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The Gazette of India

EXTRAORDINARY

PART II—Section 3—Sub-section (i)

PUBLISHED BY AUTHORITY

No. 148] NEW DELHI, TUESDAY, APRIL 19, 1983/CHAITRA 29, 1905

Separate Paging is given to this Part in order that it may be filed as a separate

compilation

(1)

81 GI/83 — 1

2 THE GAZETTE OF INDIA : EXTRAORDINARY [PART I I - S E C. 3(i)] 3 4 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(0] 5 ⁶ THE GAZETTE OF TNDIA : EXTRAORDINARY {PART II—SEC. 3(i)] 7 8 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(i)] 9

81 OI/83—2

10 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(i)] 11

MINISTRY OF FINANCE

(Department of Revenue)

(Foreign Tax Division)

NOTIFICATION

New Delhi, the 19(h April, 1983

INCOME-TAX

C^.S.R. 3'12(E), —Whereas Ihe annexed Convention between the Government of the Republic of fndla and the Gov- criiiiisnl of the Democratic Socialist Republic of Sri Lanka [OL the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital has been ratified and the instruments of ratification ex- changed ns required by Article 29 of the said Convention ;

Now, therefore, in exercise of the powers conferred by Section 90 of the Income-tax Act, 1961 (43 of 1961), and Section 24A of the Companies (Profits) Surtax Act, 1964 (7 of 1964,), the Central Government hereby directs that nil Uic provisions of the said Convention shall be qiven effect to in the Union of India.

CONVENTION

BETWEEN

THE GOVERNMENT OF THE REPUBLIC OF INDIA AND

THE GOVERNMENT OF THE

DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

for

the avoidance of double taxation

and the prevention of fiscal

evasion with respect to taxes

on income and on capital

CONVENTION BETWEEN THE GOVERNMENT OF THE REPUBLIC OF INDIA AND THE GOVERNMENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR THE AVOIDANCE OF DOUBLE TAXA- TION AND THH PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME ANF) ON CAPITAL

The Government of the Republic of India and the Gov- ernment of ll.i' Democratic So:ialist Republic of Sri Lanka desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, have ajjrecd as follows •

ARTfCI.F, 1

Personal Scope

This Convention shall apply to persons who are residents

of one or boih of the Contracting States.

ARTICLE 2

Tnxcs Covered

1. This Convention shall ap-.ly to taxes on income ftnd on capital imposed on behalf of each Contracting State irrespective of tins manner in which they are levied.

2. There shall be regarded as taxes on income and on capital all taxes imposed on total income, on total capital or on element of incorrc or of capital including taxes ori gains from tli~ alienation of movable or immovable property, as well as tuxes on capital appreciation.

are !—-

3. The exiting taxes to wlikb this Convention shall apply ' * *

(a) In Sri Lanka :

(i) the income tax, In?Iuding the. income tax based on the turnover of enterprises licensed hy ihe fjreRter Colombo Econornf? Commission • and (ii) the wealth tax ;

(hereinafter referred to as "Sri L*nka tix")

(b) In India:

(i) the income tax including any surcharge thereon ;

(ii) the surtax ; and

(iii) the wealth tax.

(hereinafter referred to us "Indian tax")

4. This Convention shall also apply to any identical or substantially similar taxes which are imposed after 1hc date of signature of this Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting Statea shall notify each other of any important changes which have been made in their respective taxation laws

ARTICLE 3

General Definitions

1, In this Convention, unless the context otherwise re-

quires ;

(a) the terms "a Contracting State" and "the other Contracting State" mean Sri Lanta or India as the context requires ;

(h) the term "person" includes an individual a com-

pany and nny other body of persons ;

<.v) the term "company" means any body corporate or

any entity which is treated as a body corporate for the tax purposes;

(d) the terms "enterprise of a Contracting State" and "enterprise of (he other Contracting State" mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

(e) the term "international traffic" means any transport by a ship or aircraft operated by an enterprise which has its place of effective management in a Contracting State, except when the ship or aircraft is operated solely between places in the other Con- tracting State ;

(f> the term "national" means :

(i) an individual possessing the nationality of a Con-

tract ina State;

(ii) a legal person, partnership or an association de- rivirtR its status BS such from the laws in force in a Contracting State ;

(g) the term "competent authority" means ;

(i) in the case of Sri Lanka, the Commissioner-

General of Inland Revenue ;

(iij in the case of India, the Central Government in the Ministry of Finance (Department of Revenue).

2. As regards the application of this Convention hy a Contracting Slate any term not defined therein shall, unlcM the context otherwise requires, have the meaning which it has under the laws of that State relating to the taxes which arc the subject of this Convention.

