Agreement between the Government of India and the Government of Italy for the Avoidance of Double Taxation and the prevention of fiscal evasion with respect to taxes on income - 0608(E) - Income Tax

Agreement between the Government of India and the Government of Italy for the Avoidance of Double Taxation and the prevention of fiscal evasion with respect to taxes on income Notification Number: 0608(E) Dated 08/04/1986 File Number: 501/10/73-FTD Whereas the annexed agreement between the Government of India and the Government of Italy for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income has been ratified and the instruments of ratification exchanged, as required by article 29 of the said agreement; 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 agreement shall be given effect to in the Union of India. ANNEXURE AGREEMENT BETWEEN THE GOVERNMENT OF INDIA AND THE GOVERNMENT OF ITALY FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME. The Government of India and the Government of Italy desiring to conclude an agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. Have agreed as follows: CHAPTER I SCOPE OF THE AGREEMENT Article 1 PERSONAL SCOPE This agreement shall apply to persons who are residents of one or both of the Contracting States. Article 2 TAXES COVERED 1. The taxes to which this agreement shall apply are: (a) In the case of India: 1. the income-tax including any surcharge thereon imposed under the Income-tax Act, 1961 (43 of 1961); 2. the surtax imposed under the Companies (Profits) Surtax Act, 1964 (7 of 1964); (hereafter referred to as " Indian tax "). (b) In the case of Italy: 1. the personal income-tax (1 ' imposta sul reddito delle persone fisiche); 2. the corporate income-tax (1 ' imposta sul reddito delle persone giuridiche); 3. the local income-tax (1 ' imposta locale sul reddito); even if they are collected by withholding taxes at the source (hereafter referred to as " Italian tax "). 2. The Agreement shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of the present agreement in addition to, or in place of the taxes referred to in paragraph 1 of this article. 3. At the end of each year, the competent authorities of the Contracting State shall notify to each other any changes which have been made in their respective taxation laws which are the subject of this agreement and furnish copies of relevant enactments and regulations. CHAPTER II DEFINITIONS Article 3 GENERAL DEFINITIONS 1. For the purposes of this agreement, unless the context otherwise requires: (a) the term " India " means the territory of India and includes the territorial sea and airspace above it as well as any other maritime zone which, according to the internal law of India, is a maritime zone in which India has certain rights and to the extent that those rights can be exercised therein as if such maritime zone is a part of the territory of India; (b) the term " Italy " means the Republic of Italy including the territorial waters of Italy and airspace above them, as well as any area beyond the said territorial waters, and specifically it includes the sea-bed and the sub-soil contiguous to the territory of the peninsula and the Italian Islands situated beyond the territory waters with bounds indicated by the Italian law on the exploration and the exploitation of their natural resources; (c) the terms " a Contracting State " and " the other Contracting State " mean India or Italy, as the context requires; (d) the term " tax " means Indian tax or Italian tax, as the context requires; (e) the term " person " shall have the meaning assigned to it in the taxation laws in force in the respective Contracting States; (f) the term " Company " means any body corporate or any entity which is treated as a company or a body corporate under the taxation laws of the respective Contracting State; (g) the term " enterprise of a Contracting State " and " enterprise of the 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; (h) the term " fiscal year " in relation to Indian tax means " previous year " as defined in the Income-tax Act, 1961 (43 of 1961); (i) 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 Contracting State; (j) the term " competent authority " means in the case of India, the Central Government in the Department of Revenue; and in the case of Italy, the Ministry of Finance. 2. In the application of the provisions of this agreement by one of the Contracting State, any term not defined herein shall, unless the context otherwise requires, have the meaning which it has under the laws in force in that State relating to the taxes which are the subject of this agreement. Article 4 FISCAL DOMICILE 1. For the purposes of this agreement, the term " resident of a Contracting State " means any person who is a resident of that State in accordance with the taxation laws of that State. 2. Where by reason of the provisions of paragraph 1, an individual is a resident of both Contracting State, then his residential status for the purposes of this agreement shall be determined in accordance with the following rules: (a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting State, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (hereinafter referred to as his " centre of vital interests "); (b) if the Contracting State in which he has his centre of vital interest cannot be determined, or if he does not have a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode; (c) if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national; (d) if he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement. 3. Where by reason of the provisions of paragraph 1, a person other than an individual is a resident of both the Contracting States, then it shall be deemed to be a resident of the Contracting State in which its place of effective management is situated. Article 5 PERMANENT ESTABLISHMENT 1. For the purposes of this agreement, the term " permanent establishment " means a fixed place of business in which the business of the enterprise is wholly or partly carried on. 2. The term " permanent establishment " shall include especially: (a) a place of management; (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) premises used as a sales outlet or for receiving or soliciting orders; (g) a mine, quarry or other place of extraction of natural resources; (h) a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or supervisory activity is continuous for a period of more than three months. 3. The term " permanent establishment " shall not be deemed to include: (a) the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprises; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or for 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 activities solely of a preparatory or auxiliary character in the trade or business of the enterprise. 4. A person acting in a Contracting State for or on behalf of an enterprise of the other Contracting State-other than an agent of an independent status to whom paragraph 5 applies-shall be deemed to be a permanent establishment of that enterprise in the first-mentioned State if: (a) he has and habitually exercises in that State, an authority to conclude contracts for or on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise; or (b) he habitually maintains in the first-mentioned Contracting State a stock of goods or merchandise belonging to the enterprise from which he regularly delivers goods or merchandise for or on behalf of the enterprise. 5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carried on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are acting in the ordinary course of their business. However, if the activities of such an agent or carried out wholly or almost wholly for the enterprise (or for the enterprise and other enterprises which are controlled by it or have a controlling interest in it) he shall not be considered to be an agent of " an independent status " for the purpose of this paragraph. 6. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company, a permanent establishment of the other. CHAPTER III TAXATION OF INCOME 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 be defined in accordance with the law and usage of the Contracting State in which the property is situated. The term shall in any case include property accessory to immovable property, live-stock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the rights to work, mineral deposits, oil wells, quarries and other places of extraction of natural resources. Ships and aircraft shall not be regarded as immovable property. 3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other from of immovable property. 4. The provisions of paragraph 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of professional services. Article 7 BUSINESS PROFITS 1. The profits of an enterprise of a Contracting State shall be taxable only in that Contracting State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other Contracting State but only so much of them as is attributable to that permanent establishment. 2. Where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment, the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. 3. In so far as it has been customary in a Contracting State to determine 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 paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles laid down in this article. In any case, where the correct amount of profits attributable to a permanent establishment is incapable of determination or the ascertainment thereof presents exceptional difficulties, the profits attributable to the permanent establishment may be estimated on a reasonable basis. 4. In the determination of the profits of a permanent establishment, there 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 elsewhere. 5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the purpose of export to the enterprise of which it is the permanent establishment. 6. For the purposes of the preceding paragraph, the profits to be attributed to the permanent establishment shall be determined by the 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 with separately in other articles of this agreement, then the provisions of those articles shall not be affected by the provisions of this article. Article 8 AIR TRANSPORT 1. Income derived from the operation of aircraft in international traffic by an enterprise of one of the Contracting States shall not be taxed in the other Contracting State. 2. Paragraph 1 shall likewise apply in respect of participation in pools of any kind by enterprises engaged in air transport. 3. For the purposes of this article: (a) interest on funds connected with the operation of aircraft in international traffic shall be regarded as income from the operation of such aircraft; and (b) the term " operation of aircraft " shall mean business of transportation by air of persons, livestock, goods or mail, carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other enterprises, the incidental lease of aircraft and any other activity directly connected with such transportation. Article 9 SHIPPING 1. Income of an enterprise of one of the Contracting State derived from the other Contracting State from the operation of ships in international traffic may be taxed in that other Contracting State, but the tax chargeable in that other Contracting State on such income shall be reduced by an amount equal to fifty per cent. of such tax. 2. For the purposes of paragraph 1 of this article, income from the operation of ships in international traffic shall include: (a) profits derived from the rental on a full or bareboat basis of ships if such rental profits are incidental to the operation of ships in international traffic; and (b) profits derived from the use, maintenance or rental of containers (including trailers and related equipment for the transport of containers) in connection with the transport of goods or merchandise in international traffic. 3. Paragraph 1 shall not apply to profits arising as a result of coastal traffic. Article 10 ASSOCIATED ENTERPRISES Where: (a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting 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 case conditions are made or imposed between the two enterprise in their commercial or financial relations which differ from those which would be made between independent 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 accordingly. Article 11 DIVIDENDS 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in both the Contracting States. 