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

IN THE HIGH COURT OF DELHI AT NEW DELHI Date of Decision: 14th December 2021 GALDERMA PHARMA SA Through: Mr.Kamal Sawhney Advocate Meharchandani and Mr.Arun Bhaduria Advocates Through: Mr.Puneet Rai Sr. Standing INCOME TAX OFFICER HON BLE MR. JUSTICE MANMOHAN HON BLE MR. JUSTICE NAVIN CHAWLA MANMOHAN J.Ltd. v. CIT386 ITR 390and Concentrix Services Netherlands B V v s. Income Tax Officer TDS & Anr W.P.(C) 9051 2020 and by the Karnataka High Court in Apollo Tyres Ltd. v. CIT92 taxmann.com 166 Karnataka) 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 Mr.Puneet Rai learned counsel accepts notice on behalf of the respondent. He states 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 He further reiterates that the Revenue has not accepted the decision of this Court in the cases of Concentrix Services Netherlands B.V. v. ITOand Nestle SA v. Assessing Officer Circle v ACIT WP(C) 3243 2021 and is in process of filing Special Leave Petitions before the Hon’ble Supreme Court Having heard learned counsels for the parties this Court finds that the issues raised in the present writ petition are no longer res integra as they are fully covered by the judgments of this Court in Concentrix Services Netherlands B.V.as well as in Nestle SA Supra). In Concentrix Services Netherlands B.V.it has been held that no separate notification is required insofar as applicability of the protocol is concerned and the same forms an integral part of the Convention 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. The Supreme Court in UOI v. Kamlakshi Finance Corpn Ltd. AIR 1992 SC 711:1 SCC 648 has held that order of higher appellate authorities should be followed ‘unreservedly’ and mere fact that decision is not acceptable to the Revenue cannot be a ground for not following the decision of higher 10. Keeping in view the aforesaid the impugned order and certificate are set aside 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 qua the Petitioner is 5% in India Switzerland DTAA as held in Nestle SAwhich was also under the India Switzerland DTAA. Writ petition is disposed of in the MANMOHAN J NAVIN CHAWLA J DECEMBER 14 2021 rv Page 

Summary: 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 &amp; 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 &amp; 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.