ARTICLE 4

Fiscal Domicile

I. For the purposes of this Convention, the term "resi- dent of a Contracting State" means any person who, under the law of that Stole, is liable to tax therein by reason of his domicile, residence, place of management or any other e n t e rs of a similar nature. But thin term does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.

1⁷;Jm\Z* ibv ™*on of *e Provisions of parawanh (1) of tN, \rticb an mrtmdnal is a resident of both Contract- in- States, than hit status shall be determined as follows-

12 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(i)j

(a) lie shall be deemed to be a resident of the State in which he has a permanent home available to him. If hfl bas a permanent home available to him in both States, he shall be deemed to be a resident of thu State with which his personal and economic relations arc closer (centre of vital interests);

(b) if the State in which be has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of thn State in which be has an habitual abode ;

(c) if he han an habitual abode in both States or in neither of them, he shall be, deemed to be a resi- dent of the State of which bo is a national;

(d) if he is a national of bolh States or of neither of them, the competent aulhqriUcs of the Contracting States shall settle the question by mutual agreement.

3. Where by reason of the provisions of paragraph (1) of this Article a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the State in which its place of effective man- agement is situated.

ARTICLE 5

Permanent Establishment

1. For the purposes of this Convention, the term "perma- nent establishment" means a fixed place of business through which the business of the enterprise is wholly or partly carried on.

2. The term "permanent establishment" shall include es-

pecially :

(a) a place of management;

(b) a brancb;

(cj an office; (d) a factory;

(e) a workshop ;

(0 a mine, an oil or gas well, a quarry or any other

place of extraction of natural resources ;

(g) an agricultural or farming estate or plantation; (h) a building site or construction or assembly project

which exists for more than 183 days ;

(ij the furnishing of services, including consultancy services, by an enterprise through employees or other personnel, where activities of that nature con- tinue within the country for a poriod or periods aggregating more than 183 days within any twelve month period.

3. Notwithstanding the preceding provisions of this Arti- cle, the term "permanent establishment" shall be deemed not be include :

(a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise be- longing to the enterprise ; disc belonging to the enterprise solely for the pur- pose of storage, display or delivery;

(bj the maintenance of a stock nf goods or merchan- dise belonging to the enterprise solely for the pur- pose of storage, display or delivery;

(c) the maintenance of a stock of goods or merchandi% belonging to the enterprise solely for the purpose uf processing by another enterprise ;

id) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchan- dise or of collecting information, for the enterprise; (e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information or for scientific research, being acti- vities solely of a preparatory or auxiliary character in the trade or business of the enterprise.

4. A person actinK In a Contracting State on behalf of an enterprise cf the other Contracting State—other than an agent of an independent status to whom paragraph (6) of this Article applies—shall be deemed to be a permanent estab- lishment in the first-mentioned State if he has, and habitually exercises in that State, an authority to conclude contrittSIf in the name of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enter- prise.

5. Notwithstanding the preceding provisions of this Arti- cle, an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than an agent of independent status to whom paragraph (6) of this Article applies.

6. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their busi- ness. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enter- prise, he will not be considered an agent of an independent status within the meaning of this paragraph.

7. The fa.t that a company which is a resident of a Con- tracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carried on business in that other Stato (whether through a perma- nent establishment or otherwise) shall not of itself constitute eifhex company a permanent establishment of the other.

ARTICLE 6

Income from Immovable Property

1. Income from immovable property may be taxed in

the Contracting State in which such property is situated.

2. The term "immovable property" shall have the mean- ing which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law res- pecting landed property apply, usufruct of immovable pro- perty and rights to variable or fixed payments as considera- tion for the working of, or the right to work, mineral de- posits, sources and other natural resources; ships, boats and aircraft shall not be regarded as immovable property.

3. The provisions of paragraph (1) of this Article shall apply to in;ome derived from tte direct use, letting, or use in any other form of immovable property.

4. The provisions of paragraphs (I) and (3) of this Article shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance

ARTICLE 7

Business Profits

1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting Stale through a permanent establishment situated therein. If the enter- prise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to—

(a) that permanent establishment,

(b) sales in that other State of goods or merchandise of the same or similar kind as those sold through that permanent establishment, or

(c) other business at-tivilies carried on in that other State of the same or similar kind as those effected through that permanent establishment.

The^ provisions of sub-paragraphs (b) and (c) above shall noi apply if tlie enterprise proves that such sales or acti- vities arc not attributable to the rwmanent establishment.

