My French client offered dividend from its Indian subsidiaries at 5 per cent under the most favoured nation clause and claimed a refund. After the Supreme Court's decision in Nestle SA, what happens to that claim?
It fails. The Chennai Tribunal applied Nestle SA and dismissed the ground, holding that the 5 per cent rate claimed under Article 11(2) of the India-France DTAA read with the Protocol most favoured nation clause, imported from India's treaties with Slovenia, Lithuania and Colombia, could not be given effect without a separate notification under s.90(1). The dividend therefore remains taxable at the treaty rate as notified, and the refund claimed on the 5 per cent basis goes.
Decided by the ITAT (Manjunatha G, Accountant Member and Manomohan Das, Judicial Member) on 2024-03-22, reported as IT(TP)A No. 72/Chny/2023, Income Tax Appellate Tribunal, 'D' Bench, Chennai; assessment year 2021-22. The treaty construed is the Double Taxation Avoidance Agreement between INDIA and FRANCE — Article 11(2) (dividends) read with the Protocol most favoured nation clause; the comparator treaties are INDIA-SLOVENIA, INDIA-LITHUANIA and INDIA-COLOMBIA.. It bears on section Article 11, section Article 11(2), section 90, section 90(1), section 90(2), section 144C of the Income Tax Act 1961, in Assessment & Scrutiny, How Tax Law Is Read and Refunds, Interest & Condonation matters.
This is what Nestle SA looks like when it is applied to a live assessment, and it is worth having for three reasons. First, it shows the Supreme Court's declaration being read as a straightforward bar rather than as something to be distinguished on the particular Protocol wording — the Tribunal quoted conclusion (a) and dismissed the ground in a sentence. Second, it is a warning about Article numbering. In the India-France treaty DIVIDENDS ARE DEALT WITH BY ARTICLE 11, not by Article 10 as in the OECD Model and as in the India-Netherlands treaty; a practitioner who searches for 'Article 10 dividends' will not find this case and may cite the wrong Article in the France context. Always take the Article number from the treaty in front of you. Third, it identifies the exact ground the Revenue took and the Tribunal accepted was no longer arguable — that Slovenia, Lithuania and Colombia had to be OECD members at the time they signed with India — which had been the assessee's winning point before the Delhi High Court until October 2023. Note the limit of the order: the appeal was PARTLY allowed, because a separate ground on the levy of interest was sent back to the Assessing Officer for fresh examination. Nothing in the order suggests any softening on the MFN point.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee is a company incorporated in France with two Indian subsidiaries, Valeo Friction Materials India Pvt. Ltd. and Amalgamations Valeo Clutch Pvt. Ltd., in which it held 60 per cent and 50 per cent respectively, both manufacturing auto components. It received dividends from these subsidiaries. For assessment year 2021-22 it filed its return on 14 March 2022 declaring a total income of Rs. 90,73,28,755 and offered that income to tax at 5 per cent under Article 11(2) of the INDIA-FRANCE DTAA read with the Protocol most favoured nation clause, importing the provisions of the INDIA-SLOVENIA, INDIA-LITHUANIA and INDIA-COLOMBIA treaties into the India-France treaty, and claimed a refund of Rs. 4,53,66,440. The Assessing Officer and the Dispute Resolution Panel denied the benefit on the ground that the third country had to have been an OECD member at the time it signed its treaty with India. The assessee appealed to the Tribunal, its first ground being that the Assessing Officer and the DRP had erred in so holding.
The ground on the most favoured nation clause was dismissed. In view of the Supreme Court's decision, the Tribunal dismissed the ground of appeal of the assessee on disallowance of the claim for a 5 per cent rate of tax on the dividend received from the subsidiaries (para 7). A separate ground on the levy of interest was decided in the assessee's favour for statistical purposes, the Assessing Officer being directed to delete the levy and examine the issue afresh, and the appeal was accordingly PARTLY allowed (paras 8 to 10).
The Tribunal set out the conclusions of the Supreme Court, including that a notification under s.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, and that where a same-treatment stipulation is invoked the terms of the earlier DTAA require to be amended through a separate notification under s.90 (para 6). Applying that, and without any further inquiry into the wording of the India-France Protocol or the OECD membership dates of the three comparator states, the Tribunal dismissed the assessee's ground on the 5 per cent rate (para 7).