2. The terms " dividends " as used in this article means income from shares, " jouissance " shares are " jouissance " rights, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the taxation law of the State of which the company making the distribution is a resident. 3. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except in so far as such dividends are paid to a resident of that other State or in so far as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State or subject to the company's undistributed profits to a tax on undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State. Article 12 INTEREST 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in both the Contracting State. 2. Notwithstanding the provisions of paragraph 1, the tax chargeable in a Contracting State on interest arising in that State and paid to a resident of the other Contracting State in respect of loans or debts shall not exceed 15 per cent. of the gross amount of such interest. 3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be exempt from tax in that State if: (a) the payer of the interest is the Government of that Contracting State or a local authority thereof; or (b) the interest is paid to any agency or instrumentality (including a financial institution) which may be agreed upon in this behalf by the two Contracting States. 4. The term " interest " as used in this article means income from Government securities, bonds or debentures, whether or not secured by mortgage and whether or not carrying a right to participate in profits, and debt-claims of every kind as well as all other income assimilated to income from money lent by the taxation law of the State in which the income arises. 5. The provisions of paragraph 1 and 2 shall not apply if the recipient of the interest, being a resident of a Contracting State, carries on business in the other Contracting State, in which the interest arises, through a permanent establishment situated therein, or performs in that other State professional services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such a case, the interest is taxable in that other Contracting State according to its own law. 6. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political or administrative sub-division, a local authority or a resident of that State. Where, however, the persons paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment, then such interest shall be deemed to arise in the Contracting State in which the permanent establishment is situated. 7. Where, owing to a special relationship between the payer and the recipient or between both of them and some other person, the amount of the interest paid, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the recipient in the absence of such relationship, the provisions of this article shall apply only to the last mentioned amount. In that case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this agreement. Article 13 ROYALTIES 1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in both the Contracting States. 2. Royalties shall be deemed to arise in a Contracting State when the payer is that State itself, a political or administrative sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such permanent establishment, then such royalties shall be deemed to arise in the Contracting State in which the permanent establishment is situated. 3. The term " royalties " as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films and films or tapes for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience. 4. Where, owing to a special relationship between the payer and the recipient or between both of them and some other person, the amount of the royalties paid, having regard to use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the recipient in the absence of such relationship, the provisions of this article shall apply only to the last mentioned amount. In that case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this agreement. Article 14 CAPITAL GAINS 1. Subject to the provisions of paragraph 3, gains from the sale, exchange or transfer of a capital asset being immovable property, as defined in paragraph 2 of article 6, or from the sale, exchange or transfer of any movable property, whether tangible or intangible, may be taxed in the Contracting State in which such property is situated immediately before such sale, exchange or transfer. 2. For the purpose of this article, the situs of the shares in a company shall be deemed to be in the Contracting State in which the company is incorporated. 3. Capital gains derived from the sale, exchange or transfer of a capital asset being a ship or aircraft operated by an enterprise of a Contracting State shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated. Article 15 INDEPENDENT PROFESSIONAL SERVICES 1. Income derived by a resident of a Contracting State in respect of professional services or other independent activities of a similar character may be taxed in that State. Such income may also be taxed in the other Contracting State if such services are performed in that other State and if: (a) he is present in that other State for a period or periods aggregating to 90 days in the relevant fiscal year; or (b) he has a fixed base regularly available to him in that other State for the purpose of performing his activities, but only so much of the income as is attributable to that fixed base. 2. The term " professional services " includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants. Article 16 DEPENDENT PERSONAL SERVICES 1. Subject to the provisions of article 17, 18 and 20, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State. 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if: (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the fiscal year concerned, and (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and (c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State. 