2, Subject to the provisions of paragraph (3) of this Auicle, where an enterprise of a Contracting State carries "on business in the other Contracting State through a perma- nent establishment situated therein, there shall in each Conu acting State be attributed to that permanent establish- ment the profits whicto it. might be expected to make if it were a distinct and separate enterprise engaged in the same or similar uctivuics under the sarne or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

1. In the determination of the profits of a permanent establishment, tbere shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or else- wiicre. However, no such deduction shall be allowed in res- pect of amounts, if any, paid (otherwise than towards re- imbursement of actual expenses) by the permanent estab- lishment lo the head office of the enterprise or any of its other oiiices, by v\ay of royalties, fees or otlier similar pay- ments in return lor the use of patents or other rights, or by way of commission, for specific services performed or. for management, or, except in the case of a banking enter- prise, by way of interest on money lent to the permanent establishment. Likewise, no account shall bo taken, in the determination of the profits of a permanent establishment,, for amounts iJiarned (otheiwisc than towards reimbursement of neUifl W-nses), by the permanent establishment to (he hi:ad oilite of the enterprise or any of its other offices by' way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of com- mission for specific services performed or for management,, or, ev.cpt in tbe case of a banking enterprise by way of' interest on money lent to the head office of the enterprise or any of its other offices.

4. Insofar as it has been customary in a Contracting State to dclcimirie the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts nothing in para- graph (2) oi this Article shall preclude that Contracting State from determining the profits to be taxed by SUMO, an appor- tionment as may be customary; the method of apportion- ment shall, however, be such that the result will be m ac-, cordance with the principles contained in this Article.

5. No profits shall be attributed to a permanent establish- ment by reason of the more purchase by that permanent establishment of goods or merchandise for the enterprise.

6. For the purposes of the preceding paragraphs, the pro- f'ts to he attributed to the permanent establishment shall be determined by tLv same method year by year unless there is good and sufficient reason to the contrary.

7. Where profits include items of income which are dealt wilh separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.

ARTICLE 8

Shipping and Air Transport

J. Piofits derived by'an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place effective management of the enterprise is situated.

2. Notwithstanding the provisions of paragraph (1), profits derived from the operation of ships in international traffic may be taxed in the Contracting State in whjch such operation is carried on; but the ta\ so charged shall not exceed 50 per cent of the tax otherwise imposed by the internal law of that .State.

Provided that for the purpose of the calculation of the lax, such profits shall be deemed to be an amount not exceeding the rates presently provided in the taxation laws of the res- pective States for the computation of such profits

3. The provisions of paragraphs (1) and (2) of this Article shall likewise apply in respect of profits frcm the participation in a pool, a joint business or an international operating agency of any kind by enterprises engaged in the operation of ships or aircraft in international traffic.

4. For the puipose of paragraph 1, interest on funds con- nected with the operation of ships or aircraft in internatioanl traffic shall be regarded as income from the operation of such aircrali, and the provisions of Article 11 shall not apply in relation to such interest.

5. If the place of effective management of a shipping enter- prise is aboard a ship, then it shall be deemed to be situated in the Contracting State in which the home harbour of the ship is situated, or if there is no such home harbour, in the State of which the operator of the ship is a resident.

ARTICLE 9

Associated Enterprises

1. Where:—

(a) an enterprise of a Contracting State participates directly or indirectly in the management, control 6r capital of an enterprise of the other contract- ing State, or

(b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

and in either ca^c conditions are made or imposed between the two enterprises in their commercial or financial relations which dillei from those which would be made between In- dependent enterprises, then any profits which would, but for those conditions have accrued to one of the enterprises, but by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accord- ingly.

2. Where a Contracting State includes in the profits of an enterprise of that State and taxes accordingly profits on which an enterprise of the other Contracting State has been charged to tax in that other State and trw profits so included are profits which would have accrued to the enterprise of the first mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of this Convention and the competent authorities of tho Con- tracting Slates shall if necessary consult each other.

ARTICLE 10

Dividends

1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting Stale may be taxed in that other State.

2. However, such dividends may also be taxed in the Con- tracting State of which the company paying the dividends is a resident and according to the laws of that Slate, but the tax so charged shall not exceed 15 per cent of the gross amount of the dividends.

3. The term "dividends" as used hi this Article means incoma from shares, mining shares, founders' shares or other rights not being debt-claims, participating in profits. as well as income from other corporate tights 'which is subjected to the same taxation treatment as income from shares by the taxation law of the State of which the com- 'pany making the distribution is a resident,

4. The provisions of paragraphs 0) ani (2) of this Article shall not appl> if the beneficial- owner of the dividend¹!, be'ng a resident of a Contracting State, carries on business in the 'other Contracting State of which the company payiog the 'dividends is n resident, through a permanent establishment situated therein an ! the holding in respect of which the divi- 'dends sio paid is rfectivc'y connected with 3ucb permanent ³ establishment. Tn such ccfe tbe provisions of Aui^e 7 sball

apply.