In view of the aforesaid decision of the Hon'ble Apex Court, we dismiss the ground of appeal of the assessee on disallowance of claim for 5% rate of tax on the dividend received from the subsidiaries.
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Handle my notice → Ask a CA on WhatsAppIt fails. The Chennai Tribunal applied Nestle SA and dismissed the ground, holding that the 5 per cent rate claimed under Article 11(2) of the India-France DTAA read with the Protocol most favoured nation clause, imported from India's treaties with Slovenia, Lithuania and Colombia, could not be given effect without a separate notification under s.90(1). The dividend therefore remains taxable at the treaty rate as notified, and the refund claimed on the 5 per cent basis goes. This was decided by the ITAT (Manjunatha G, Accountant Member and Manomohan Das, Judicial Member) and bears on section Article 11, section Article 11(2), section 90, section 90(1), section 90(2), section 144C of the Income Tax Act 1961. It is reported as IT(TP)A No. 72/Chny/2023, Income Tax Appellate Tribunal, 'D' Bench, Chennai; assessment year 2021-22. The treaty construed is the Double Taxation Avoidance Agreement between INDIA and FRANCE — Article 11(2) (dividends) read with the Protocol most favoured nation clause; the comparator treaties are INDIA-SLOVENIA, INDIA-LITHUANIA and INDIA-COLOMBIA.. This is what Nestle SA looks like when it is applied to a live assessment, and it is worth having for three reasons. First, it shows the Supreme Court's declaration being read as a straightforward bar rather than as something to be distinguished on the particular Protocol wording — the Tribunal quoted conclusion (a) and dismissed the ground in a sentence. Second, it is a warning about Article numbering. In the India-France treaty DIVIDENDS ARE DEALT WITH BY ARTICLE 11, not by Article 10 as in the OECD Model and as in the India-Netherlands treaty; a practitioner who searches for 'Article 10 dividends' will not find this case and may cite the wrong Article in the France context. Always take the Article number from the treaty in front of you. Third, it identifies the exact ground the Revenue took and the Tribunal accepted was no longer arguable — that Slovenia, Lithuania and Colombia had to be OECD members at the time they signed with India — which had been the assessee's winning point before the Delhi High Court until October 2023. Note the limit of the order: the appeal was PARTLY allowed, because a separate ground on the levy of interest was sent back to the Assessing Officer for fresh examination. Nothing in the order suggests any softening on the MFN point. If it applies to you, the first step is this: Where a return has been filed offering dividend at an MFN rate for a year still open, quantify the additional demand now and advise on it, rather than waiting for the assessment.
The assessee is a company incorporated in France with two Indian subsidiaries, Valeo Friction Materials India Pvt. Ltd. and Amalgamations Valeo Clutch Pvt. Ltd., in which it held 60 per cent and 50 per cent respectively, both manufacturing auto components. It received dividends from these subsidiaries. For assessment year 2021-22 it filed its return on 14 March 2022 declaring a total income of Rs. 90,73,28,755 and offered that income to tax at 5 per cent under Article 11(2) of the INDIA-FRANCE DTAA read with the Protocol most favoured nation clause, importing the provisions of the INDIA-SLOVENIA, INDIA-LITHUANIA and INDIA-COLOMBIA treaties into the India-France treaty, and claimed a refund of Rs. 4,53,66,440. The Assessing Officer and the Dispute Resolution Panel denied the benefit on the ground that the third country had to have been an OECD member at the time it signed its treaty with India. The assessee appealed to the Tribunal, its first ground being that the Assessing Officer and the DRP had erred in so holding. The matter was decided on 2024-03-22 by the ITAT (Manjunatha G, Accountant Member and Manomohan Das, Judicial Member). On those facts the ITAT held as follows. The ground on the most favoured nation clause was dismissed. In view of the Supreme Court's decision, the Tribunal dismissed the ground of appeal of the assessee on disallowance of the claim for a 5 per cent rate of tax on the dividend received from the subsidiaries (para 7). A separate ground on the levy of interest was decided in the assessee's favour for statistical purposes, the Assessing Officer being directed to delete the levy and examine the issue afresh, and the appeal was accordingly PARTLY allowed (paras 8 to 10).
