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to USA and Germany, in respect of income on dividends, interest, royalties, definition of royalties and fees for technical services. In the light of these, India notified changes in the applicable provisions to the India-France DTAA and Protocols through a notification in July, 200041. The recital to the said notification of 2000 reads as follows: “And whereas in the Convention between India and Germany which entered into force on the 26th October, 1996, and the Convention between India and the United States of America which entered into force on the 18th December, 1990, which States are members of the Organisation for Economic Co-operation and Development, the Government of India has limited the taxation at source on dividends, interest, royalties, fees for technical services and payments for the use of equipment to a rate lower or a scope more restricted than that provided in the Convention between India and France on the said items of income.”

58Copy pinpoint58. The amending notification again followed the same pattern, as in the case of the India-Netherlands DTAA, of defining the rate and nature of relief on interest, and dividends and the rates applicable, and different definition for different dates for “fees on royalties and technical services”, i.e. 01.04.1995 and 01.04.1997 for Articles 11, 12, and 13. This notification again reinforced India’s practise and conduct of giving effect of the subsequent event of a more beneficial arrangement with a third country, to the country which had entered into a DTAA previously, on the basis of a treaty provision, through an express action i.e., a notification under Section 90. Another aspect is that the India-UK DTAA and India-Portugal DTAA had a condition, i.e., that by Article 4, technical services (for the purpose of levying tax on income from fees for technical service) applied a condition that the taxpayer could “make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design”

59Copy pinpoint59. Steria’s argument in addition, was that the India-Portugal DTAA was signed on 11.09.1998 (after 29.09.1992 when India-France DTAA was

41 Notification No. S.O. 650(E), dated 10-7-2000

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signed). The Portuguese Republic is a member of OECD. Similarly, India - UK DTAA was signed on 25.01.1993 (after 29.09.1992) and the UK is a member of OECD. Hence, the scope of India-France DTAA is less restrictive than these two DTAAs (India-Portugal and India-UK). The provisions of the latter two DTAAs enabling such acts to get benefits, too should have applied. The revenue argues that for the more restrictive definitions in the DTAAs in India-Portugal and India-UK treaties, to be automatically imported into India-France DTAA there is need for a notification, before its scope could be imported. It is pointed out that the Protocol, of 10.07.2000 did not extend the expanded definition, and instead confined the benefits to definition and treatment of income from dividends, interest, and royalties. The “make available” condition, in other DTAAs was consciously omitted from the notification.

60Copy pinpoint60. The omission of certain benefits (available to other member countries of OECD who had entered into DTAAs with India) in the subsequent notification, dated 10.07.2000, is another indication that a “trigger” event such as India granting favourable relief to a country per se does not cover all the benefits granted through the later instrument. Therefore, the benefit which India granted France, was within the framework of its treaty originally negotiated. In the case of the other country (granted benefits later, through a convention, by India), a different trajectory of negotiations might have led to different kind of benefits to the third country (UK and Portugal, in the case of France). In other words, the structure of the main DTAA, and its phraseology, based on negotiations with the countries concerned, i.e., Netherlands, France and Switzerland, also plays a role in the kind of benefits that are assured through it. The structure and terms of other DTAAs might be different; the coverage and definition of certain terms (FTS, permanent establishment, etc.) might be dissimilar. The revenue’s argument that grant of automatic benefits based on the other country’s entry into OECD, as unfeasible, has merit.

61Copy pinpoint61. As far as Switzerland is concerned the earlier discussion has noticed the three different dates when DTAA and the two later Protocols were entered into. They were given effect to by three separate notifications (No. GSR 357(E), dated 21.04.1995; as amended by Notification No. GSR 74(E), dated 07.02.2001 and Notification No. S.O. 2903(E), dated 27.12.2011).

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The second Protocol contained a condition, which constituted the “trigger” event. That provision is extracted below: “D With reference to Articles 10, 11 and 12 If after the signature of the Protocol of 16th February, 2000 under any Convention, Agreement or Protocol between India and a third State which is a member of the OECD India should limit its taxation at source on dividends, interest, royalties or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in this Agreement on the said items of income, then, Switzerland and India shall enter into negotiations without undue delay in order to provide the same treatment to Switzerland as that provided to the third State.”

62Copy pinpoint62. Nestle had argued that this provision has been deleted, and instead, another condition added, by the 2010 Protocol, which reads as follows: “ARTICLE 11 Paragraph 4 of the Protocol to the Agreement shall be deleted and replaced by the following paragraph: With reference to Articles 10, 11, 12 and 22 The provisions of Articles 10, 11, 12 and 22 shall not apply in respect to any dividend, interest, royalty, fees for technical services or other income paid under, or as part of a conduit arrangement. The term “conduit arrangement” means a transaction or series of transactions which is structured in such a way that a resident of a Contracting State entitled to the benefits of the Agreement receives an item of income arising in the other Contracting State but that resident pays, directly or indirectly, all or substantially all of that income (at any time or in any form) to another person who is not a resident of either Contracting State and who, if it received that item of income directly from the other Contracting State, would not be entitled under a Convention or Agreement for the avoidance of double taxation between the State in which that other person is resident and the Contracting State in which the income arises, or otherwise, to benefits with respect to that item of income which are equivalent to, or more favorable than, those available under this Agreement to a resident of a Contracting State;