3. Notwithstanding the preceding provisions of this article, remuneration in respect of an employment exercised abroad a ship or aircraft in international traffic, may be taxed in the Contracting State in which the place of effective management of the enterprise is situated. Article 17 DIRECTORS' FEES Directors' fees and similar payments derived by a resident of a Contracting State in his capacity as a member of the Board of Director of a company which is a resident of the other Contracting State may be taxed in that other Contracting State. Article 18 ARTISTES AND ATHLETES 1. Notwithstanding the provisions of articles 15 and 16, income derived by public entertainers (such as theatre, motion picture, radio or television artistes and musicians) and by athletes, from their personal activities as such may be taxed in the Contracting State in which these activities are exercised unless the visit to that State is wholly or substantially supported, directly or indirectly, by public funds of the Government of the other Contracting State. 2. Notwithstanding anything contained in this agreement, where the services mentioned in paragraph 1 are provided in a Contracting State by an enterprise of the other Contracting State, the profits derived from providing these services by such enterprise may be taxed in the first-mentioned State unless the enterprise is wholly or substantially supported, directly or indirectly, by public funds of the Government of the other Contracting State in connection with the provision of such services. 3. For the purpose of this article, the term " public funds of the Government " shall include public funds created by the Government or a political or administrative sub-division or a local authority thereof. Article 19 PENSIONS Subject to the provisions of paragraph 2 of article 20, pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment may be taxed in both the Contracting States. Article 20 GOVERNMENT SERVICE 1. (a) Remuneration, other than a pension, paid by a Contracting State or a political or an administrative sub-division or a local authority thereof to any individual in respect of services rendered to that State or sub-division or local authority thereof shall be taxable only in that State. (b) However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the recipient is a resident of that other Contracting State who is a national of that State. 2. Any pension paid by, or out of funds created by, a Contracting State or a political or an administrative sub-division or a local authority thereof to any individual in respect of services rendered to that State or sub-division or local authority thereof shall be taxable only in that State. 3. The provisions of articles 16, 17 and 19 shall apply to remuneration and pensions in respect of services rendered in connection with any business carried on by a Contracting State or a political or an administrative sub-division or a local authority thereof. Article 21 PROFESSORS, TEACHERS AND RESEARCHERS 1. A professor or teacher who makes a temporary visit to a Contracting State for a period not exceeding two years for the purpose of teaching or conducting research at a university, college, school or other educational institution, owned by the Government or non-profit organisations, and who is, or immediately before such visit was, a resident of the other Contracting State shall be exempt from tax in the first-mentioned Contracting State in respect of remuneration for such teaching or research. 2. This article shall not apply to income from research if such research is undertaken primarily for the private benefit of a specific person or persons. Article 22 STUDENTS AND TRAINEES 1. An individual who is a resident of a Contracting State and visits the other Contracting State solely: (a) as a student at a university, college or other recognised educational institution of that other Contracting State, or (b) as a business apprentice, or (c) for the purpose of study, research or training, as a recipient of a grant, allowance or award, from a governmental, religious, charitable, scientific or educational organisation, shall be exempt from tax in that other Contracting State: (i) on his remuneration and all remittances from abroad for the purposes of maintenance, education or training; (ii) on the grant, allowance or award; and (iii) in respect of the amount, representing remuneration for an employment in that other Contracting State, to the extent such remuneration does not exceed 2,200,000 Italian Lires or its equivalent in Indian Rupees, as the case may be, in any year. 2. An individual who is a resident of a Contracting State and who visits the other Contracting State for a period not exceeding one year as an employee of, or under contract with, an enterprise of the first-mentioned Contracting State or an organisation referred to in paragraph 1 for the primary purpose of acquiring technical, professional or business experience from a person other than such enterprise or organisation shall be exempt from tax in that other Contracting State in respect of remuneration for an employment in that other Contracting State for such period to the extent such remuneration does not exceed 2,500,000 Italian Lires or its equivalent in Indian Rupees, as the case may be, in any year. Article 23 OTHER INCOME Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing articles of this agreement may be taxed in both the Contracting States. CHAPTER IV Article 24 METHOD FOR ELIMINATION OF DOUBLE TAXATION 1. It is agreed that double taxation shall be avoided in accordance with the following paragraphs of this article: 2. (a) The amount of Italian tax payable, under the laws of Italy and in accordance with the provisions of this agreement, whether directly or by deduction, by a resident of India, in respect of income from sources within Italy which has been subjected to tax both in India and Italy, shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax. (b) For the purposes of credit referred to, in sub-paragraph (a) above, where the resident of India is a company by which 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. 