Third State to be an OECD member to invoke MFN clause: CBDT
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Circular no. 3/2022, dated 03-02-2022
The Central Board of Direct Taxes (CBDT) has received representations seeking clarity on the applicability of the MFN clause available in the Protocol to some of the DTAAs with OECD member States. Given the various decrees/bulletin/publication on interpretation of the MFN clauses, the CBDT issued certain clarifications on the applicability of the M FN clause.
The board has clarified that the third State has to be an OECD Member State on the date of the conclusion of DTAA with India to apply the MFN clause. The board has said that India has not issued any notification importing the benefit of treaties with Slovenia, Lithuania and Colombia to treaties with The Netherlands, France or the Swiss Confederation.
The CBDT also clarified that where there is any decision by any court on the issue favourable to the taxpayer, this Circular will not affect the implementation of the court order in such case.
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ITAT: CBDT Circular on MFN Clause transgresses Sec.90(1), neither binding on ITAT nor retrospective
[TS-79-ITAT-2022(PUN)]
Pune ITAT holds that CBDT Circular No. 3 of 2022 dt. Feb 3, 2022 specifying the need for a separate notification for importing the beneficial treatment from another DTAA cannot have a retrospective effect; Observes that once DTAA is notified all its integral parts, including Protocol, get automatically notified and there remains no need to again notify the individual limbs of the DTAA; On analysis of the Circular, ITAT observes that, “it becomes ostensible that the CBDT has mandated the issuance of a separate notification for importing the benefits of a treaty with second State into the treaty with the first State” by relying on provisions of Section 90(1); Further observes that the Circular specifying the need for a separate notification for importing the beneficial treatment from another DTAA as a corollary of Section 90(1) overlooks the plain language of the provision in juxtaposition to the language of the Protocol, which treats the MFN clause an integral part of the DTAA; Opines that it is trite law that a CBDT Circular is binding on the AO and not on the assessees or the ITAT or other appellate authorities and the Circular transgressing the boundaries of section 90(1) cannot bind the ITAT; Observes that the Circular attaches a new disability of a separate notification for importing the benefits of a DTAA with the second State into the treaty with first State, thus, cannot operate retrospectively to the transactions taking place in any period prior to its issuance; The appeal before ITAT pertained to AY 2016-17 and involved invocation of MFN clause under the Protocol to India-Spain DTAA by resorting to India-Portugal DTAA for taxability of royalty/FTS at a lower rate or 10%.:ITAT PUN
The ruling was delivered by the Division Bench of Pune ITAT comprising Shri R.S. Syal, Vice President and Shri Partha Sarathi Chaudhury, Judicial Member.
Mr. Siddhesh Chaugule appeared for the Assessee while the Revenue was represented by Mr. Shivraj B More.
Could you please report this judgement in your case laws section?