14 THE GAZETTE OF INDIA. : EXTRAORDINARY [PART II—SEC. 3(i)]

5. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other Stale may not impos© any tax on the divi- dends paid by the company, except insofar as such dividends are paid to a resident of that Oiher State or insolar as the hold- ing in respect of which the dividends are paid is effectively connected with a permanent establishment situated in that other State, nor subject the company's undistributed profit* '-o a tax on undistributed promts, even if the dividends paid or the undistributed profits consist wholly or partly of profit* or income arising in such other Sitate.

ARTICLE 11

Interest

1. Imcresl arising in a Contracting State and paid to a resi- dent of the other Contracting State may bo taxed in that other State.

2. However, sus.h interest may also be taxed in the Contrac- ting Slate in which it arises and according to the laws of that Mate, but il the recipient is the benehcial owner of the interest the tax so thaiged shall not exceed 10 per cent of the gross amount of the interest.

1. Notwilhe tan ling the provisions of paragraph (2) of this Article interest arising in a Contracting State shall be exempt fiom tax in that State if:

(a) the payer of the interest is the Government of that Contracting Stale or a local authority thereof, or

(b) the interest is paid to the Government of the other

Contracting State or local authority thereof or any agency or instiutnentality (including a financial insti- tution) wholly owned by that other Contracting State or local authority thereof.

4. 'Ihe terra "interest" as used in this Article means income fiom Government securities, bonds or debentures, whether or not secured by mortgage and whether or not carrying a right to participate in profits, and debtJtlaiiits of every kind B3 well as all oJier income assimilated to income from money lent by the taxation law of 'he state in which the income arises.

5. The provisions of paragraphs (1) to (3) of this Article

shall not apply if the beneficial owner of the inierest, being a lesident of a Contracting State, carries on business in the other Conti acting State in which the interest arises through a permanent establishment situated therein and the debt-claim in lespect of which the interest is paid is effectively connected with :>uch permanent establishment. In such case, the provisions of Article 7 shall' apply.

6. Interest shall be deemed to arise in a Contracting State when the p.iyer is that State itself, a local authority or a resi- dent of thai Slate. Where, howc\er, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Conti acting State a permanent establishment in con- nection with whijj the indebtedness on which the interest is paid was incijrred, and inierest is borne by such permanent establishment, then such interest shall be deemed to arise in the Coniractinc S'ate in which the permanent establishment is situated.

7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the dcbl-claim for which it is paid, exceeds the amount which would ha\e been agreed upon by the payer and the beneficial owner in (he absenco of eurh relationship, the pro- visions of this Article shall apply only to the last mentioned amount. In fl'ich case tb^ excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being hed to the other provisions of this Convention

ARTICLE 12 Royalties

1. j.i.uj.tiiu,a ari^ng in d contracting Stale and paid to a iei>iaeiu oi the oUiei Cont) acting State may bo taxed in itiat oinei i>iate.

J.. Ho.vwer, such royalties may also be ta>t©4 in ihe Con- u acting iuato in vviiicb tiiey arise and accoiamg to tile laws of lujt Staie, but if the recipient is the beneficial owner ot the royalty too tajc. so charged shall not exceed 10 per cent of Hie gross amount of the royalties.

J. Viit ictui loyalties' as ui>id in tdis Arti-lc means pay- aiLii.s ol any Mud loteiveu as a consideration lor the use of o± inc ntUt LU me any copyright or literary, artistic or scienti- iic wur*. mvludiiijE cinematograph aims, or tapes lor television or broaJcasii%, any patent, trade maik, ueaign Or model, pi'un, secret lounuia or process, oi tor the use ot, oi the right to use, -industrial, commeiciaf or scientmc equipment, or for information concerning industrial, commercial or scientific experience.

4. The provisions of paragiuphs U) and W of tnis Article dhall not apply if the bcnehcial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, thiough a permanent establishment situated therein and the right or property in respect ot which the royalties are paid is eltecti- vely connected With such permanent establishment. In such caj>e the provisions ol Article 7 ;,haii apply,

5. Royalties shall be deemed to arise in a Contracting State wlien the payer is that State itseJt, a local autnority or a resident ot tbjit State. Wfceic, however, the person paying the loyalties, whether he is a resident of a Conti acting btale or not, has in a Contracting State a permanent establishment in connection with which the liabilty to pay the royalties was incurred, and suchi royalties arc born© by buch permanent esta- blishment, then such royalties shall be deemed tQ arise in the State in which the permanent establishment is situated.