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63Copy pinpoint63. At this stage, it would also be useful to note that the second Protocol, by Article 16, had provided that:

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“ARTICLE 16 The Governments of the Contracting States shall notify each other through diplomatic channels

1. that all legal requirements and procedures for giving effect to this Protocol have been satisfied. [..]” It could plausibly be argued that this condition is not substantive, but only diplomatic. However, what it requires is that the concerned governments have to notify how and when the Protocol is assimilated into the domestic legal system. Quite correctly the provision does not assign any time frame within which the Protocol has to be made effective. Therefore, inbuilt in the entire eco-system of the DTAAs is the inarticulate premise that assimilation into the domestic legal system is not always within the control of the executive wing which enters into the convention, or signs the protocol and that compelling constitutional and legal requirements have to be satisfied, before its benefits are integrated within the national legal regimes. This consideration, or premise, would equally apply in the case of the India-Switzerland DTAA and its amending Protocol; the requirement of notification of the protocol and a separate amending Protocol, (like in the case of France and Netherlands) is necessary, by reason of Section 90 of the Act. Switzerland cannot claim an exception, based only on the language of the third Protocol.

64Copy pinpoint64. It would be useful to end this discussion, with one more instance of India’s treaty practice, in regard to fulfilling its obligations under DTAAs and their Protocols. India had entered into a DTAA with Canada on 30.10.1985 which was notified on 25.09.1986 under Section 90. The DTAA contained provisions relating to rate of taxation, and treatment of royalties. It also contained a provision that in the event India entered into a subsequent DTAA with a member of the OECD, and conferred better terms, as compared with Canada, then the latter would be extended similar benefits. The India-Sweden DTAA was signed on 12.12.1988, which extended more favourable benefits, than what was given to Canada; Sweden was an OECD member when the DTAA was signed with India. This constituted the “trigger” event, impelling Canada to seek parity. The Protocol (of 1985) to the India-Canada DTAA contained the following stipulation:

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“With reference to paragraph 2 of article 13, in the event that pursuant to an Agreement or a Convention concluded with a State which is a member of the Organisation for Economic Co-operation and Development after the date of signature of this Agreement, India would accept a rate lower than 30 per cent for the taxation of royalties or fees for technical services paid by a resident of India to a resident of that State, it is understood that such lower rate will automatically be applied for the taxation of royalties and fees for technical services paid by a resident of India to a resident of Canada where the royalties or fees for technical services are paid in respect of a right or property which is first granted, or under a contract which is signed, after the date of entry into force of the first-mentioned Agreement or convention.”

65Copy pinpoint65. The amendment to the DTAA was on 24.06.1992, which was notified under Section 90 on 28.10.1992; it reads inter alia, as follows: “Subsequent to the signing of the Agreement with Canada, India has entered into Agreements with other OECD countries, wherein the rate of taxation in respect of royalties and fees for technical services has been agreed at 20% of the gross amount. The revised Agreement with Sweden, which came into force on 12th December, 1988, is the first of such Agreements. Accordingly, after consultation with the Canadian Government,”a notification has been issued on 24th June, 1992 notifying that the rate of tax of 20% will be applicable to royalties and fees for technical services paid by a resident of India to a resident of Canada. This reduced rate will be applicable to payments made in respect of the right or property which is first granted or under a contract which is signed, after the 12th day of December, 1988. A copy of the notification bearing GSR No. 635(E), dated 24th June, 1992, is enclosed.

3. The Canadian Government have also passed a Remission Order dated 3rd December, 1991, making the revised rate as above applicable to Indian residents as well in respect of royalties or fees for technical services paid by a Canadian resident.”

66Copy pinpoint66. It is quite clear that the Protocol, to the original DTAA was unambiguous and emphatic; it required that the trigger event would lead to

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“such lower rate will automatically be applied for the taxation of royalties and fees for technical services paid by a resident of India to a resident of Canada where the royalties or fees for technical services are paid in respect of a right or property”. In such an instance, of language, in the protocol, being as emphatic as the third Protocol to the India-Switzerland DTAA, the treaty practice of India was consistent; a separate notification was later issued.

67Copy pinpoint67. The respondents had relied on decrees/decisions of each of the countries, to underline that in terms of treaty practice of the three countries, the Union government has to extend reciprocity, which means that similarly, automatic benefits have to be given to taxpayers, claiming them under DTAAs and Protocols, on the occurrence of a third-party state granted better benefits, gaining admission/membership into OECD. The decree or decision of the Directorate General of Fiscal Affairs, International Fiscal Affairs (relevant authority in the Kingdom of Netherlands), relied upon by Concentrix and Optum Global42 reads as follows: “In the treaty India agreed with Slovenia which entered into force on 17 February 2005 has entered a participation dividend rate of 5 percent. This is the case a participation dividend, if a company immediately provides at least 10 percent of the capital hold the body that pays the dividends. Slovenia joined. the OECD on 21 July

