My Dutch parent has a s.197 certificate application pending and wants dividend withholding at 5 per cent under the most favoured nation clause in the Protocol. There is a Delhi High Court judgment in its favour. Can I still rely on it?
No. This Delhi High Court judgment held that the Protocol forms an integral part of the India-Netherlands Convention so that 'no separate notification is required' for the most favoured nation clause to operate, and directed withholding at 5 per cent by importing the rate from India's later treaties with Slovenia, Lithuania and Colombia. That reasoning was reversed by the Supreme Court in Assessing Officer Circle (International Taxation) v. Nestle SA on 19 October 2023, which held that a notification under s.90(1) is a necessary and mandatory condition before a court, authority or tribunal can give effect to a Protocol that alters the existing provisions of law. The entry is carried so that the reader can identify the authority and stop relying on it.
Decided by the High Court (Rajiv Shakdher J and Talwant Singh J) on 2021-04-22, reported as W.P.(C) 9051/2020 (Concentrix Services Netherlands B.V.) and W.P.(C) 882/2021 (Optum Global Solutions International B.V.), High Court of Delhi. The treaty construed is the Double Taxation Avoidance Agreement between INDIA and the NETHERLANDS — Article 10(2) read with Clause IV (Ad Articles 10, 11 and 12), in particular Clause IV(2), of the Protocol; the comparator treaties are INDIA-SLOVENIA, INDIA-LITHUANIA and INDIA-COLOMBIA.. It bears on section Article 10, section Article 10(2), section 90, section 90(1), section 197, section 195 of the Income Tax Act 1961, in TDS Defaults, How Tax Law Is Read and Refunds, Interest & Condonation matters.
This judgment, and the Delhi High Court line it belongs to, is still quoted in opinions, in Form 13 applications and in appeal grounds, and it will still be found by a search for 'MFN dividend 5 per cent'. It has to be recognised for what it now is. Two of its propositions are gone. First, that the Protocol operates of its own force because it forms an integral part of the Convention: the Supreme Court held at its paragraph 88(a) that a notification under s.90(1) is necessary and mandatory for a court, authority or tribunal to give effect to a DTAA or any protocol changing its terms which has the effect of altering the existing provisions of law. Second, that the third state need only be an OECD member at the time the taxpayer seeks the benefit rather than when India signed the treaty with it: the Supreme Court held at paragraph 88(c) that for a party to claim the benefit of a same-treatment clause the relevant date is entering into the treaty with India, "and not a later date, when, after entering into DTAA with India, such country becomes an OECD member". Paragraph 88(b), separately, holds that a stipulation requiring same treatment does not automatically integrate the better term and that the terms of the earlier DTAA require to be amended through a separate notification under s.90. Nothing of this judgment survives. It was not merely overruled as a precedent: Concentrix Services Netherlands B.V. and Optum Global Solutions International B.V. were themselves the respondent-assessees in the Supreme Court appeals decided as Nestle SA, and at paragraph 89 the Supreme Court held that "the reasoning and findings in the impugned orders cannot survive; they are set aside". Both propositions and the direction to issue a 5 per cent certificate go with it. What is still live is the shape of the dispute — the same Protocol clause, the same three comparator treaties and the same s.197 machinery are still in front of Assessing Officers, and the answer is now the opposite one. Do not, however, treat the reversal as deciding what happens to a certificate already acted upon or to a refund already granted; this entry does not reach that question.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Concentrix Services Netherlands B.V. and Optum Global Solutions International B.V. are companies resident in the Netherlands, each holding 99.99 per cent of the shares in its Indian counterpart, Concentrix India and Optum India respectively (para 4.2). Concentrix Netherlands applied on 29 July 2020 under s.197 in Form 13 for a certificate authorising Concentrix India to deduct withholding tax on dividend at the lower rate of 5 per cent (para 4.3); Optum Netherlands made a like application on 15 July 2020 (para 4.4). The Assessing Officer issued certificates on 16 September 2020 and 4 January 2021 respectively stipulating a rate of 10 per cent (para 4.5). The petitioners relied on Article 10(2) of the INDIA-NETHERLANDS DTAA read with Clause IV, Ad Articles 10, 11 and 12, of the Protocol, in particular Clause IV(2), which is the most favoured nation clause, and sought to import the 5 per cent dividend rate from India's treaties with Slovenia, which came into force on 17 February 2005, Lithuania, 10 July 2012, and Colombia, 7 July 2014 (para 8).
The impugned certificates dated 16 September 2020 and 4 January 2021 were quashed, and the Assessing Officer was directed to issue a fresh certificate under s.197 indicating that the rate of withholding tax in the facts and circumstances of these cases would be 5 per cent (paras 20 and 21). The Court held that the Protocol forms an integral part of the Convention and that, plainly read, no separate notification is required so far as the applicability of the provisions of the Protocol is concerned (para 14), and that the word 'is' in the OECD-membership condition describes a state of affairs existing when the taxpayer seeks the lower rate rather than when the subject treaty was executed (para 17.4). THAT REASONING NO LONGER STANDS.
The Court read Clause IV(2) of the Protocol as an integral part of the Convention itself, so that a separate notification was unnecessary for the Protocol to have effect, and it drew support in this from the Division Bench decision in Steria (India) Ltd. v. Commissioner of Income-tax-VI [2016] 386 ITR 390 (Delhi) (para 14). On the second question — whether the third state had to be a member of the OECD when India signed its treaty with that state, or need only be a member when the benefit is claimed — the Court held that the tense of the condition pointed to the latter, so that once Slovenia, Lithuania and Colombia attained OECD membership the 5 per cent rate in their treaties could be imported, producing reciprocal treatment between the contracting states (para 17.4). The Supreme Court in Nestle SA took the opposite view of both limbs. At para 88(a) it held that a notification under s.90(1) is a necessary and mandatory condition for a court, authority or tribunal to give effect to a DTAA or any protocol changing its terms which alters the existing provisions of law; at para 88(b) that a same-treatment stipulation does not automatically integrate the better term and that the earlier DTAA requires amendment through a separate notification under s.90; and at para 88(c) that the relevant date for OECD membership is the date of entering into the treaty with India and not a later date on which the third state becomes an OECD member. The first two dispose of the para 14 reasoning and the third disposes of the para 17.4 reasoning.
Therefore, plainly read, no separate notification is required, insofar as the applicability of provisions of the protocol is concerned.
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Handle my notice → Ask a CA on WhatsAppNo. This Delhi High Court judgment held that the Protocol forms an integral part of the India-Netherlands Convention so that 'no separate notification is required' for the most favoured nation clause to operate, and directed withholding at 5 per cent by importing the rate from India's later treaties with Slovenia, Lithuania and Colombia. That reasoning was reversed by the Supreme Court in Assessing Officer Circle (International Taxation) v. Nestle SA on 19 October 2023, which held that a notification under s.90(1) is a necessary and mandatory condition before a court, authority or tribunal can give effect to a Protocol that alters the existing provisions of law. The entry is carried so that the reader can identify the authority and stop relying on it. This was decided by the High Court (Rajiv Shakdher J and Talwant Singh J) and bears on section Article 10, section Article 10(2), section 90, section 90(1), section 197, section 195 of the Income Tax Act 1961. It is reported as W.P.(C) 9051/2020 (Concentrix Services Netherlands B.V.) and W.P.(C) 882/2021 (Optum Global Solutions International B.V.), High Court of Delhi. The treaty construed is the Double Taxation Avoidance Agreement between INDIA and the NETHERLANDS — Article 10(2) read with Clause IV (Ad Articles 10, 11 and 12), in particular Clause IV(2), of the Protocol; the comparator treaties are INDIA-SLOVENIA, INDIA-LITHUANIA and INDIA-COLOMBIA.. This judgment, and the Delhi High Court line it belongs to, is still quoted in opinions, in Form 13 applications and in appeal grounds, and it will still be found by a search for 'MFN dividend 5 per cent'. It has to be recognised for what it now is. Two of its propositions are gone. First, that the Protocol operates of its own force because it forms an integral part of the Convention: the Supreme Court held at its paragraph 88(a) that a notification under s.90(1) is necessary and mandatory for a court, authority or tribunal to give effect to a DTAA or any protocol changing its terms which has the effect of altering the existing provisions of law. Second, that the third state need only be an OECD member at the time the taxpayer seeks the benefit rather than when India signed the treaty with it: the Supreme Court held at paragraph 88(c) that for a party to claim the benefit of a same-treatment clause the relevant date is entering into the treaty with India, "and not a later date, when, after entering into DTAA with India, such country becomes an OECD member". Paragraph 88(b), separately, holds that a stipulation requiring same treatment does not automatically integrate the better term and that the terms of the earlier DTAA require to be amended through a separate notification under s.90. Nothing of this judgment survives. It was not merely overruled as a precedent: Concentrix Services Netherlands B.V. and Optum Global Solutions International B.V. were themselves the respondent-assessees in the Supreme Court appeals decided as Nestle SA, and at paragraph 89 the Supreme Court held that "the reasoning and findings in the impugned orders cannot survive; they are set aside". Both propositions and the direction to issue a 5 per cent certificate go with it. What is still live is the shape of the dispute — the same Protocol clause, the same three comparator treaties and the same s.197 machinery are still in front of Assessing Officers, and the answer is now the opposite one. Do not, however, treat the reversal as deciding what happens to a certificate already acted upon or to a refund already granted; this entry does not reach that question. If it applies to you, the first step is this: Strike this judgment, and any authority in the same line, out of any current opinion or appeal ground that claims an MFN benefit without a s.90(1) notification.
