Most Favoured Nation clause – Pune ITAT Judgment

On 15th February 2022, Pune Income Tax Appellate Tribunal, in case of GRI Renewable Industries, commented on the recent CBDT circular no 3/2022 dated 3 Feb 2022 on the applicability of MFN clause in DTAA. 
Some of the key principles emanating from the judgment are as follows

It is trite law that a circular issued by the CBDT is binding on the Assessing Officer and not on the assessee or the Tribunal or other appellate authorities.
Notwithstanding the above, it can be seen that the CBDT has panned out a fresh requirement of separate notification to be issued for India importing the benefits of the DTAA from second State to the Double Taxation Avoidance Agreement with the first State by virtue of its Circular, relying on such requirement as supposedly contained in section 90(1) of the Act.  
In our considered opinion, the requirement contained in the CBDT circular No.03/2022 cannot primarily be applied to the period anterior to the date of its issuance as it is in the nature of an additional detrimental stipulation mandated for taking benefit conferred by the DTAA.
It is a settled legal position that a piece of legislation which imposes a new obligation or attaches a new disability is considered prospective unless the legislative intent is clearly to give it a retrospective effect.
Requirement of a separate notification for implementing the MFN clause, as per the recent CBDT circular dt. 03-02-2022, cannot be invoked for the year under consideration, which is much prior to the CBDT circular of the year 2022.

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