2010. Under the most-favored nation clause in the Protocol to the Convention, this event has the effect of retroactive effect to and As of July 21, 2010 a rate of 5 percent applies to participation dividends, which are paid by a body that a resident of the Netherlands to a body that is a resident of India. The text of the relevant Treaty provision from the India -Slovenia Treaty is contained in the attachment. The most-favored-nation clause remains on portfolio dividends (if a body is less than 10 percent of the share capital of the company that pays the dividends) in the Netherlands-India relationship a rate of 10 percent applies. This rate is taken from the treaty between India

42 Decision of 28 February 2012, No. IFZ 2012/54M, Tax treaties: India, issued by the Director General, Fiscal Affairs, Kingdom of Netherlands

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and Germany of June 19, 1995 and applies since April 1, 1997. Herein brings the treaty therefore no change between India and Slovenia.” The decree issued by the Swiss Federation43 provides as follows: “Application of the most favoured nation clause of the protocol amending the agreement between the Swiss Confederation and the Republic of India for the avoidance of double taxation with respect to taxes on income Switzerland and India have concluded the agreement of 2 November 1994 for the avoidance of double taxation with respect to taxes on income (DTC IN-CH)1.1t was revised by the amending protocols dated 16 February 2000 and 30 August 2010. Article 11 of the amending protocol dated 30 August 2010 contains a so-called most favoured nation clause, which stipulates that if, after the signing of the amending protocol dated 30 August 2010, India under any convention, agreement or protocol with a third State which is a member of the OECD, limits its taxation at source on dividends, interest, royalties or fees for technical services to a rate lower than the rate provided for in OTC IN-CH on the said items of income, the same rate as provided for in that convention, agreement or protocol on the said items of income shall also apply between Switzerland and India as from the date on which such Convention, Agreement or Protocol enters into force. Following the signing of the amending protocol dated 30 August 2010, India concluded two new double taxation agreements with States which are now OECD members, in which it granted lower rates with respect to dividends. These are the agreement of 26 July 2011 between the government of the Republic of India and the government of the Republic of Lithuania for the avoidance of double taxation with respect to income tax (DTC IN-L T) and the agreement of 13 May 2011 between the government of the Republic of India and the Republic of Colombia for the avoidance of double taxation with respect to income tax (DTC IN-CO).

43 The State Secretariat for International Financial Matters SIF Section Bilateral tax Issues and double taxation treaties, Swiss Federation, dated 13.08.2021

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Article 10, paragraph 2, letter a DTC IN-LT provides for a residual tax rate in the source State of 5% of the gross amount of dividends if the beneficial owner is a company (other than a partnership) that directly owns at least 10% of the capital of the company paying the dividends. Lithuania joined the OECD on 5 July 2018. On the basis of the most favoured nation clause between Switzerland and India, lithuania’s accession to the OECO has the effect of retroactively (from 5 July 2018) reducing the residual lax rate in the source State for dividends from qualified participations from 10% to 5% applicable to the relationship between India and Switzerland. Article 10, paragraph 2 OTC IN-CO provides for a general residual tax rate of 5% in the source state. Colombia joined the OECD on 28 April 2020. On the basis of the most favoured nation clause between Switzerland and India, Colombia’s accession to the OECD has the effect of retroactively (from 28 April 2020) reducing the residual tax rate in the source Start: for dividends from 10% to 5% (dividends arising from qualified interests and portfolio dividends) applicable to the relationship between India and Switzerland. Thus, under the provisions of DTC IN-CH, Indian tax residents receiving dividends from Swiss source as of 5 July 2018, or 28 April 2020 can claim, subject to the conditions laid down in DTC IN·CH, a refund of the (additional) withholding tax in accordance with the established procedures. The legal time limit set out in Article 32 of the Federal Act on withholding tax applies..”

68Copy pinpoint68. The decree issued by the Republic of France, inter alia, after narrating and reciting the India-France DTAA, the amending Protocols, the date on which India-Germany DTAA was entered into, and the date on which the Protocol, amending India-France DTAA on the basis of the Indo-German DTAA, provided as follows: “I. Withholding tax rate on dividends and interest under the most- favoured-nation clause

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A. Dividends referred to in Article 11 The rate of 15 % provided for in paragraph 2 of Article 11 of the Franco-Indian convention shall be replaced by that of 10% provided for in the tax treaty concluded by India with Germany. This rate shall be replaced by the rate of 5 % of the gross amount of dividends provided for in the tax treaty concluded between India and Slovenia if the ‘beneficial owner is a company which directly holds at least 10 % of the capital of the company paying those dividends. B. Interest referred to in Article 2, Paragraph 12 (a) The rate of 10 per cent provided for in paragraph 2 {a) of Article 12 of the Franco-Indian Convention applies to interest paid on loans granted by insurance companies as a result of India’s tax treaty with the United States. (b) The rate of 15 % provided for in paragraph 2 (b) of Article 12 shall be replaced by that of 10 % following the tax treaty concluded by India with Germany.”

69Copy pinpoint69. The context of these executive orders or decrees is to be understood in relation to each country’s manner of assimilation of treaties, in municipal or national law. The Federal Council headed by the President and the Federal Chancellor exercise the executive authority, in Switzerland. The Federal Council has the authority to negotiate and sign treaties and conventions. The treaty after its signature is ratified in four different ways: (a) In certain cases, Parliament authorizes the Federal Council in advance to sign the treaty and bring it into force as well; (b) Some treaties require prior approval of the Parliament to be enforceable; (c) In some cases, the treaty is subjected to optional referendum provided under Article 89 (3) of the Constitution; (d) In some cases, the international agreement needs sanction through compulsory referendum in terms of Article 89 (5) of the Constitution44.

44 Article 89 of the Federal Constitution of the Swiss Federation, available at: https:// www.constituteproject.org/constitution/Switzerland_2014.pdf?lang=en (accessed on 11.10.2023).

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Consequential process then follows having regard to the nature of the treaty.

70Copy pinpoint70. As far as France is concerned, the French Constitution of 1958, by Article 52 empowers the President to negotiate and ratify treaties. Treaty ratification is authorized by the National Assembly and Senate when that treaty would affect the sovereignty of France or alter an existing statute, though such authorization has no normative value. A treaty affecting the rights of the citizens has to be published; after publication it prevails over French legislation. Article 55 confers upon treaties a status superior to that of domestic legislation and provides that concluded treaties do not require any implementing legislation to be enforceable.45

71Copy pinpoint71. The Kingdom of Netherland is party to a number of treaties, international Agreements and Conventions. Such treaties have to receive approval of the Lower and Upper House of its Parliament (States General; Chapter III of the Constitution.). If a provision in a treaty is in conflict with the Constitution, a two-thirds majority of the houses is mandatory (Article 91 paragraph 3 Constitution46). The Netherlands government and its courts are not bound by a treaty until the States General have ratified it.

72Copy pinpoint72. In the opinion of this court, 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,

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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. E. International perspectives and practices

73Copy pinpoint73. Klaus Vogel47 (an acknowledged authority on double taxation), in the Treatise Double Taxation Conventions, comments - pertinently states, on the aspect of assimilation of international treaties into municipal (national) laws, that: “45.For purposes of international law, a tax treaty comes into existence upon the declaration of consent by both Contracting States (Article 9(1) VCLT). Ordinarily, the Head of State is authorized to make the declaration. In Germany, the declaration under Article 59 Abs. 1 GG is made by the Federal President. In the US, under Article II, section 2, clause 2 of the Constitution, the President, as Head of State, declares the consent of the United States to be bound by the treaty under international law. This power is ordinarily delegated to the Secretary of State or a US Ambassador.

46. The method by which the Contracting States declare their consent is left to the Contracting Parties (Article 11 et seq. VCLT). For important treaties, however, it is generally agreed that the conclusion of the treaty shall be given effect only through an exchange of instruments, or ‘ratification’ (Article 14(1) VCLT); for multilateral treaties, it is by deposit of instruments at a location agreed upon in the treaty through corresponding notifi cation (Articles 14(1), 16 VCLT). Ratifi cation is to be distinguished from parliamentary consent (see above), which frequently, primarily in the language of the media, is incorrectly termed as ‘ratification’. Article 31 of the OECD MC, Article 30 of the UN MC and Article 29 of the US MC each provide for ratification of tax treaties and treaties normally follow the MC in this respect. In the document of ratification, the authorized agent - the President in the US, the Federal President in Germany, Austria and Switzerland – delivers the

47 Klaus Vogel on Double Taxation Conventions

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formal declaration that the constitutional requirements necessary for internal application of the treaty have been fulfilled (see infra Article 31 at m.no. 11 et seq.). *************** *************

47. Upon declaration of intent to contract, whether through ratification or other means, the treaty becomes binding under international law (unless the treaty provides for a different date for entry into force). The binding force of the treaty under international law is to be distinguished from its internal applicability. Internal applicability is a consequence only of treaties which - like tax treaties - are designed to be applied by domestic authorities in addition to obligating the States themselves (i.e., self-executing treaties).48 *************** ***************

49. In the UK, where parliamentary consent is not necessary for conclusion of a treaty, the treaty becomes applicable internally only when a special law to this effect is passed by Parliament after the treaty enters into force under international law.49 In special, legally authorized cases, such as for DTCs under § 788 ICTA 1988, the Queen may enact an Order in Council in place of parliamentary legislation.50 A special law is also required in Canada51 and other members of the Commonwealth. Under Netherlands constitutional law, the treaty becomes applicable domestically at the time it enters into force,52 reflecting the ‘monist’ theory of international law. In general, the conflict between ‘monistic’ and ‘dualist’ theories has been overcome by a compromise view.53

48 GATT has been held by the German Bundesfinanzhof not to be ‘self-executing’: 25 February, 1959, BStBl. III 166, 167 (1959); 15 October 1959, BStBl. III 486, 489 (1959). Direct internal applicability of GATT, however, has been advocated by Jackson, 66 Mich. L. Rev. 250 (1967). 49 McNair, A.D., The Law of Treaties (1961) at 81; Oliver, J.D.B., 15 BTR 388 (1970). 50 See Baker, P., Double Taxation Conventions and International Tax Law (1994) at 46. 51 Ward, D.A., Ward’s Tax Treaties (1993/94), at 6. 52 Van Raad, K., 47 MBB 49 (1978). 53 See in general: Tunkin, G & Wolfrum, R. (eds.), International Law and Municipal Law (1988).

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50. The process pursuant to which a treaty acquires the force and effect of domestic law was for long referred to by German theorists as a ‘transformation’ (i.e., as the promulgation of a domestic statute parallel to the treaty and incorporating the treaty text). A similar view can also be found, though often not very explicit, in other countries.54 This theory, however cannot explain why, among other things, the treaty, even after parliamentary consent, becomes applicable domestically only when it enters into force under international law or why it loses its binding force internally when it is rescinded or terminated at the international level. For these reasons, the German doctrine of international law abandoned the transformation theory. Parliamentary consent is now understood as a mandate through which the treaty itself - rather than a corresponding internal legislative provision - becomes applicable within the scope of domestic law.55

51. The point in time at which a treaty enters into force internationally and the point at which it becomes applicable under domestic law must be distinguished from the point in time at which the material consequences of the treaty begin to take effect, or, in other words, the taxable period or the date from which taxation shall be limited by the treaty (the effective date). Usually this ‘initiation of treaty effects’ is established by explicit treaty rules. Various aspects may be of importance here. Treaty rules in particular often distinguish between treaty effects on assessed taxes and those on withholding taxes. In general, the material effects of tax treaties apply retrospectively, viewed from the date of entry into force under international law; detrimental retrospectivity, however, may be prohibited.

54 See, e.g., Canadian Supreme Court of 28 September 1982, The Queen v. Melford Development Inc., D.T.C. 6281 (1982), at 6285. 55 Regarding the domestic applicability of international agreements in Germany, see Partsch, J., Die Anwendung des Volkerrechts im innerstaatlichen Recht. Uberprufung der Transformationslehre (6 Berichte der Deutschen Gesellschaft fur Volkerrecht (1964)); Blechmann, A., Begriff und Kriterien der innerstaatlichen Anwendbarkeit volkerrechtlicher Vertage (1970); id., Grundgesetz und Volkerrecht, 277 (1975); Langbein, V., Intertax 151 (1985), original German version: Langbein, V.,30 RIW 531 (1984).

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52. Through the mandate of the legislature, treaties in most States obtain the same authority as internal law. In some States they are even considered to have priority over domestic law.56” F. Vienna Convention on Law of Treaties

74Copy pinpoint74. Article 31 of the VCLT57 reflects the general rules of treaty interpretation. India is not a signatory to the convention. However, the convention has been accepted by consensus as reflecting the customary international law on general rules of treaty interpretation, and is thus still relevant in the Indian context. Article 31(3) of the VCLT provides that the following shall be taken into account, while interpreting the provisions of a treaty: (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;

56 For e.g., Art. 94 of the Dutch Constitution, Art. 55 of the French Constitution and for Luxembourg see Cour de Cassation of 14 July 1954, Pagani, 16 Pas. 150 57 “Article 31 General Rule of Interpretation

1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

2. The context for the purpose of the interpretation of a treaty shall com- prise, in addition to the text, including its preamble and annexes: (a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty; (b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instru- ment related to the treaty.”

3. There shall be taken into account, together with the context: (a) any subsequent agreement between the parties regarding the interpreta- tion of the treaty or the application of its provisions; (b) any subsequent practice in the application of the treaty which establish- es the agreement of the parties regarding the interpretation of the treaty or the application of its provisions; (c) any relevant rules of international law applicable in the relations be- tween the parties.”

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(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding the interpretation of the treaty or the application of its provisions; (c) any relevant rules of international law applicable in the relations between the parties.

75Copy pinpoint75. In 2018, the International Law Commission (ILC) adopted its Draft Conclusions on Subsequent Agreements and Subsequent Practice in relation to the Interpretation of Treaties (“ILC Draft Conclusions”).58 The ILC Draft Conclusions note that under the scheme of the VCLT, subsequent agreements and subsequent practice, being objective evidence of the understanding of the parties as to the meaning of the treaty, are authentic means of interpretation of treaties.59

76Copy pinpoint76. The ILC Draft Conclusions define ‘subsequent agreement’ as an agreement between parties, reached after the conclusion of a treaty, regarding the interpretation of a treaty and its provisions.60 A ‘subsequent practice’ is defined as consisting of conduct in the application of a treaty, after its conclusion, which establishes the agreement of the parties regarding the interpretation of the treaty.61 Such subsequent practice under Articles 31 and 32 may consist of any conduct of a party in the application of a treaty, whether in the exercise of its executive, legislative, judicial or other functions,62 and may take several forms.63 ‘Practice’ includes any type of positive action, whether physical or conduct —for instance, the reliance on the provisions of a treaty to support a State’s chosen course of action, or the adoption of legislation, or enforcement action based on a treaty, and abstention from action (omission) in the application of a treaty. Put simply, practice covers ‘what states do in their relations with one another’.64 In a more dynamic sense, it represents the process of continuous interaction

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between States. It also covers subsequent treaties with third States65, and patterns of treaties, for instance when considering whether the conclusion of a large number of Bilateral Investment Treaties (BITs) could collectively amount to subsequent practice.66

77Copy pinpoint77. The International Court of Justice (ICJ) has accepted a wide variety of activities as interpretive conduct by states. It has referred to domestic legislation67, diplomatic correspondence68, and the silence or inactivity of one state in the face of the conduct of another. For example, in the Rights of Nationals Case, the ICJ took into account the practice of local customs officials.69 In the Asylum Case70, Colombian failure to raise the Havana Convention in diplomatic correspondence was used to show that Colombia did not construe the convention as applicable. In the Corfu Channel Case71, Albanian failure to challenge the court’s power to fix the amount of compensation was used in interpreting the Special Agreement as not precluding the court from fixing the quantum of damages.

