Modifying and Supplementing the Agreement between India and Japan for the Avoidance of Double Taxation - 1798 - Income Tax

Modifying and Supplementing the Agreement between India and Japan for the Avoidance of Double Taxation Notification No. 1798 Dated 16/10/1970 Whereas the annexed Protocol modifying and supplementing the Agreement between India and Japan for the avoidance of Double Taxation in respect of taxes on income has been ratified and the instruments of ratification exchanged, as required by Article VIII of the said Protocol: 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 all the provisions of the said Protocol shall be given effect to in the Union of India. ANNEXURE Protocol Modifying and Supplementing the Agreement between India and Japan for the Avoidance of Double Taxation in respect of Taxes on Income. The Government of India and the Government of Japan, Desiring to modify and supplement the Agreement between India and Japan for the avoidance of double taxation in respect of taxes on income, signed at New Delhi on January 5, 1960, Have agreed as follows: Article Sub-paragraph (a) of paragraph (1) of Article I shall be amended as follows: 1. By deleting the expression " the Indian Income-tax Act, 1922 (11 of 1922) " and replacing it by the expression " the Income-tax Act, 1961 (43 of 1961) ", 2. By deleting the expression, " this the super tax ", and 3. By inserting the expression " and the surtax imposed under the Companies (Profits) Surtax Act, 1964 (7 of 1964) " immediately before the expression " (hereinafter referred to as ' Indian tax '). " Article II Sub-paragraph (i) of paragraph (1) of Article II shall be amended by inserting the following immediately after sub-paragraph (iii) thereof: " (iiia) An enterprise of one of the Contracting States shall not be deemed to have a permanent establishment in the other Contracting State if it maintains a fixed place of business solely for the purpose of advertising, for the supply of information or for scientific research, being activities solely of a preparatory or auxiliary character in the trade or business of the enterprise. " Article III Article III shall be amended by inserting the following immediately after paragraph (4): " (4A) No profit shall be attributed to a permanent establishment of an enterprise of one of the Contracting States situated in the other Contracting State through or from operations which are confined merely to the purchase of goods for the purpose of export from such other Contracting State. " Article IV 1. In the application of Article V of the Agreement, the rate of reduction shall be fifty-five per cent. instead of fifty per cent. 2. Paragraph (3) of Article V shall be amended by deleting the expression " sections 44A and 44B of the Indian Income-tax Act, 1922 (11 of 1922), effective on the date of signature of the present Agreement " and the expression " section 44C of the said Act, effective on the date of signature of the present Agreement " occurring in paragraph (3) thereof, and replacing them, respectively, by the expression " section 172 of the Income-tax Act, 1961 (43 of 1961), effective on the date of signature of the present Protocol " and the expression " section 172 of the said Act, effective on the date of signature of the present Protocol ". Article V Paragraph (a) of Article X shall be amended by inserting the expression " Subject to the provisions of paragraph (4A) of Article III, " at the beginning of the provisions thereof. Article VI Sub-paragraph (b) of paragraph (3) of Article XI shall be deleted and replaced by the following: " (b) For the purpose of the credit referred to in sub-paragraph (a) above, there shall be deemed to have been paid by the taxpayer the amount which would have been paid if the Indian tax had not been reduced or relieved in accordance with the special incentive measures designed to promote economic development in India, effective on the date of signature of the present Protocol or which may be introduced in future in the Indian tax laws in modification of or in addition to the existing measures, provided that an agreement is made between the two Governments in respect of the scope of the benefit accorded to the taxpayer by the said measures. " Article VII Protocol which constitutes an integral part of the Agreement between Japan and India for the Avoidance of Double Taxation in respect of taxes on income, signed at New Delhi on January 5, 1960, shall be abrogated. Article VIII 1. The present Protocol shall be ratified and the instruments of ratification shall be exchanged at Tokyo as soon as possible. 2. The present Protocol shall enter into force on the thirtieth day after the date of exchange of instruments of ratification and shall be applicable- (i) on the part of India, in respect of any assessment year commencing on or after the 1st day of April, 1967; and (ii) on the part of Japan, in respect of any taxable years beginning on or after the 1st day of January, 1966. 3. The present Protocol shall continue in force as long as the aforesaid Agreement remains in force. However, the provisions of paragraph 1 of Article IV of the present Protocol shall be applicable for a period of five years from the date on which the present Protocol shall become applicable as long as the aforesaid Agreement remains in force, provided that on expiry of such period, the two Governments will consult each other with a view to extending further such period by mutual agreement. IN WITNESS WHEREOF, the representatives of the two Governments duly authorized for the purpose, have signed the present Protocol. DONE at New Delhi in duplicate in the English language this eighth day of of April, 1969. For the Government of India: Sd./ P. C. SETHI, For the Government of Japan: Sd./ SHINSAKU HOGEN New Delhi, April 8, 1969. Excellency, I have the honour to refer to the Protocol modifying and supplementing the Agreement between India and Japan for the avoidance of double taxation in respect of taxes on income, which was signed today and to state the following on behalf of the Government of India. 