6. Where by reason of a special relationship between tho payer and the beneficial owner or between both ot them and some other person, the amount of the royalties; having regard to the use, right or intommticn lor which ihey are laid, ex- ceeds the amount which

ARTICLE 13 Capital gains

1. Gams derrived by a resident of a Contracting State from the alienation

2. Gain* from the, alienation ot movablo property forming part of the business property of 6 permanent establishment which an enterprise of a Contracting State has in the other Contracting State including such gains from the alternation of such a permanent establishment alone or with the whole entcrpise), may be taxed is that othe" State.

3. Gains from the alienation of ships or aircraft operated in international irafflce or movable property peitaining to the operation of such ships or aircraft shall be taxable only in tin Contracting State in which the place of effective man.-.gement of the enterprise is situated.

4. Gains from the alienation of stocks shares of a company- may be taxed in the Contracting State in which they have been issued.

5. Gains from Hie alienation of any property other than that referred to iu paragraphs (1) to (4J of this Article, shall he taxable only in the Contracting State of which the alienator is a resident.

6 The term "alienation" means the sale, exchange, transfer, or relinguMiment of tit© property or the extin- guishment of any rights therein or the compulsory acquisition hereof under any lav,¹ in force In the reactive Contracting Sates.

ARTICLE 14

Independent Personal Services

1. In.ome derived by a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in tbat State unless hjs stay in tho oiher Contracting Stale is for a period or periods exceeding in the aggregate 120 days within any 12 months period, when such income may also be taxed in the other Contracting State.

2. The term "professional services" includes independent scientific, literary, arustic, educational or teaching activities, as vvelj as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

ARTICLE 15

Dependent Personal Service*

1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment is exercisable only in that State unless the employment is exercised in the other Contracting State. If the employ- ment is so exerci'ed, such remuneration as is derived there- from may be taxed in that other Contracting State

2. Notwithstanding the provisions of paragraph 1, remu- neration derived by a resident of a Contracting State in respect of an employment exercised in the other Contrart- in" Stnte shall bo taxable only in the first mentioned Statr, if :

(a) The receipient is present in the other State for a period or periods not exceeding in the aggregate 183 days within any 12 month period ; and

(b) the remuneration is paid by. or on behalf of, an employer who is not a resident of the other State and

fc) the remnueration is not borne by a permanent establishment or a fked base which the employer has in the other State.

3. Notwithstanding the precedinn provisions of this Arti- cle, remuneration in respect of an employment exercised abroad a shir* or aircraft in international traffic, may be] taxed only in the Contracting State in which the'place of effective manaEerrient of tho enterprise is situsted.

ARTICLE 16

Directors'¹ I'ecs

2. Where income In respect of personal activities exer- cised by an entertainer or an athlete in his capacity as sui;h accrues not to the entertainer or athlete himself but to another person, tL'al income may, notwithstanding the pro- visions of Articles 7, 14 and 13, b" taxed in the Contract- ins State in which the activities of the entertainer or athlete aie exercised.

3. For the purposes of this Article, tho term "Govern ment" includes a State Government, a political MJb-divisioo or a local authority of either Contracting State.

ARTICLE 18

Government Service

1. (a) Remuneration, other than a pension, paid by the Government of a Contracting State to an individual in res- pect of icrviccs rend^.ed to that State or a local authority thereof shall be taxable only in that State.

(b) However, sucTi remuneration shall be taxable only in the other Contracting State if the services are rendered in that other State and the individual is a resident of that State who :

til is a national of that State, or

fii) did not become d resident of that'State solely for

the purpose of rendering the services.

2. Any pension paid by the Government of one of the Contracting States to any individual may be taxed in that Contrnetins State.

3. The provisions of Articles 15, 16 and 19 shall apply, to i enumeration and pensions in respect of services render- fd in connexion with a business carried on by a Contracting 5tai.e or a local authority thereof.

4. For the purposes of this Article, the term "Govern- ment shall include any State Government or local autho- ntv of either Contracting State, the Reserve Bank of India end thi" Central Bank of Ceylon.

ARTICLE 19

Non-Government Pensions and Annuities

1. Any pension (other than a pension referred to in Article 18) or annuity deijvcd by a resident of a C o n t r a c ts State frorn sources within the other Contracting State may be taxed onl) in the lirst-mentioncd Contracting State.

2. The term "pension" means a periodic payment made in consideration of services rendered in the past or by wav of compensation for injuries received in the course of per- formance of services.