3. (a) If a resident of Italy owns items of income which are taxable in the Republic of India, Italy, in determining its income taxes specified in article 2 of this agreement, may include in the basis upon which such taxes are imposed the said items of income, unless specific provisions of this agreement otherwise provide. In such a case, Italy shall deduct from the taxes so calculated the Indian tax on income, but in an amount not exceeding that proportion of the aforesaid Italian tax which such items of income bear to the entire income. On the contrary no deduction will be granted if the item of income is subjected in Italy a final withholding tax by request of the recipient of the said income in accordance with the Italian law. (b) For the purpose of paragraph 2 and 3 of this article, where tax on business profits, dividends, interest or royalties arising in a Contracting State is exempted or reduced in accordance with the taxation laws of that State, such tax which has been exempted or reduced shall be deemed to have been paid. 4. Income which in accordance with the provisions of this agreement is not to be subjected to tax in a Contracting State may be taken into account for calculating the rate of tax to be imposed in that Contracting State on other income. CHAPTER V SPECIAL PROVISIONS Article 25 NON-DISCRIMINATION 1. The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances and under the same conditions are or may be subjected. 2. The term " nationals of a Contracting State " means: (a) all individuals possessing the nationality of that Contracting State; (b) all legal persons, partnership and associations deriving their status as such from the law in force in that Contracting State. 3. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities in the same circumstances or under the same conditions. 4. Nothing contained in this article shall be construed as obliging a Contracting State to grant to persons not resident in that State any personal allowances, reliefs and reductions for taxation purposes which are by law available only to persons who are so resident. 5. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of that first-mentioned State are or may be subjected in the same circumstances and under the same conditions. 6. In this article, the term " taxation " means taxes which are the subject of this agreement. Article 26 MUTUAL AGREEMENT PROCEDURE 1. Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with this agreement, he may, notwithstanding the remedies provided by the national laws of these States, present his case to the competent authority of the Contracting State of which he is a resident. The claim must be lodged within two years from the date of the assessment or of the withholding of tax at the source whichever is later. 2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at an appropriate solution to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the agreement. 3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the agreement. They may also consult together for the elimination of double taxation in cases not provided for in the agreement. 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 the preceding paragraphs. When it seems advisable in order to reach agreement to have an oral exchange of opinions, such exchange may take place through a Commission consisting of representatives of the competent authorities of the Contracting States. Article 27 EXCHANGE OF INFORMATION 1. The competent authorities of the Contracting States shall exchange such information or document as is necessary for carrying out the provisions of this agreement or for the prevention or detection of evasion or avoidance of the taxes which are the subject of this agreement. Any information or document so exchanged shall be treated as secret but may be disclosed to persons (including a court or administrative body) concerned with the assessment, collections, enforcement, investigation or prosecution in respect of the taxes which are the subject of this agreement, or any frauds connected therewith, or to persons with respect to whom the information or document relates. 2. The exchange of information or documents shall be either on a routine basis or on request with reference to particular cases of both. The competent authorities of the Contracting States shall agree from time to time on the list of the information or documents which shall be furnished on a routine basis. 3. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation: (a) to carry out administrative measures at variance with the laws or administrative practice of that or of the other Contracting State; (b) to supply information or documents which are not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; (c) to supply information or documents which would disclose any trade, business, industrial, commercial or professional secret or trade process or information, the disclosure of which would be contrary to public policy. Article 28 DIPLOMATIC AND CONSULAR ACTIVITIES Nothing in this agreement shall affect the fiscal privileges of diplomatic or consular officials under the general rules of international law or under the provisions of special agreements. CHAPTER VI FINAL PROVISIONS Article 29 ENTRY INTO FORCE 1. This Agreement shall be ratified and the instruments of ratification shall be exchanged at New Delhi as soon as possible. 2. This Agreement shall enter into force on the date of the exchange of the instruments of ratification and its provisions shall have effect: (a) in India, in respect of income assessable for any taxable period (" previous year ") commencing on or after the 1st day of April, 1977. (b) in Italy, in respect of income assessable for any taxable period commencing on or after the 1st January, 1977. 