Section 90 of the Act; Protocol to India-Spain DTAA – Protocol containing MFN clause is an integral part of DTAA and gets imported on notification of DTAA itself and does not require separate notification. This condition of Circular is contrary to section 90(1) of the Act read with DTAA and hence not binding on the taxpayer. Also, it cannot have retroactive applicability

Section 90 of the Act; Protocol to India-Spain DTAA – Protocol containing MFN clause is an integral part of DTAA and gets imported on notification of DTAA itself and does not require separate notification. This condition of Circular is contrary to section 90(1) of the Act read with DTAA and hence not binding on the taxpayer. Also, it cannot have retroactive applicability

FACTS
Assessee, a tax resident of Spain, received FTS and royalty income from India. Relying upon MFN clause in India-Spain DTAA read with Article 12 of India-Portugal DTAA assessee claimed taxation at 10% as against 20% provided in India-Spain DTAA. CIT(A) affirmed AO’s order. AO rejected the assessee’s claim on the ground that the MFN clause could not be applied automatically as section 90 requires separate notification. DRP affirmed the order of AO.

Being aggrieved, the assessee appealed to ITAT.

HELD
• India entered DTAA with Portuguese (a member of OECD Country) vide notification dated 16th June, 2020. Article 12 of India-Portuguese DTAA provides a tax rate of 10% for FTS and royalty.

•    India-Spain DTAA was signed on 8th February, 1993, entered into force on 12th January, 1995 and was notified on 21st April, 1995. Protocol containing the MFN clause was stated in DTAA to be an integral part of DTAA. It was also signed on 8th February, 1993.

•    CBDT Circular No.3/2022 dated 3rd February, 2022 mandates issuing separate notification for importing of benefits of a treaty with second State into the treaty with the first State by relying on section 90(1) of the Act.

•    This condition of Circular is contrary to section 90(1) of the Act read with DTAA, which treats protocol as an integral part of the DTAA.

•    On notifying the DTAA, all its integral parts get automatically notified. There is no need to notify the individual limbs of the DTAA again to make them operational one by one.

•    Circular issued by CBDT is binding on AO and not on the assessee.

•    Circular prescribing additional stipulation that creates disability cannot operate retrospectively to transactions taking place in any period anterior to its issuance.