Amendment of the provisions relating to rate of tax on royalties and fees for technical services under the D.T.A.A. with Canada - Income Tax - 638/1992

Amendment of the provisions relating to rate of tax on royalties and fees for technical services under the D.T.A.A. with Canada. Circular No. 638 Dated 29/10/1992 The existing tax treaty with Canada was signed on 30th October, 1985 and notified on 25th September, 1986 (See [1987] 164 ITR (St.) 87). Para 2 of article 13 of the agreement provides the rate of taxation at 30 per cent. in respect of royalties and fees for technical services in the country where the same arises. Para 4 of the Protocol to the said Agreement reads as below:-- "With reference to paragraph 2 of article 13, in the event that pursuant to an Agreement or a Convention concluded with a State which is a member of the Organisation for Economic Co-operation and Development after the date of signature of this Agreement, India would accept a rate lower than 30 per cent. for the taxation of royalties or fees for technical services paid by a resident of India to a resident of that State, it is understood that such lower rate will automatically be applied for the taxation of royalties and fees for technical services paid by a resident of India to a resident of Canada where the royalties or fees for technical services are paid in respect of a right or property which is first granted, or under a contract which is signed, after the date of entry into force of the first mentioned Agreement or Convention." 2. Subsequent to the signing of the Agreement with Canada, India has entered into Agreements with other OECD countries, wherein the rate of taxation in respect of royalties and fees for technical services has been agreed at 20% of the gross amount. The revised Agreement with Swedan, which came into force on 12th December, 1988 (See [1989] 178 ITR (St.) 13), is the first of such Agreements. Accordingly, after consultation with the Canadian Government, a notification has been issued on 24th June, 1992, notifying that the rate of tax of 20% will be applicable to royalties and fees for technical services paid by a resident of India to a resident of Canada. This reduced rate will be applicable to payments made in respect of the right or property which is first granted or under a contract which is signed, after the 12th day of December, 1988. A copy of the notification bearing GSR No.635(E), dated 24th June, 1992, is enclosed. 3. The Canadian Government have also passed a Remission Order dated 3rd December, 1991, making the revised rate as above applicable to Indian residents as well in respect of royalties or fees for technical services paid by a Canadian resident. A copy of this order is enclosed. (Sd.) S.P. Singh, Secretary to the Central Board of Direct Taxes.