Concentrix Services Netherlands B.V. and Optum Global Solutions International B.V. are companies resident in the Netherlands, each holding 99.99 per cent of the shares in its Indian counterpart, Concentrix India and Optum India respectively (para 4.2). Concentrix Netherlands applied on 29 July 2020 under s.197 in Form 13 for a certificate authorising Concentrix India to deduct withholding tax on dividend at the lower rate of 5 per cent (para 4.3); Optum Netherlands made a like application on 15 July 2020 (para 4.4). The Assessing Officer issued certificates on 16 September 2020 and 4 January 2021 respectively stipulating a rate of 10 per cent (para 4.5). The petitioners relied on Article 10(2) of the INDIA-NETHERLANDS DTAA read with Clause IV, Ad Articles 10, 11 and 12, of the Protocol, in particular Clause IV(2), which is the most favoured nation clause, and sought to import the 5 per cent dividend rate from India's treaties with Slovenia, which came into force on 17 February 2005, Lithuania, 10 July 2012, and Colombia, 7 July 2014 (para 8). The matter was decided on 2021-04-22 by the High Court (Rajiv Shakdher J and Talwant Singh J). On those facts the High Court held as follows. The impugned certificates dated 16 September 2020 and 4 January 2021 were quashed, and the Assessing Officer was directed to issue a fresh certificate under s.197 indicating that the rate of withholding tax in the facts and circumstances of these cases would be 5 per cent (paras 20 and 21). The Court held that the Protocol forms an integral part of the Convention and that, plainly read, no separate notification is required so far as the applicability of the provisions of the Protocol is concerned (para 14), and that the word 'is' in the OECD-membership condition describes a state of affairs existing when the taxpayer seeks the lower rate rather than when the subject treaty was executed (para 17.4). THAT REASONING NO LONGER STANDS.
The Court read Clause IV(2) of the Protocol as an integral part of the Convention itself, so that a separate notification was unnecessary for the Protocol to have effect, and it drew support in this from the Division Bench decision in Steria (India) Ltd. v. Commissioner of Income-tax-VI [2016] 386 ITR 390 (Delhi) (para 14). On the second question — whether the third state had to be a member of the OECD when India signed its treaty with that state, or need only be a member when the benefit is claimed — the Court held that the tense of the condition pointed to the latter, so that once Slovenia, Lithuania and Colombia attained OECD membership the 5 per cent rate in their treaties could be imported, producing reciprocal treatment between the contracting states (para 17.4). The Supreme Court in Nestle SA took the opposite view of both limbs. At para 88(a) it held that a notification under s.90(1) is a necessary and mandatory condition for a court, authority or tribunal to give effect to a DTAA or any protocol changing its terms which alters the existing provisions of law; at para 88(b) that a same-treatment stipulation does not automatically integrate the better term and that the earlier DTAA requires amendment through a separate notification under s.90; and at para 88(c) that the relevant date for OECD membership is the date of entering into the treaty with India and not a later date on which the third state becomes an OECD member. The first two dispose of the para 14 reasoning and the third disposes of the para 17.4 reasoning. In the words reproduced by the source cited on this page: "Therefore, plainly read, no separate notification is required, insofar as the applicability of provisions of the protocol is concerned." The decision followed or applied Steria (India) Ltd. v. Commissioner of Income-tax-VI [2016] 386 ITR 390 (Delhi) — relied on; that line is itself affected by Nestle SA.
