of treaties and conventions and the manner of their assimilation is radically different from what the Constitution of India mandates. In each of the said three countries, 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 the Parliamentary or legislative process/procedure, 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 (some instances are the Extradition Act, 1962 and the Income Tax Act, 1961). Absent this step, treaties and protocols are per se unenforceable.

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