1. With reference to paragraph (3) of Article 1 of the Protocol: the surtax has been the subject of the Agreement before modification under the provisions of paragraph (2) of Article 1 of the Agreement before modification, since its introduction in India by the Companies (Profits) Surtax Act of 1964. 2. With reference to sub-paragraph (i), (ii) of paragraph (1) of Article II of the Agreement: for the purpose of the said sub-paragraph, where a resident of one of the Contracting States fulfils an order for the sale of plant or machinery to a resident of the other Contracting State and it is incidental to the sale of the plant or machinery that a person or persons employed by the resident of the first-mentioned Contracting State should proceed to that other Contracting State for assisting in the installation of the plant or machinery therein, such activity shall not be deemed to constitute a permanent establishment unless it is carried on for a period exceeding ninety days or the expenses incurred on such activity are more than 10 per cent. of the total sale price for the order. 3. With reference to sub-paragraph (i), (iiia) of paragraph (1) of Article II of the Agreement: for the purposes of the said paragraph, the provisions thereof shall not apply where the enterprise maintains any other fixed place of business in that other Contracting State for any purpose or purposes other than the purposes specified in the said paragraph. 4. With reference to paragraph (2) of Article XI of the Agreement: for the purposes of the said paragraph, where the resident of India is a company by which the surtax is payable, the credit to be allowed against Indian tax shall be allowed in the first instance against the income-tax payable by the company in India and, as to the balance, if any, against the surtax payable by it in India. I have further the honour to request Your Excellency to confirm the foregoing understanding on behalf of the Government of Japan. Accept, Your Excellency, the assurances of my highest consideration. (Sd.) P. C. SETHI, His Excellency Mr. Shinsaku Hogen, Ambassador Extraordinary and Plenipotentiary of Japan to India. New Delhi, April 8, 1969. Excellency, I have the honour to acknowledge the receipt of Your Excellency's Note of today's date which reads as follows: " I have the honour to refer to the Protocol modifying and supplementing the Agreement between India and Japan for the avoidance of double taxation in respect of taxes on income, which was signed today and to state the following on behalf of the Government of India. 1. With reference to paragraph 3 of Article I of the Protocol: the surtax has been the subject of the Agreement before modification under the provisions of paragraph (2) of Article I of the Agreement before modification, since its introduction in India by the Companies (Profits) Surtax Act of 1964. 2. With reference to sub-paragraph (i), (ii) of paragraph (1) of Article II of the Agreement: for the purposes of the said sub-paragraph, where a resident of one of the Contracting States fulfils an order for the sale of plant or machinery to a resident of the other Contracting State and it is incidental to the sale of the plant or machinery that a person or persons employed by the resident of the first-mentioned Contracting State should proceed to that other Contracting State for assisting in the installation of the plant or machinery therein, such activity shall not be deemed to constitute a permanent establishment unless it is carried on for a period exceeding ninety days or the expenses incurred on such activity are more than 10 per cent. of the total sale price for the order. 3. With reference to sub-paragraph (i), (iiia) of paragraph (1) of article II of the Agreement: for the purposes of the said paragraph, the provisions thereof shall not apply where the enterprise maintains any other fixed place of business in that other Contracting State for any purpose or purposes other than the purposes specified in the said paragraph. 4. With reference to paragraph (2) of Article XI of the Agreement: for the purposes of the said paragraph, where the resident of India is a company by which the surtax is payable, the credit to be allowed against Indian tax shall be allowed in the first instance against the income-tax payable by the company in India and, as to the balance, if any, against the surtax payable by it in India. I have further the honour to request Your Excellency to confirm the foregoing understanding on behalf of the Government of Japan. I have further the honour to confirm that the foregoing understanding is also the understanding of the Government of Japan. Accept, Your Excellency, the assurances of my highest consideration. (Sd.) SHINSAKU HOGEN, Ambassador Extraordinary and Plenipotentiary of Japan to India. His Excellency Mr. P. C. Sethi, Minister of State in the Ministry of Finance, Government of India, New Delhi. New Delhi, April 8, 1969. Excellency, I have the honour to refer to sub-paragraph (b) of paragraph (3) of Article XI of the Agreement between India and Japan for the avoidance of double taxation in respect of taxes on income, signed at New Delhi on January 5, 1960, as amended by the Protocol modifying and supplementing the Agreement which was signed today and to propose, on behalf of the Government of India, that the two Governments shall agree that the measures set forth in the following sections of the Income-tax Act, 1961 (43 of 1961) of India, effective on the date of signature of the aforesaid Protocol are " the special incentive measures designed to promote economic development in India, effective on the date of signature of present Protocol " referred to in the said sub-paragraph. (i) Section 10(4)-relating to exemption from tax on interest payable to a non-resident on any security notified by the Government of India; (ii) Section 10(15)(iv)-relating to exemption from tax of (a) a non-resident in respect of moneys lent by him to the Government or a local authority in India; (b) an approved foreign financial institution in respect of interest on moneys lent by it to an industrial undertaking in India under a loan agreement; and (c) a non-resident in respect of interest on moneys lent or credit facilities allowed by him to an industrial undertaking in India for the purchase outside India of raw materials or capital plant