India: High Court Allows Import Of UK Treaty Into France Treaty: Invokes Mfn Clause

Last Updated: 12 August 2016
Article by Afaan Arshad and Ashish Sodhani
  • Protocols under a treaty form a part of it and do not need to be notified separately unless the treaty/protocol itself suggests otherwise.
  • The Most Favoured Nation (MFN) clause in the India- France DTAA ensures that a lower rate or a restrictive scope in another convention with an OECD member and India can be imported into the India- France DTAA.
  • Payments made for management services by the Indian company to the French company does not constitute FTS under the Indo France DTAA by virtue of the MFN clause.

Recently the Delhi High Court ("Court") in the case of Steria India Ltd. v. Commissioner of Income Tax and Anr1 relying on the most favored nation clause under the India - France Double Taxation Avoidance Agreement ("India – France DTAA") held that payments made by an Indian company to a French company for management services does not constitute Fees for Technical Services ("FTS").


Steria (India) Limited ("SIL / Taxpayer"), a public limited company registered and resident in India primarily providing IT driven services had entered into a Management Services Agreement ("MSA") with one of Steria's group entities, a limited liability partnership, in France ("Steria France"). Under the MSA, Steria France was to provide a myriad of management services including corporate communication, group marketing information systems, human relation services ("Management Services") to SIL with a view to rationalize and standardize the business conducted by SIL. The Services were provided by Steria France through telephone, fax, e-mail only and there was no presence of any personnel of Steria France in India and hence no risk of Permanent Establishment (fixed or agency) of Steria France in India existed.

Prior to filing the writ petition before the Court, the Taxpayer had approached the Authority for Advance Ruling ("AAR") seeking a ruling on whether the payment made by the Taxpayer for the Management Services provided by Steria France will be taxable in India in the hands of Steria France as per the provisions of the India – France DTAA. The argument of the Taxpayer was that Clause 7 of the Protocol did not require any separate notification and could straightway be operationalised was not accepted by the AAR.

Clause 7 of the protocol to the India - France DTAA states that if a lower rate of tax or a restricted scope is provided for in any other treaty that India enters into with any other OECD Member country, then that lower rate or restricted scope will be applicable for the purposes of the India - France DTAA ("Most Favored Nation Clause / MFN Clause"). The Taxpayer argued that the provisions of the India – UK DTAA pertaining to Fees for Technical Services ("FTS") were more restrictive than as provided in the India - France DTAA. The India – UK DTAA expressly excludes fees for managerial services from the ambit of FTS. Further, it also provides that for a service to qualify as FTS, the service provider must 'make available' technical knowledge, experience, skill, know-how or processes to the persons to whom the service is rendered. Accordingly, as per the provisions of the Protocol the restrictive provisions of India – UK DTAA should be imported into the India- France DTAA.

The AAR rejecting the argument of the Taxpayer held that the Protocol in the India - France DTAA could not be treated as forming part of the DTAA. The AAR further held that the restrictions imposed by the Protocol were only to limit the taxation at source for the specific items mentioned therein. The restriction was only on the rates. Further, it held that the 'make available' clause found in the India - UK DTAA could not be read into the expression 'fee for technical services' occurring in the India-French DTAA unless a notification was issued by the Indian tax authorities to incorporate the less restrictive provisions of the Indo-UK DTAA into the India-France DTAA. Hence concluding that the payment made for managerial services did constitute FTS.


The Court ruling in favour of the Taxpayer and deciding against the decision of the AAR held that the Protocol becomes automatically applicable and there is no need for a separate notification incorporating the beneficial provisions of the India – UK DTAA into the India – France DTAA. The Court also dismissed the contention of the Revenue that when reference is made to one convention signed between India and another OECD member state for the purposes of ascertaining if it had a more restrictive scope or a lower rate of tax, then only that convention has to be used for both the purposes i.e. the taxpayer shall not be allowed to rely upon one convention for a lower rate of tax and subsequently refer to another convention to take advantage of a more restricted scope.

The Court held that the words in the MFN Clause "a rate lower or a scope more restricted" envisages that benefit could accrue on both fronts i.e. a lower rate or more restricted scope – one does not exclude the other. Further, the other expression "if under any Convention, Agreement or Protocol signed after 1-9-1989 between India and a third State which is a member of the OECD" also indicates that the benefit could accrue in terms of lower rate or a more restrictive scope under more than one DTAA which may be signed after 1st September 1989 between India and a State which is an OECD member. The purpose of the MFN Clause is to afford to a party to the India-France DTAA the most beneficial of the provisions that may be available in another DTAA between India and another OECD country. The Court further held that the language in the Protocol makes it self-operational and since the Protocol came into effect on the same day as the DTAA and provides that it is an integral part of the DTAA, the fact that the DTAA has been notified, there is no need for the Protocol itself to be separately notified or for the beneficial provisions in some other Convention between India and another OECD country to be separately notified to form part of the India-France DTAA.

The Court also upheld the judgment of the Kolkata Tribunal in the case of DCIT v. ITC Ltd.2 wherein also it was held that benefit of a lower rate or restricted scope of FTS under the India - French DTAA by virtue of the MFN clause was not dependent on any further action by the respective governments.

Based on the above, the Court held that the FTS provision of the India- UK DTAA should be read into the India- France DTAA and hence Managerial Services provided by Steria France did not constitute 'fees for technical services'. Accordingly, there was no obligation on SIL to withhold such tax under the ITA.


This judgment is a welcome move by the Court as it emphasizes on the fact that a Protocol forms an integral part of the DTAA and brings about clarity that no separate notification is required for a protocol to come into effect, unless provided within the Protocol itself. Interestingly, another ruling of the Kolkata Tribunal -DDIT v. IATA BSP India3 - dealt with a similar issue. In that case, the Tribunal introduced the provisions of the India – US / Portugal DTAA into the India – France DTAA by virtue of the MFN Clause and ruled that services provided do not constitute FTS due to the restricted scope of FTS under the US and Portugal Tax Treaties. Accordingly, ruling by a higher judicial authority should bring rest to this issue.

While the Protocol under the India – France DTAA is self-operational and does not require notification, the protocol in the India - Switzerland DTAA is given effect to by way of an amendment notification wherein it specifically provides that governments of each of the states shall notify each other that the legal requirements for giving effect to the Amending Protocol have been satisfied and it shall enter into force on the date of later of the notifications. Another Protocol which was just entered into by India is the one with Mauritius. This Protocol provides that the states shall notify each other of the completion of the procedures required under their respective laws for the protocol to come into force. Considering the Court in this case has gone into the language of the Protocol, it can be safe to assume that language of each Protocol should be the determining factor as to whether it is self-operation or requires a specific notification.


1 W.P.(C) 4793/2014 & CM Appl. 9551/2014

2 (2002) 82 ITD 239(ITAT Kolkata)

3 ITA No. 1149/Mum/2010

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Afaan Arshad
Ashish Sodhani
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions