The Supreme Court of India has dismissed the curative petition filed by Nestlé SA, marking the end of all legal remedies for the Swiss multinational regarding dividend taxation disputes. The apex court’s ruling follows its earlier judgment that treaty benefits under most favoured nation (MFN) clauses in double taxation avoidance agreements (DTAAs) do not apply automatically and require a specific notification under Section 90(1) of the Income Tax (I-T) Act, 1961.
A bench comprising chief justice BR Gavai and justice Surya Kant, justice Vikram Nath and justice Dipankar Gupta says, “In our opinion, no case is made out within the parameters indicated in the decision of this Court in Rupa Ashok Hurra vs Ashok Hurra & Anr, 2002(4) SCC 388. Hence, the curative petition is dismissed.”
Curative petitions are the final legal recourse available after the dismissal of review petitions, meant to address alleged miscarriages of justice. With this dismissal, Nestlé has exhausted all avenues to challenge the dividend taxation ruling.
The legal battle originated with the Supreme Court’s 19 October 2023, judgment, which held that a DTAA cannot be enforced unless notified under Section 90 of the Income Tax Act. This ruling exposed companies such as Nestlé SA, along with other Swiss, Dutch, and French multinationals, to demands for higher taxes on dividends.
Subsequently, a division bench of justice S Ravindra Bhat and justice Dipankar Datta emphasised that a notification under Section 90(1) is a mandatory condition for courts, authorities, or tribunals to give effect to any DTAA or its protocol that alters existing law.
Eleven petitions, with Nestlé SA as the main respondent, were clubbed and ruled in favour of the income tax department, thereby setting aside the Delhi High Court’s order. Section 90 of the I-T Act ensures that no company or individual pays income tax twice while working internationally. However, the court clarified that enforcement of treaty benefits requires formal notification under the law.
Following the ruling, from
1 January 2025, Switzerland suspended India’s MFN status, affecting Indian companies operating in the European country. Switzerland’s federal department of finance stated, “On the basis of the Indian Supreme Court ruling, the Swiss competent authority acknowledges that its interpretation of paragraph 5 of the Protocol to the India-Switzerland DTAA is not shared by the Indian side. In the absence of reciprocity, it waives its unilateral application with effect from 1 January 2025. For dividends due from and including 1 January 2025, the residual tax rate in the source state is limited to 10%.”
However, the position adopted by Switzerland in 2021 remains applicable for income accruing during 2018–2024.
The dismissal of Nestlé’s curative petition has far-reaching consequences. Companies can no longer assume automatic treaty benefits; India’s treaty policy and administrative practice may need recalibration, and pending or closed cases involving MFN benefits could be impacted. Indian entities operating in Switzerland will face increased taxes from 2025. The ruling reinforces the I-T department’s position and underscores the need for formal notifications under Section 90 before companies can claim MFN benefits.
Nestlé had previously filed a review petition, which was dismissed before the curative petition was filed.
With the Supreme Court’s final ruling, Nestlé SA has no further legal remedies in India concerning dividend taxation under the MFN clause. Indian companies in Switzerland will need to factor in higher withholding taxes from 2025. The judgment also sends a clear signal to multinational corporations that formal compliance with domestic procedures under the I-T Act is essential, even when international treaties are in place.