65 Irina Buga, ‘Subsequent Practice as a Means of Treaty Interpretation’ in Modification of Treaties by Subsequent Practice (Oxford University Press, 2018). See also Report of the International Law Commission covering its 2nd session, UN Doc A/1316 (1950) II YBILC 364, 368; M. Akehurst, ʻCustom as a Source of International Lawʼ (1974-75) 47 BYBIL 1, 43; ME Villiger, Customary International Law and Treaties: A Study of Their Interactions and Interrelations, with Special Consideration of the 1969 Vienna Convention on the Law of Treaties (Brill, 1985), para 19. 66 See eg., SM Schwebel, ʻThe Influence of Bilateral Investment Treaties on Customary International Lawʼ (2004) 98 ASIL Proc 27; JE Alvarez, ʻA BIT on Customʼ (2009) 42 NYU J Intl L & Pol 17. 67 See Anglo-Iranian Oil Co. Case (U.K. v. Iran), 1952 I.C.J. 93, 106-07 (Iranian law used in interpreting the Iranian declaration acceding to the jurisdiction of the court). 68 See South West Africa Cases (Ethiopia v. S. Afr.; Liberia v. S. Afr.), 1966 I.C.J. 6, 134; Legal Consequences for States of the Continued Presence of South Africa in Namibia, 1971 I.C.J. 16, 39, where, in both cases, statements by South African diplomats were used in interpreting the League of Nations Mandates. See also Case Concerning Rights of Nationals of the United States of America in Morocco (Fr. v. U.S.), 1952 I.C.J. 176, 211, where letters and minutes of meetings of customs officials were used in interpreting the treaty in question. 69 Case Concerning Rights of Nationals of the United States of America in Morocco (Fr. v. U.S.), 1952 I.C.J. 176, 211 70 Asylum Case (Colombia. v. Peru), 1950 I.C.J. 266, 286. 71 Corfu Channel (U.K. v. Alb.), 1949 I.C.J. 4, 25.

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78Copy pinpoint78. The ILC Draft Conclusions further provide that a common understanding would be required, regarding the interpretation of a treaty which the parties are aware of and accept. Such an agreement may, but need not, be legally binding for it to be taken into account.72 Further, the number of parties that must actively engage in subsequent practice in order to establish an agreement under Article 31(3)(b), may vary. Silence on the part of one or more parties may constitute acceptance of the subsequent practice when the circumstances call for some reaction.73 Agreement between the parties in respect of subsequent conduct or practice may be established by acquiescence of parties not actively participating in the practice, or the absence of objections (characterized as ‘passive conduct’).74

79Copy pinpoint79. ILC commentaries, such as the ILC Draft Conclusions on subsequent practice, are an influential subsidiary means for determining rules of law, within the meaning of the term in Article 38(1)(d) of the ICJ Statute. This is because these documents often record and assess state practice (as well as international jurisprudence and doctrine), and often explain whether (and to what extent) opinio juris exists.75 As of 2019, the ICJ had relied expressly on the ILC’s work in 22 cases (19 decisions in contentious proceedings and 3 advisory opinions).76

80Copy pinpoint80. The provisions of the ILC Draft Conclusions on subsequent practice were drafted and adopted by consolidating the writings of eminent publicists in international law, pursuant to extensive research on evolving state practice.77 The cumulative effect of these provisions is that state practice subsequent to the adoption of a treaty confirms and solidifies the intent of the parties to the

72 Conclusion 10(1), Id. 73 Conclusion 10(2), Id. 74 ILC, Third Report on the Law of Treaties, UN Doc A/CN.4/167, 59 para 24; See also ME Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (Brill, 2009), 431. 75 Danae Azaria, The International Law Commission’s Return to the Law of Sources of International Law, 13 FIU L. Rev. 989 (2019). 76 Id. 77 See for eg., ILC, Reports on Subsequent Agreements and Subsequent Practice in Relation to Treaty Interpretation, by Georg Nolte, Special Rapporteur, UN Doc A/CN.4/660 (2013); UN Doc A/CN.4/671 (2014); UN Doc A/CN.4/683 (2015), UN Doc A/CN.4/694 (2016), UN Doc A/CN.4/715 (2018).