The Tribunal set out the conclusions of the Supreme Court, including that a notification under s.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, and that where a same-treatment stipulation is invoked the terms of the earlier DTAA require to be amended through a separate notification under s.90 (para 6). Applying that, and without any further inquiry into the wording of the India-France Protocol or the OECD membership dates of the three comparator states, the Tribunal dismissed the assessee's ground on the 5 per cent rate (para 7). In the words reproduced by the source cited on this page: "In view of the aforesaid decision of the Hon'ble Apex Court, we dismiss the ground of appeal of the assessee on disallowance of claim for 5% rate of tax on the dividend received from the subsidiaries." The decision followed or applied Assessing Officer Circle (International Taxation) 2(2)(2) New Delhi v. Nestle SA (Supreme Court, 19 October 2023) — followed.
It was decided by the ITAT on 2024-03-22 and is reported as IT(TP)A No. 72/Chny/2023, Income Tax Appellate Tribunal, 'D' Bench, Chennai; assessment year 2021-22. The treaty construed is the Double Taxation Avoidance Agreement between INDIA and FRANCE — Article 11(2) (dividends) read with the Protocol most favoured nation clause; the comparator treaties are INDIA-SLOVENIA, INDIA-LITHUANIA and INDIA-COLOMBIA.. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section Article 11, section Article 11(2), section 90, section 90(1), section 90(2), section 144C, 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 department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The ground on the most favoured nation clause was dismissed. In view of the Supreme Court's decision, the Tribunal dismissed the ground of appeal of the assessee on disallowance of the claim for a 5 per cent rate of tax on the dividend received from the subsidiaries (para 7). A separate ground on the levy of interest was decided in the assessee's favour for statistical purposes, the Assessing Officer being directed to delete the levy and examine the issue afresh, and the appeal was accordingly PARTLY allowed (paras 8 to 10). It arises in Assessment & Scrutiny, How Tax Law Is Read and Refunds, Interest & Condonation matters, on section Article 11, section Article 11(2), section 90, section 90(1), section 90(2), section 144C of the Income Tax Act 1961, and was decided by Manjunatha G, Accountant Member and Manomohan Das, Judicial Member. 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. Take the Article number from the treaty text, not from the Model — dividends are Article 11 in the India-France treaty and Article 10 in many others, and the wrong Article number in a submission invites a rejection on the papers. Do not run the OECD-membership-timing argument; it is the argument the assessee lost here after Nestle SA. Check the Gazette for any notification under s.90(1) amending the specific treaty before advancing any same-treatment claim, and put the search result on record. Keep the interest ground separate from the substantive ground: here the Tribunal directed the Assessing Officer to delete the interest levied and examine the issue afresh even while dismissing the treaty claim. Where deduction was made at the lower rate in reliance on the pre-Nestle line, deal separately with the deductor's position under ss.195, 201 and 201(1A).
Validity check could not be completed. Validity check could not be completed. No search was made for an appeal to the Madras High Court against this order or for later Tribunal treatment of it. The proposition it applies — that an MFN clause needs a s.90(1) notification — rests on a Supreme Court decision whose operative declaration at para 88 was read directly, so the underlying law is secure even though this particular order's own subsequent history is unchecked. The 'favours' value records the outcome on the treaty ground; the appeal as a whole was partly allowed on an unrelated interest ground. 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 order has 10 numbered paragraphs. Paragraphs 1 to 5 and the operative sentence of paragraph 7 were read verbatim; the reproduction of paragraph 6 that was returned mixes the Tribunal's own words with its quotation of the Supreme Court's lettered conclusions, so no paragraph-numbered quote from paragraph 6 is used here. The figures in this entry are taken from paragraph 3 as printed: total income declared Rs. 90,73,28,755 and refund claimed Rs. 4,53,66,440. The interest figure of Rs. 18,14,556 was confirmed on a later pass against paragraph 9, which directs deletion of that levy and a fresh examination and decides the ground in the assessee's favour for statistical purposes. The order names the assessee only as 'M/s. Valeo, 43, Rue Bayen, Paris, France, 75017'. 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 ground on the most favoured nation clause was dismissed. In view of the Supreme Court's decision, the Tribunal dismissed the ground of appeal of the assessee on disallowance of the claim for a 5 per cent rate of tax on the dividend received from the subsidiaries (para 7). A separate ground on the levy of interest was decided in the assessee's favour for statistical purposes, the Assessing Officer being directed to delete the levy and examine the issue afresh, and the appeal was accordingly PARTLY allowed (paras 8 to 10).
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