3 The term "annuity" mean* a stated sum payable perio- dioJly at stated time*, during life or durina a specified " Mcortamabto period of time, under an obligation to m aS

in^rcrofm^eTwoS ^^ ** ™ " " ^ ft

Directors' fees and other similar payments derived by a resident of a Contracting Slate in his capacity as a member of the board of directors of a company which h a resident of the other Contracting State may be taxed in that other

ARTICLE 17

Artistes and Athletes

1. Notwithitandinc the provisions of Article 14 and 15 incomi derived by public entertainer^ (rach as theatre" motion picture, radio or television artistes and musicians) or nfhletcs, trom their personal activities as such mav be taxed in the Contracting State in which these activities are exercised :

Provided thst -ueh income shall not be taxed in the said Contracting Stnte rf the visit of the public entertainer, OT athlete to that State is directly or indirectly supported wholly or substantially, from the public funds of he Gov- ernment of the other Contracting State.

ARTICLE 20

Professors and Teachers

A professor or teacher who makes a temporary visit to a Contracting State for a period not exceeding two year, for the p u r p le of teachinc or conducting research at a urlveisity,. college, school or other educational institution

n? 2° £ o r*m m ed ately W"" ™ch visit wa, a r SH

of the other Contracting State shall be exempt from tax in the fist-mentioned Contracting Slate in respect $ ?e rtraneraticn for such tenching or research

ARTICLE 21

Students and Apprentices _ 1 rnymenh wh'ch •" student or business apprentice who VH 7 %L^ ^ ly before visiting a Contr^Kng State a recent of the other Contractteg State and who b pramt

16 THE GAZETTE OF INDTA : EXTRAORDINARY [PART II—SEC. 3(0]

in the first-mejitloned State solely for the purpose of his education or training receives for the purpose of his main- tenance, education or training shall not be taxed in that State, provided that such payments arise from sources out- side that State.

2. In respect to grants, scholarships and remuneration iiom employment not covered by paragraph (1) of this Article a student or business apprentice described in para- graph (1) of this Article shall, in addition, be entitled dur- ing such education or training to the same exemptions, re- liefs or reductions in respect of taxes available to residents of the State which he is visiting.

ARTICLE 22

Other Income

Items of income of a resident of a Contracting State which are not expressly mentioned in the foregoing Article of this Agreement in respect of which he is subject to tax in that State shall be taxable only in that State.

ARTICLE 23

Capital

1. Capital represented by immovable property referred to in paragraph (2) of Article 6 may be taxed In the Con-

' tracting State in which such property is situated.

2. Capital represented by movable property formlnc part of the business property of a permanent establishment of ani enterprise may be taxed in the Contracting State in which the permanent establishment Is situated.

3. Notwithstanding the provisions or: paragrapn (2) of this Article, ships and aircraft operated in international traffic and movable property pertaining to the operation c/C such ships and aircraft, shall be taxable only in the Con- tracting State in which the place of effective management of the enterprise is situated.

4. All other elements of capital of a resident of a Con-

tracting State shall be taxable only In that State.

ARTICLE 24

Elimination of Double Taxation

1. The laws in force in cither of the Contracting States shall continue to govern the taxation of income and capital in Ihe respective Contracting States except when express pro- vision to the contrary is made in this Convention. When income or capital is subject to tax in both, Contracting States, relief from double taxation shall be given in accordance with the following paragraphs of this Article.

2, Subject to the provisions of the law of India regard- ing tli& allowance as a credit HSBin.it Indian tax of tax- payable in a territory outside India (which shall not affece the general principle hereof) Sri Lanka tax payable tinder the law of Sri Lanka and in accordance with this Conven- tion whether directlv or by deduction on profits, income or chargeable gains from sources within Sri Lanka (exclud- ing in the case of a dividend, tax payable In respect of the profits out of which the dividend U paid) or capital in Sri Lanka sha1' b; r>_11owed as a credit against nny Indian tax comrwicd by rcfeT-ence to the same items of Income or capital by referred to which the Sri Lanka tax is computed:

Provided that such credit not exceed Indian tax (as computed before allowing any such credit), which h appro- priate to the Income r!:rlved From sources within Sri Lanka or to capital in Sri Lanka, so however, that where such resident Ii a companv by which surtax is payable in Inc'Ia, the credit nforesiid cha11 be allowed In the first Instance against income tax pavablr by the company in India, and a" to the bilance if any against surtax payable by It In India.