and machinery; (iii) Section 10(28)-relating to exemption from tax on the amount of tax credit certificates granted under the provisions of Chapter XXII-B; (iv) Section 33-relating to development rebate in respect of ships, machinery or plant; (v) Section 33A-relating to development allowance for planting or replanting of tea bushes; (vi) Section 54A-relating to refund of the tax on capital gains to an individual who is not a citizen of India or to a non-Indian company where the capital gains are reinvested in approved investments; (vii) Section 80E and section 80-I (which replaces section 80E with effect from April 1, 1968)-relating to deduction of 8 per cent. of profits and gains from specified priority industries in computing the total income of certain domestic companies; (viii) Section 84 and section 80-J (which replaces section 84 with effect from April 1, 1968)-relating to exemption from tax of, or deduction in respect of, profits and gains from eligible industrial undertakings or ships or hotels; (ix) Section 85 and section 80K (which replaces section 85 with effect from April 1, 1968)-relating to exemption from tax of, or deduction in respect of, dividends attributable to profits and gains from eligible industrial undertakings or ships or hotels; (x) Section 85A and section 80M (which replaces section 85A with effect from April 1, 1968)-relating to deduction in respect of certain dividends received by a company from an Indian company or any other company declaring and paying dividends within India. I have further the honour to propose that this Note and your Excellency's reply confirming, on behalf of the Government of Japan, the foregoing shall constitute an agreement between the two Governments which shall enter into force on the date of the entry into force of the aforesaid Protocol and be applicable in respect of any assessment year commencing on or after the first day of April, 1967. Accept, Your Excellency, the assurances of my highest consideration. Sd. P. C. SETHI. His Excellency Mr. Shinsaku Hogen, Ambassador Extraordinary and Plenipotentiary of Japan to India. New Delhi, April 8, 1969. Excellency, I have the honour to acknowledge the receipt of Your Excellency's note of today's date which reads as follows: " I have the honour to refer to sub-paragraph (b) of paragraph (3) of article XI of the Agreement between India and Japan for the avoidance of double taxation in respect of taxes on income, signed at New Delhi on January 5, 1960, as amended by the Protocol modifying and supplementing the Agreement which was signed today and to propose, on behalf of the Government of India, that the two Governments shall agree that the measures set forth in the following sections of the Income-tax Act, 1961 (43 of 1961), of India, effective on the date of signature of the aforesaid Protocol are " the special incentive measures designed to promote economic development in India, effective on the date of signature of the present Protocol " referred to in the said sub-paragraph. (i) Section 10(4)-relating to exemption from tax on interest payable to a non-resident on any security notified by the Government of India; (ii) Section 10(15)(iv)-relating to exemption from tax of (a) a non-resident in respect of moneys lent by him to the Government or a local authority in India; (b) an approved foreign financial institution in respect of interest on moneys lent by it to an industrial undertaking in India under a loan agreement; and (c) a non-resident in respect of interest on moneys lent or credit facilities allowed by him to an industrial undertaking in India for the purchase outside India of raw materials or capital plant and machinery; (iii) Section 10(28)-relating to exemption from tax on the amount of tax credit certificates granted under the provisions of Chapter XXII-B; (iv) Section 33-relating to development rebate in respect of ships, machinery or plant; (v) Section 33A-relating to development allowance for planting or replanting of tea bushes; (vi) Section 54A-relating to refund of the tax on capital gains to an individual who is not a citizen of India or to a non-Indian company where the capital gains are reinvested in approved investment; (vii) Section 80E and section 80-I (which replaces section 80E with effect from April 1, 1968)-relating to deduction of 8 per cent. of profits and gains from specified priority industries in computing the total income of certain domestic companies; (viii) Section 84 and Section 80J (which replaces section 84 with effect from April 1, 1968)-relating to exemption from tax of, or deduction in respect of, profits and gains from eligible industrial undertakings or ships or hotels; (ix) Section 85 and section 80K (which replaces section 85 with effect from April 1, 1968)-relating to exemption from tax of, or deduction in respect of, dividends attributable to profits and gains from eligible industrial undertakings or ships or hotels; (x) Section 85A and section 80M (which replaces section 85A with effect from April 1, 1968)-relating to deduction in respect of certain dividends received by a company from an Indian company or any other company declaring and paying dividends within India. I have further the honour to propose that this Note and Your Excellency's reply confirming, on behalf of the Government of Japan the foregoing shall constitute an agreement between the two Governments which shall enter into force on the date of the entry into force of the aforesaid Protocol and be applicable in respect of any assessment year commencing on or after the first day of April, 1967. " I have the honour to confirm the foregoing on behalf of the Government of Japan and to agree that Your Excellency's Note and this reply shall constitute an agreement between the two Governments which shall enter into force on the date of the entry into force of the aforesaid Protocol and be applicable in respect of any assessment year commencing on or after the first day of April, 1967. Accept, Your Excellency, the assurances of my highest consideration. (Sd.) SHINSAKU HOGEN, Ambassador Extraordinary and of Japan to India. His Excellency Mr. P. C. Sethi, Minister of State in the Ministry of Finance, Government of India, New Delhi.