The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that a 1999 notification amending the India-Netherlands tax treaty only reduced the tax rate on interest from 15% to 10% and did not extend the Nil-rate exemption available under the India-USA or India-Italy treaties.

The bench of Judicial Member Vikas Awasthy and Accountant Member Naveen Chandra held that the absence of a specific notification extending the exemption meant that the benefit could not be imported through the treaty's Most Favoured Nation (MFN) clause.

The tribunal observed, “In the absence of such an express notification, we are not inclined to unilaterally import or apply a 'Nil' tax rate.”

The dispute arose from ₹1.66 crore in interest that the Netherlands-incorporated company received on an income-tax refund under Section 244A of the Income Tax Act. The company had initially offered the interest to tax at 10% under the India-Netherlands Double Taxation Avoidance Agreement (DTAA), but later claimed that it was taxable at Nil under the MFN clause.

The MFN clause in Protocol IV of the India-Netherlands DTAA provides for a lower rate or more restricted scope of source taxation where India has granted such treatment to another OECD member country. The company argued that the India-USA DTAA exempted certain interest arising from government-approved debt claims from source taxation. It contended that interest on its tax refund fell within that exemption and could be claimed through the MFN clause.

The company also relied on the corresponding provision in the India-Italy DTAA.

The Revenue opposed the claim, arguing that Notification No. S.O. 693(E), dated August 30, 1999 had a limited scope. It had only amended Article 11(2) of the India-Netherlands DTAA to substitute a 10% rate for the earlier 15% rate applicable to beneficial owners. According to the Revenue, the notification did not import the Nil-rate exemption under the India-USA or India-Italy DTAAs.

The tribunal accepted this interpretation. It found that the 1999 notification specifically amended Article 11(2) and reduced the interest tax rate from 15% to 10%. Although its preamble referred to concessions India had granted to other OECD countries, India and the Netherlands had “consciously limited their negotiated agreement to a 10% gross withholding tax for beneficial owners.”

The tribunal also considered the Supreme Court's ruling in Assessing Officer v. Nestle SA, holding that a notification under Section 90(1) is an absolute prerequisite for giving domestic effect to an MFN benefit.

It held that an MFN clause does not by itself make the benefit of a later treaty with a third country enforceable in India.

The tribunal found that no Section 90(1) notification had extended the exemption under Article 11(3)(c) of the India-USA DTAA or Article 12 of the India-Italy DTAA to the India-Netherlands DTAA. It also noted that CBDT Circular No. 3/2022 requires a separate notification to import a lower rate or restricted scope from a third-state treaty.

It further noted that the Indian government had objected to a unilateral attempt by the Netherlands government to use the MFN clause to lower tax rates. The tribunal therefore declined to apply the Nil rate without an express notification.

The tribunal concluded that the assessee “cannot cherry-pick the 'Nil' rate from the US or Italian agreements” and rejected its claim for Nil taxation under the MFN clause.

It accordingly upheld taxation of the ₹1.66 crore Section 244A refund interest at 10% under Article 11(2) of the India-Netherlands DTAA read with Notification No. S.O. 693(E). It also directed the Assessing Officer to grant the eligible TDS credit of ₹69,78,240.

The grounds concerning interest under Sections 234A, 234B, and 234C were treated as consequential, while the additional ground concerning carried-forward losses was not pressed. The appeal was dismissed

For Assessee:  Advocate Ishita Farsaiya and Aryan Singh

For Revenue: Dr. Shalini Verma, CIT-D.R

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Case Title :  Travelport Global Distribution System BV v. ACITCase Number :  ITA No. 2411/Del/2023CITATION :  2026 LLBiz ITAT(DEL) 280
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