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treaty. The goal of treaty interpretation under the VCLT is to determine the meaning of the treaty viewed from the perspective of the contemporary shared understanding of the parties to the treaties.78 As James Crawford has pointed out, from the perspective of international law, ‘the parties…own the treaty’79. Bruno Simma further emphasizes the relevance of subsequent practice for the understanding of a treaty, noting that subsequent practice denotes the decisive consent of the parties, and acts as a cogent, peremptory means of treaty interpretation.80

81Copy pinpoint81. It is widely accepted that however precise the treaty text appears to be, the way in which it is actually applied by the parties is usually a good indication of what they understand it to mean, provided the practice is consistent, and is common to, or accepted by, all the parties.81 A relevant case in point is the interpretation of Article 5 of the Chicago Convention, which governs charter air services. This provision does not require a charter airline to obtain permission to land en route, provided it does not pick up or set down passengers or cargo. However, the practice of the parties over many years has been to require charter airlines to seek permission to land in all cases, and the article is now so interpreted. 82

82Copy pinpoint82. The work of Sir Gerald Fitzmaurice during the drafting process that eventually led to the formulation of Article 31 VCLT is also worthy of note. Taking as a reference point the ICJ’s case law between 1951 and 1954, Fitzmaurice formulated the major principles of treaty interpretation that formed the basis for the ILC draft provisions on treaty interpretation. He outlined three subsidiary principles of interpretation,

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‘effectiveness’, ‘subsequent practice’, and ‘contemporaneity’, which he saw as complementary to the three primary ones: ‘actuality’, the ‘natural and ordinary meaning’, and ‘integration’. With regard to the principle of subsequent practice, Fitzmaurice remarked, as early as then, that: “Where the practice has brought about a change or development in the meaning of the treaty through a revision of its terms by conduct, it is permissible to give effect to this change or development as an agreed revision...” 83

83Copy pinpoint83. The ICJ in its decision in Case Concerning the Land, Island and Maritime Frontier Dispute (El Salvador v Hondurus)84 considered and explained how practice of parties assumes significance in treaty interpretation: “380. The Chamber considers that, while both customary law and the Vienna Convention on the Law of Treaties (Art. 31, para. 3(b)) contemplate that such practice may be taken into account for purposes of interpretation, none of these considerations raised by Honduras can prevail over the absence from the text of any specific reference to delimitation. In considering the ordinary meaning to be given to the terms of the treaty, it is appropriate to compare them with the terms generally or commonly used in order to convey the idea that a delimitation is intended. Whenever in the past a special agreement has entrusted the Court with a task related to delimitation, it has spelled out very clearly what was asked of the Court: the formulation of principles or rules enabling the parties to agree on delimitation, the precise application of these principles or rules (see North Sea Continental Shelf cases, Continental Shelf (Tunisia/Libyan Arab Jamahiriya) and Continental Shelf (Libyan Arab Jamahiriya/Malta) cases), or the actual task of drawing the delimitation line (Delimitation of the Maritime Boundary in the Gulf of Maine Area case). Likewise, in the Anglo- French Arbitration of 1977, the Tribunal was specifically entrusted by the terms of the Special Agreement with the drawing of the line. ***********************

83 G. Fitzmaurice, ‘The Law and Procedure of the International Court of Justice: Treaty Interpretation and Certain Other Treaty Points’ (1951) 29 British Yearbook of International Law 8. 84 ICJR (1992) 351 - Decision dated 12-09-1992, [General List No. 75]

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389. On the underlying question of the status of the waters of the Gulf which was thus raised before the Central American Court, there were by then three matters which practice and the 1917 Judgement took account of: first, the practice of all three coastal States had established and mutually recognized a 1 marine league (3 nautical miles) littoral maritime belt off their respective mainland coasts and islands (see the passage of the 1917 Judgement quoted in paragraph 400 below), in which belt they each exercised an exclusive jurisdiction and sovereignty, though with rights of innocent passage conceded on a mutual basis; second, all three States recognized a further belt of 3 marine leagues (9 nautical miles) for rights of “maritime inspection” for fiscal purposes and for national security; third, there was an Agreement of 1900 between Honduras and Nicaragua by which a partial maritime boundary between the two States had been delimited, which, however, stopped well short of the waters of the main entrance to the bay. *************************

410. If the Gulf is an historic bay, it is necessary to determine the closing line of the waters of the bay. The normal geographical closing line for the waters of the Gulf of Fonseca would be the line Punta Amapala to Punta Cosigüina. This seems to have been the closing line recognized by the three coastal States in practice. It is, moreover, the closing line referred to in the 1917 Judgement (loc cit., p. 706). It had not been necessary to say more, had not El Salvador elaborated a thesis of an “inner Gulf” and an “outer Gulf”, based on the reference in the Judgement of 1917, to an inner closing line from Punta Chiquirin, through Meanguera and Meanguerita, to Punta Rosario. The purpose of El Salvador’s reference to this inner line, in its argument before the Chamber, was apparently to suggest that the Honduran legal interest in the Gulf waters was limited to the area inside the inner line, the remainder being left to El Salvador and Nicaragua. But there is nothing in the Judgement of the Central American Court of Justice to support this. There is no suggestion in that Judgement that Honduras was excluded from the waters between that inner line and the outer closing line subject to the régime of condominium found by the Court.”

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84Copy pinpoint84. In Case Concerning Kasikili/Sedudu Island- Botswana v Namibia85 too, practice was given significance. The ICJ held, quoting from the commentary of the ILC, that “(t)he importance of such subsequent practice in the application of the treaty, as an element of interpretation, is obvious; for it constitutes objective evidence of the understanding of the parties as to the meaning of the treaty. Recourse to it as a means of interpretation is well-established in the jurisprudence of international tribunals.” (Op cit., p. 241, para. 15.)”

85Copy pinpoint85. Donald Regan, in a paper “Understanding What the Vienna Convention Says About Identifying and Using ‘Sources for Treaty Interpretation’ Identifying and Using ‘Sources for Treaty Interpretation’86 writes this, about treaty practice: “Article 31 (3) (b) presents a different complication. Article 31 (3) (b) says that the interpreter shall take into account ‘any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation’. It is clear why practice is important. The point of the treaty is to direct behaviour. But the treaty is in words, and words are never perfectly clear. In contrast, behaviour is the very stuff the treaty is about. The ILC Commentary says the practice is ‘objective evidence’ of the understanding of the parties, and it quotes the Permanent Court of Arbitration, saying that practice is ‘le plus sûr commentaire du sens’ of the agreement.26 So, it is easy to see why concordant practice should be an authentic source if it is engaged in by all the parties. But Article 31 (3) (b) does not say the practice must be engaged in by all the parties; it says only that it must establish the agreement of all the parties. The ILC Commentary is very clear both that it must be the agreement of all, and that it need not be the practice of all.27 Now, we will see below that even if 31 (3) (b) contemplated only the

85 [1999] ICJ Rep 1045; (General List No. 98) 86 Donald Regan: Understanding What the Vienna Convention Says About Identifying and Using ‘Sources for Treaty Interpretation’ Identifying and Using ‘Sources for Treaty Interpretation’ University of Michigan (2017) < : https://repository.law.umich. edu/book_chapters/257> (accessed on 14.10.2023).

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practice of all the parties, a practice that was engaged in by some parties, but not all, could still be introduced under Article 32; and the interpreter would then consider how strong the partial practice was as evidence of a common understanding.”

86Copy pinpoint86. The material cited in the preceding paragraphs, on the ILC Draft Conclusions and ICJ decisions, though not binding per se on this court, certainly offer valuable insight into treaty interpretation. In sum, whilst considering treaty interpretation, it is vital to take into account practice of the parties. There is no dispute that treaties constitute binding obligations upon their signatories. Yet, like all compacts, how the parties to any specific instrument view them, give effect to its provisions, and the manner of acceptance of such conventions or compacts are in the domain of bilateral relations and diplomacy. Much depends upon the relationship of the parties, the mutuality of their interests, and the extent of co-operation or accommodation they extend to each other. In this, a range of interests combine. The issue of treaty interpretation and treaty integration into domestic law is driven by constitutional and political factors subjective to each signatory. Therefore, domestic courts cannot adopt the same approach to treaty interpretation in a black letter manner, as is required or expected of them, while construing enacted binding law. The role of practice- which is, as the previous discussion demonstrates, not bilateral or joint practice, but practice by one, accepted generally by the international community as operating in that particular sphere, which is relevant, and at times determinative.

87Copy pinpoint87. This court is of the opinion that the treaty practice of Switzerland, Netherlands and France is dictated by conditions peculiar to their constitutional and legal regimes. Could it conceivably be argued that in the event of failure of the Swiss Confederation to secure the requisite majority in a referendum or approval by the Swiss Parliament, or in the absence of approval by both houses of the States General in Netherlands, a DTAA provision or trigger event could nevertheless be assimilated into executive decrees? The answer is obviously in the negative. Likewise, the treaty practice in India points to a consistent pattern of behaviour when the signatory to an existing DTAA, points to the event of a third

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state entering into OECD membership, and a resultant trigger event, the beneficial effect given to the later third-party state has to be notified in the earlier DTAA, as a consequential amendment, preceded by exchange of communication (and perhaps, negotiation) and acceptance of that position by India. The essential requirement of a notification under Section 90 of the consequences of the trigger (or causative) event cannot be undermined. V. Conclusions

88Copy pinpoint88. In the light of the above discussion, it is held and declared that: (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. (b) The fact that a stipulation in a DTAA or a Protocol with one nation, requires same treatment in respect to a matter covered by its terms, subsequent to its being entered into when another nation (which is member of a multilateral organization such as OECD), is given better treatment, does not automatically lead to integration of such term extending the same benefit in regard to a matter covered in the DTAA of the first nation, which entered into DTAA with India. In such event, the terms of the earlier DTAA require to be amended through a separate notification under Section 90. (c) The interpretation of the expression “is” has present signification. Therefore, for a party to claim benefit of a “same treatment” clause, based on entry of DTAA between India and another state which is member of OECD, the relevant date is entering into treaty with India, and not a later date, when, after entering into DTAA with India, such country becomes an OECD member, in terms of India’s practice.

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89Copy pinpoint89. In view of the foregoing analysis and conclusions, it is held that the reasoning and findings in the impugned orders cannot survive; they are set aside. The revenue’s appeals, therefore, succeed and are allowed. There shall be no order on costs. Pending applications, including those seeking intervention for impleadment, are disposed of.

90Copy pinpoint90. As the facts in CA No. 1428/2023 relate to the interpretation of the India-Spain DTAA, which has not been considered in the present judgment, this matter is hereby de-tagged, to be listed before the appropriate bench.

Headnotes prepared by: Appeals allowed. Divya Pandey