Article 10 of the India-Switzerland DTAA doesn’t prevail over MFN clause of the said protocol: Delhi High Court

Article 10 of the India-Switzerland DTAA provides for collection of 10% tax deductible from the dividends paid by the India resident to Swiss Resident entity, which is however contrary to the MFN Clause of the same Protocol. If no amendment is made or no notification regarding this has been passed, then the MFN Clause shall be adhered to as is decided in the case of Galderma Pharma SA V. Income Tax Officer, in W.P.(C) 14206/2021, on 14th December, 2021, decided by Hon’ble Mr. Justice Manmohan & Hon’ble Mr. Justice Navin Chawla.

The facts of the case are that on November 18, 2021, an impugned order was passed by the Respondent directing Galderma India to deduct tax @ 10% on dividend income to be paid to the Petitioner for the relevant Financial Year. Petitioner also seeks a direction allowing Galderma India to pay dividend to the Petitioner for the relevant Financial Year after deducting tax @ 5% in terms of the Protocol to the DTAA between India and Switzerland at the time of payment of such dividend.

The counsel for the petitioner contends that though Article 10 of the India-Switzerland DTAA provides for withholding tax @10% on dividend paid by an Indian resident to a Swiss resident entity, the Petitioner claims lower tax rate of 5% provided in IndiaColumbia DTAA by relying on the MFN clause in para 5 of the protocol to the India-Switzerland DTAA which was signed between India and Switzerland on 30th August, 2010 and is effective from 27th December, 2011. Further, he also refers to the case of Steria (India) Ltd. v. CIT [2016] 386 ITR 390 (Del) and Concentrix Services Netherlands B V v/s. Income Tax Officer TDS & Anr W.P.(C) 9051/2020 holding that the protocol signed by contracting states is an integral part of the DTAA and provides for automatic application of benefit agreed by India with a member of OECD and that no separate notification/amendment is needed to apply such protocol.

The counsel for the respondents contends that since no notification has been issued by the Government of India, the petitioner is not entitled to lower tax rate of 5% provided in India-Columbia DTAA, India-Lithuania DTAA and India-Slovenia DTAA.

The Court after listening to both the parties had found that the present writ petition is no longer res integra as they are fully covered by the precedent judgments in Concentrix Services Netherlands B.V. as well as in Nestle SA. In Concentrix Services Netherlands B.V., it has been held that no separate notification is required insofar as the applicability of the protocol is concerned and the same forms an integral part of the Convention. The Court also observed that it is well settled law that the Department cannot refuse to follow binding jurisdictional decision merely on the basis that the Department proposes to file an appeal.

Hence the Court had set aside the impugned order and the certificate and the respondent is directed to issue a certificate under Section 197 of the Act indicating therein, that the rate of tax, on dividend, as applicable to the Petitioner is 5% in India-Switzerland DTAA as held in Nestle SA which was also under the India-Switzerland DTAA.

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Reviewed by Revanth

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