3. For the purposes of paragraph (2) of this Article, the term. "Sri Lanka tax payable" shall be deemed to in- clude any amount which would have been payable as SA Lanka tax for any year but for an exemption or reduction of lax. granted for that year or any part thereof under ;

(a) any of the following urovis'ona, that Is to say sections 11, 16, 17, 18 19 20 21 22 and 85 of the Sri Lanka Inland Revenue Act, No. 28 of 1979 so far as they were in force on, and have not been modified since, the date of the signature of this Convention, or have been modified only in minor respects so as not to affect their general character ; or

(b) any agreement entered into under section 17 of the Greater Colombo Economic Commission Law No. 4 of 1978; or

(c) any other provisions which may subsequently bo made granting an exemption or reduction of tax which is agreed by the competent authorities to be of a substantially similar character, if it has not been modified thereafter or has been modified only in minor respects so as not to affect its general character.

4. Subject to the provisions af the law of Sri Lanka regarding the allowance as a credit against Sri Lanka tax of tax payable in a territory outside Sri Lanka (which shall not affect the general principle hereof) Indian tax payable under the law of India and in accordance with the Con- vention, whether directly or by deduction, on profits, in- come or chargeatje sains from sources within India (ex- cluding in the case of a dividend, tax-payable in respect of the profits out of which the dividend is paid) or capital in India shall be allowed a" a credit against any Sri Lanka tax computed by reference to the "am© items of Income or capital by reference to which the Sri Lanka's tax is com- puted:

> Provided that such credit shall not exceed Sri Lanka tax (as computed before allowing any such credit), which is appropriate to the income derived from sources within India or to caiptal in India.

5. For the purpose of paragraph (4) of this Article, the term "Indian Tax payable" shall b© deemed to include any amount which would have been payable as Indian tax for any year but for an, exemption or reduction of tax granted for that year or any part thereof under :

(a) any of the following provisions, that is to say sec- tions 10(4), 10(4A). 10(l5)(iv), 32A, 33A 35C 54E, BOCC, 80HH, 801, 80K of the Income Tax Act, 1961; or

(b) any other provisions which may subsequently be made granting an exemption or reduction of tax which is agreed by the comp"tent uuthoritics to be? of a substantially similar character if It has not been modified thereafter or has bepn modified only in minor respects so as not to affect its (feneral character.

ARTICLE 25

Non -Discrimination

1. Nationals of a Contracting State shall not be subject- ed in the other Contracting State to any taxation or nny re- cHjirement connected therewith, which is other or more hurden some than the taxation and connected requirements to which nationals af that other State in the same circum- sanccs are or may be subjected. This provision shall, not- withstanding the provisions of Article 1, also apply to per- sons who are not residents of one or both of the Contract. inc States.

2. The taxation on a permanent estabilshment which on enferprise of a Contracting State has in the other Con- tracting State shall not be less favourably levied in that otlrcr State than the taxation levied on enterprises of that

other State carrying on the same activities. This provision shall not bo construed as obliging a Contracting State to .grant to residents of tho other Contracting State any per- sonal allowances, reliefs and reductions for taxation put- poses on account of civil status or family responsibilities which it grants to its own residents.

3. Except where the provisions of paragraph (1) of Article 9, paragraph (7) of Article 11 or paragraph (6) of Article 12, apply, interest, royalties and other disbursements paid by an enterprise of a Contracting State to a resident of the other Contracting State shall for the purpose of deter- mining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State. Similarly, any debts of an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of defcrrhininj: the taxable capital of such enterprise, be deductible under the same condition? as if thev had been contracted to a resident of the first-mentioned State.

4. Enterprises of a Contracting State, the capital of which is wholly or_ partly owned Or controlled, directly or in- directly, bv one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or anv requirement canneced therewith which is other or more burdensome than th? taxation and con- nected requirements to which other similar enterprises of the first-mentioned State are or may be subjected.

5. The provisions of this Article shall, notwithstanding the provisions of Article 2, apply to taxes of ©very kind and description.

ARTICLE 26

the Convention, insofar as the taxation thereunder is not contrary to the Convention in particular for the prevention of fraud or evasion of such taxes. The exchange of infor- mation is not restricted by Article 1. Any information re- ceived by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic law* of that State. However, if the information is originally regarded as secret in the transmitting State it shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or col- lection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes which are the subject of the Convention. Such persons or autho- rities shall use the information only for such purposes but may disclose the information in public court proceedings or in judicial decisions. The competent authorities shall through consultation develop appropriate conditions, methods and techniques concerning the matters in respect of which such exchanges of information shall be made, including, where appropriate, exchanges of information regarding tax avoid- ance.