3. The existing Agreement for the avoidance of double taxation of income of enterprise operating aircraft dated the 3rd February, 1970, shall cease to have effect upon the entry into force of this agreement. Article 30 TERMINATION This Agreement shall remain in force indefinitely but either of the Contracting States may on or before 30th June 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 agreement shall cease to have effect: (a) in India, in respect of income assessable for any taxable period (" previous year ") commencing on or after the 1st day of April in the calendar year next following that in which such notice is given. (b) in Italy, in respect of income assessable for any taxable period commencing on or after the 1st day of January, in the calendar year next following that in which such notice is given. In Witness thereof, the undersigned, duly authorised thereto, have signed the present agreement. Done in duplicate at Rome, the 12th day of January, 1981, in the English, Hindi and Italian languages, all texts being equally authoritative except in the case of doubt when the English text shall prevail. FOR THE GOVT. OF INDIA FOR THE GOVT. OF ITALY ( Sd. ) J. C. Ajmani (Sd.) Maurizio Bucci PROTOCOL To the agreement between the Republic of India and the Republic of Italy for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. At the signing of the agreement concluded today, between the Republic of India and the Republic of Italy for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, the undersigned have agreed upon the following additional provisions which shall form an integral part of the said agreement: It is understood: (a) that with reference to article 5, paragraph 2, -a warehouse in relation to a person providing storage facilities normally for others, and -an installation or structure used for the exploration of natural resources, shall be deemed as a permanent establishment; (b) that, with reference to article 7, paragraph 4, the expression " expenses which are incurred for the purposes of the business of the permanent establishment " means: -the expenses directly connected with the activity of the permanent establishment, and -royalties, commissions and interest to the extent of the actual amount of expenses reimbursed. And in both cases as admissible in accordance with the provisions of the taxation laws of the Contracting State in which the permanent establishment is situated; (c) that, with reference to article 12, paragraph 2, the expression " loans or debts " means, in the case of India, loans or debts approved in this behalf by the Government of India; (d) that, with reference to article 23, the expression " other income " includes fees for technical services; (e) that, with reference to article 24, paragraph 4, " tax exempted or reduced " means in the case of India, any amount which would have been payable as Indian tax but for a deduction allowed in computing the taxable income or an exemption or reduction of tax granted for that year under:- (i) sections 10(4), 10(4A), 10(15)(iv), 32A, 33A, 80HH, 80J and 80K of the Income-tax Act, 1961, (43 of 1961), so far as they were in force on and have been modified since the date of signature of this agreement or have been modified only in minor respects so as not to affect their general character; (ii) any other provision which may subsequently be made granting an exemption or reduction from tax which is agreed by the competent authorities of the Contracting States 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. (f) that, with reference to article 26, paragraph 1, the expression " notwithstanding the remedies provided by the national laws " means that the mutual agreement procedure is not alternative to the national ordinary proceedings which shall be, in any case, preventively initiated, when the claim is related with an assessment of taxes not in accordance with this agreement; In witness thereof, the undersigned, duly authorised thereto, have signed the present Protocol. Done in duplicate at Rome, the 12th day of January, 1981, in the English, Hindi and Italian languages, all taxes being equally authoritative except in the case of doubt when the English text shall prevail. FOR THE GOVT. OF INDIA FOR THE GOVT. OF ITALY ( Sd. ) J. C. Ajmani (Sd.) Maurizio Bucci N. SUBRAMANIAN, ADDITIONAL SECRETARY D. O. No. 501/10/73-FTD, dated 29th February, 1984 . Excellency, I have the honour to refer to the Agreement between the Government of India and the Government of Italy for the Avoidance of Double Taxation and Fiscal Evasion with respect to taxes on income signed in Rome on the 12th January, 1981, and the Protocol to the Agreement signed in Rome on the 12th January, 1981, and to state that in para (e) of the Protocol after the word " payable " appearing in the third line, the words " in respect of taxable year " have been added before the words " as Indian tax ". The English text will now read as " payable in respect of taxable year as Indian tax ". The corresponding Hindi text reads: " Kishi kar yokiya varsh kay sampath may barathiya karka roop may theya " The corresponding Italian text will read: " corrisposte in relazione ad un anno imponibile come imposta Indiana. " I have the honour to propose that the letter and your Excellency's reply concurring therein will constitute an integral part of the Protocol to the Agreement mentioned above. Yours sincerely, ( Sd. ) N. Subramanian H. E. Ambassador Renato Ruggiero, Director General for Economic Affairs, Ministry of Foreign Affairs, Government of Italy , C/o. Embassy of Italy , New Delhi . New Delhi , the 29th February, 1984 . Excellency, I have the honour to refer to your Excellency's letter dated 29th February, 1984, which reads as follows: " I have the honour to refer to the Agreement between the Government of India and the Government of Italy for the Avoidance of Double Taxation and Fiscal Evasion with respect to Taxes on Income signed in Rome on the 12th January, 1981, and the Protocol to the agreement signed in Rome on the 12th January, 1981, and to state that in para (e) of the Protocol after the word " payable " appearing in the third line, the words " in respect of taxable year ' have been added before the words ' as Indian tax '. The English text will now read as ' payable in respect of taxable year as Indian tax '. The corresponding Italian text will read: ' corrisposte in relazione ad un anno imponibile come imposta Indiana. ' The corresponding Hindi text reads: " Kishi kar yokiya varsh kay sampath may barathiya karka roop may theya " I have the honour to propose that the letter and your Excellency's reply concurring therein will constitute an integral part of the Protocol to the agreement mentioned above. " I have the honour to inform you that the Government of Italy agrees on the contents of the letter. Yours sincerely, ( Sd. ) Amb. Renato Ruggiero Mr. N. Subramanian, Additional Secretary, Deptt. of Revenue, Ministry of Finance, Govt. of India .