It was decided by the High Court on 2021-04-22 and is reported as W.P.(C) 9051/2020 (Concentrix Services Netherlands B.V.) and W.P.(C) 882/2021 (Optum Global Solutions International B.V.), High Court of Delhi. The treaty construed is the Double Taxation Avoidance Agreement between INDIA and the NETHERLANDS — Article 10(2) read with Clause IV (Ad Articles 10, 11 and 12), in particular Clause IV(2), of the Protocol; the comparator treaties are INDIA-SLOVENIA, INDIA-LITHUANIA and INDIA-COLOMBIA.. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section Article 10, section Article 10(2), section 90, section 90(1), section 197, section 195, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The impugned certificates dated 16 September 2020 and 4 January 2021 were quashed, and the Assessing Officer was directed to issue a fresh certificate under s.197 indicating that the rate of withholding tax in the facts and circumstances of these cases would be 5 per cent (paras 20 and 21). The Court held that the Protocol forms an integral part of the Convention and that, plainly read, no separate notification is required so far as the applicability of the provisions of the Protocol is concerned (para 14), and that the word 'is' in the OECD-membership condition describes a state of affairs existing when the taxpayer seeks the lower rate rather than when the subject treaty was executed (para 17.4). THAT REASONING NO LONGER STANDS. It arises in TDS Defaults, How Tax Law Is Read and Refunds, Interest & Condonation matters, on section Article 10, section Article 10(2), section 90, section 90(1), section 197, section 195 of the Income Tax Act 1961, and was decided by Rajiv Shakdher J and Talwant Singh J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Before claiming any MFN rate, check the Gazette for a notification under s.90(1) that amends the specific treaty you are relying on; the absence of one is now decisive against the claim. If a s.197 certificate at the lower rate was issued to your client on the strength of this line, review the exposure for later years rather than assuming the certificate continues, and take instructions on disclosure. Where the assessment year in dispute is one in which the deduction was made on this authority, argue the consequences separately (interest, s.201 and penalty) — the reversal goes to the rate, not automatically to the bona fides of the deductor. Read the Protocol clause and the comparator treaties yourself; the three comparators here were India-Slovenia (in force 17 February 2005), India-Lithuania (10 July 2012) and India-Colombia (7 July 2014), and the OECD membership dates of those states were the fulcrum of the argument.
Overruled. Overruled by Assessing Officer Circle (International Taxation) 2(2)(2) New Delhi v. Nestle SA (Supreme Court, S. Ravindra Bhat and Dipankar Datta JJ, 19 October 2023, Civil Appeal No. 1420 of 2023 with Civil Appeal Nos. 1421-1432 of 2023). The Supreme Court's declaration at para 88 was read directly and reads, so far as material: '(a) A notification under Section 90(1) is necessary and a mandatory condition for a court, authority, or tribunal to give effect to a DTAA, or any protocol changing its terms or conditions, which has the effect of altering the existing provisions of law.' Paragraph 88 was recovered verbatim on three independent /docfragment/ phrase routes and carries three lettered conclusions, (a), (b) and (c); the whole of the Nestle judgment was not read on this pass, a full-text fetch having truncated at para 57. These petitioners were themselves the respondent-assessees in the Nestle appeals — the Supreme Court's own recitation names "Concentrix Services Netherlands BV, and Optum Global Solutions International BV" as the respondent assessees and writ petitioners before the High Court — so this judgment was set aside on direct appeal and not merely overruled as a precedent: at para 89, "the reasoning and findings in the impugned orders cannot survive; they are set aside". The vocabulary for this field has no value for "reversed", so "overruled" is used. What became of the certificates already issued to these petitioners has not been traced. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment carries 22 numbered paragraphs with sub-paragraphs (4.1, 4.2 and so on). Indiankanoon indexes it under the title of the second petitioner, Optum Global Solutions International B.V., although W.P.(C) 9051/2020 is the Concentrix petition and both were decided by the one judgment; a title search for 'Concentrix Services Netherlands' does NOT return this document, which is why the case is easy to miss. The finding of the Supreme Court relied on for the 'overruled' label was read directly: paragraph 88, clauses (a) and (b), of Assessing Officer Circle (International Taxation) 2(2)(2) New Delhi v. Nestle SA, retrieved through /docfragment/ on the Nestle document. A single full-text fetch of the Nestle judgment truncated at paragraph 57 and reported the concluding paragraph as not reached, so the conclusions were obtained by phrase fragment rather than by reading the whole judgment; the Nestle decision itself is already a separate entry in this library. Paragraph 88 has three lettered clauses, not two: (a) the notification requirement, (b) no automatic integration of a better term, and (c) that the relevant date for OECD membership is the date of entering into the treaty with India. Clause (c), not clause (b), is the one that reverses this judgment's paragraph 17.4. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The impugned certificates dated 16 September 2020 and 4 January 2021 were quashed, and the Assessing Officer was directed to issue a fresh certificate under s.197 indicating that the rate of withholding tax in the facts and circumstances of these cases would be 5 per cent (paras 20 and 21). The Court held that the Protocol forms an integral part of the Convention and that, plainly read, no separate notification is required so far as the applicability of the provisions of the Protocol is concerned (para 14), and that the word 'is' in the OECD-membership condition describes a state of affairs existing when the taxpayer seeks the lower rate rather than when the subject treaty was executed (para 17.4). THAT REASONING NO LONGER STANDS.
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