2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obli- gation :

(a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;

(b) to supply information which is not obtainable under the laws or in the normal course of tbe adminis- tration of that or of the other Contracting State ;

(c) to supply information which would disclose any trade, business, industrial, commercial or profes- sional secret or trade process, or information, the disclosure of which would be contrary to public policy (order public).

Mutual Agreement Procedure

ARTTCI-E 28

Diplomatic Agents and Consulnr Official*

1. Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of the Contracting State of which he is a resident or, if his case comes under paragraph (1) of Article 25 to that of the Contracting State of which he is a national. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention.

2. The competent authority shall endeavour, if the objec- tion appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve tho case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the Convention. Any agree- ment reached shall be implemented notwithstanding any time limits in the domestic law of the Contracting States.

3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any diffi- culties or doubts arising as to the interpretation or applica- tion of the Convention. They may also consult together for the elimination of double taxation in cases not provided for in the Convention.

4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of tbo preceding para- graphs. The competent authorities, through consultations, shall develop appropriate bilateral procedures, conditions, methods and techniques for the implementation of the mu- tual agreement procedure provided for in this Article. In addition, a competent authority may devise appropriate uni- lateral procedures, conditions, methods and techniques to facilitate the above-mentioned bilateral actions and the im- plementation of the mutual agreement procedure.

ARTICLE 27

Nothing in this Convention shall affect tbe fiscal privilege* of diplomatic agents or consular officials under the general rules of international law or under the provisions of special agreements.

ARTICLE 29

Entry Into Force

1. This Convention shall be ratified and the instruments of ratification shall be exchanged at Colombo as soon as possible.

2. The Convention shall enter into force upon the ex- change of instruments of ratification and its provision* shall have effect:

(a) In Sri Lanka—

(i) in respect of income assessable for any year of assessment commencing on or after 1st April, 1980;

(ii) in respect of capital assessable for any year of assessment commencing on or after 1st April, 1980.

(b) In India—

(i) in respect of income assessable for any year of assessment commencing on or after 1st April, 1981;

(ii) in respect of capital assessable for any year of assessment commencing on or after 1st April, 1980.

Exchange of Information

1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by

81 GI/83—3

3. The Agreement between the Government of Ceylon and the Government of India for relief from or the avoid- ance of double taxation of income, signed on 10th Septem- ber, 1956, shall terminate and cease to have effect as res- pects taxes on income to which the present Convention ap- plies in accordance with the provisions of paragraph (2) of this Article.

18 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(i)]

ARTICLE 30 Termination

This Convention shall remain in lorce indefinitely but cither Contracting State may, on or before June 30 in any calendar year beginning after the expiration of a period of five years from the date of its entry into force, give to the other Contracting State, through diplomatic channels, written notice of termination.

In such event, the Convention shall cease to have effect—

(a) In Sri Lanka—

(i) in respect of income assessable for any year of assessment commencing on or after 1st April in the calendar year next following that in which such notice is given ;

(ii) in respect of capita) assessable for any year of assessment commencing on or after 1st April in the calendar year next following that hi which such notice is given.

(b) In India—

(i) in respect of income assessable for the assessment year commencing on tho 1st day of ,April in the second calendar year next following the calendar year in which the notice is given, and subsequent years;

(ii) in respect of capital assessable for any year of assessment commencing on or after 1st April in the calendar year next following that in which such notice is given.

In witness whereof the undersigned, duly authorised there-

to, have signed this Convention.

Done in duplicate at New Delhi this 27th day of January, 1982, in the Sinhala, Hindi and English languages, all texts being equally authentic. In the case of divergence of inter- pretation the English text shall prevail.

Sd/-

(PRANAB MUKHERJEE) (RONNIE DE MAL) For the Government of For the Government of the The Republic of India. Democratic Socialist Republic of Sri Lanka.

PROTOCOL

The Government of the Republic of India and the Gov- ernment of the Democratic Socialist Republic of Sri Lanka, having entered into a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, have agreed, at the tlmo of signing the said Convention, on the following provisions which shall constitute an integral part thereof :

(a) Tho length of the period referred to in sub-para- graphs (h) and (i) of Article 5 shall be construed as identical to any period of longer duration in- corporated in the Article on Permanent Establish- ment in relation to a building site, construction or assembly project or the furnishing of sorvices, in any Convention for the avoidance of double taxa- tion entered into by Sri Lanka after the signing of this Convention.

(b) the basis of taxing shipping profits set out in para- graph 2 of Article 8 shall not be less favourable than that provided in any Convention for the avoid- ance of double taxation entered into by Sri Lanka after the signing of this Convention.

In witness whereof the undersigned, duly authorised thereto,

have signed this Protocol.