Agreement between the Government of India and the Government of Canada for the avoidance of Double Taxation and the prevention of fiscal evasion with respect to taxes on income - 1108(E) - Income Tax

Agreement between the Government of India and the Government of Canada for the avoidance of Double Taxation and the prevention of fiscal evasion with respect to taxes on income Notification Number: 1108(E) Dated 25-09-1986 File Number: 145/25/70-FTD Whereas the annexed Agreement between the Government of India and the Government of Canada 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 at New Delhi on 16-9-1986 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. AGREEMENT BETWEEN THE GOVERNMENT OF INDIA AND THE GOVERNMENT OF CANADA 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 Canada, 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. This Agreement shall apply to taxes on income imposed by each Contracting State, irrespective of the manner in which they are levied. 2. There shall be regarded as taxes on income all taxes imposed on total income, or on elements of income, including taxes on gains from the alienation of movable or immovable property. 3. The existing taxes to which the Agreement shall apply are: (a) in the case of Canada: the income-taxes imposed under the Income-tax Act of Canada (hereinafter referred to as " Canadian tax "); (b) in the case of India: (i) the income-tax including any surcharge thereon imposed under the Income-tax Act, 1961 (43 of 1961); (ii) the surtax imposed under the Companies (Profits) Surtax Act, 1964 (7 of 1964); (hereinafter referred to as " Indian tax "). 4. The Agreement shall apply also to any identical or substantially similar taxes on income which are imposed by either Contracting State after the date of signature of this agreement in addition to, or in place of, the existing taxes. 5. At the end of each year, the Contracting States shall notify each other of any significant 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. In this Agreement, unless the context otherwise requires:- (a) (i) the term " Canada " used in a geographical sense, means the territory of Canada, including any area beyond the territorial seas of Canada which, under the laws of Canada, is an area within which Canada may exercise rights with respect to the sea-bed and sub-soil and their natural resources; (ii) the term " India " means the territory of India and includes the territorial sea and airspace above it as well as any other maritime zone referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (Act No. 80 of 1976), in which India has certain rights and to the extent that these rights can be exercised therein as if such maritime zone is a part of the territory of India; (b) the terms " a Contracting State " and " the other Contracting State " mean, as the context requires, Canada or India; (c) the term " person " shall have the meaning assigned to it in the taxation laws in force in the respective Contracting State, in the case of Canada, it includes a partnership; (d) the term " company " means any body corporate or any other entity which is treated as a company for tax purposes; in French, the term " societe " also means a " corporation " within the meaning of Canadian law; (e) the terms " 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; (f) the term " competent authority " means: (i) in the case of Canada, the Minister of National Revenue or his authorised representative; (ii) in the case of India, the Central Government in the Ministry of Finance (Department of Revenue); (g) the term " tax " means Canadian tax or Indian tax, as the context requires; (h) the term " national " means:- (i) any individual possessing the nationality of a Contracting State; (ii) any legal person, partnership and association deriving its status as such from the law in force in a Contracting State; (i) the term " international traffic " means any voyage of a ship or aircraft operated by a resident of a Contracting State except where the principal purpose of the voyage is to transport passengers or goods between places in the other Contracting State. 2. As regards the application of the Agreement by a Contracting State, any term not defined in this Agreement shall, unless the context otherwise requires, have the meaning which it has under the laws of that Contracting State relating to the taxes which are the subject of the 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 States, then his residential status 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 States, 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 interests cannot be determined, or if he has not 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 Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to settle the question. 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) a warehouse; (g) a mine, quarry or other place of extraction of natural resources; (h) a building site or construction or assembly project or supervisory activities in connection therewith, where such site, project or supervisory activity continues for a period of more than three months; (i) premises used as a sales outlet or for receiving or soliciting orders. 3. The term " permanent establishment " shall be deemed not to include:- (a) the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise; (b) the maintenance of 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, for scientific research, or for similar activities which have a preparatory or auxiliary character, for 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 exercised 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 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 carries on business in that State through a broker, general commission agent or any other agent of an independent status, or merely because it maintains in that other State a stock of goods with an agent of an independent status from which deliveries are made by that agent, where such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he would not be considered an agent of an independent status within the meaning of this paragraph. 6. Notwithstanding the provisions of this Article or Article 15, a person who is a resident of a Contracting State and carries on activities in connection with the exploration or exploitation of the sea-bed and sub-soil and their natural resources situated in the other Contracting State shall be deemed to be carrying on in respect of those activities, a business in that other State through a permanent establishment or fixed base situated therein. For the purposes of this paragraph, activities carried on by an enterprise associated with another enterprise shall be regarded as carried on by the enterprise with which it is associated if the activities in question are substantially the same as those carried on by the last-mentioned enterprise. 7. The provisions of paragraph 6 shall not apply where the activities described therein are carried on for a period not exceeding 30 days in the aggregate in any 12-month period. 8. 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 including income from agriculture or forestry may be taxed in the Contracting State in which such property is situated. 2. For the purpose of this Agreement, the term " immovable property " shall be defined in accordance with the law and usage 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 respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other 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 form of immovable property. 4. The provisions of paragraphs 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 State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on or has carried 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:- (a) that permanent establishment, and (b) sales of goods and merchandise of the same or similar kind as those sold, or from other business activities of the same or similar kind as those effected, through that permanent establishment. 2. Subject to the provisions of paragraph 4, 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. 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 provided that the result shall be in accordance with the principles laid down in this Article. 3. Subject to the provisions of paragraph 4, 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. 4. In the determination of the profits of a permanent establishment, there shall be allowed those deductible expenses which are incurred for the purposes of the business of the permanent establishment including executive and general administrative expenses, whether incurred in the State in which the permanent establishment is situated or elsewhere as are in accordance with the provisions of and subject to the limitations of the taxation laws of that State. 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 enterprise. 6. For the purposes of the preceding paragraphs, 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. Profits derived from the operation of aircraft in international traffic by an enterprise of a Contracting State shall be taxable only in that Contracting State. 2. Paragraph 1 shall likewise apply in respect of participation in a pool, a joint business or in an international operating agency. 3. For the purposes of paragraph 1, interest on funds connected with the operation of aircraft in international traffic shall be regarded as profits from the operation of such aircraft, and the provisions of Article 12 shall not apply in relation to such interest. Article 9 SHIPPING 1. Profits derived from the operation of ships in international traffic by an enterprise of a Contracting State shall be taxable only in that State. 2. To the extent that they are not covered by paragraph 1, profits from the operation of ships used to transport passengers or goods between places in a Contracting State may be taxed in that State. 3. Paragraphs 1 and 2 shall likewise apply in respect of participation in a pool, a joint business or in an international operating agency. 4. The provisions of this Article shall not apply to a drilling or any vessel, the principal function of which is the performance of activities other than the transportation of goods or passengers. 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 enterprises 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 reasons 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 that other State. 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law of that State, but the tax so charged shall not exceed: (a) 15 per cent. of the gross amount of the dividends if the recipient is a company which owns at least 10 per cent. of the shares of the company paying the dividends; and (b) 25 per cent. of the gross amount of the dividends in all other cases. 3. The provisions of paragraph 2(a) would apply in respect of dividends arising out of investments made after the date of signature of this Agreement. 4. The provisions of paragraphs 1 and 2 shall not affect the taxation of the company on the profits out of which the dividends are paid. 5. The term " dividends " as used in this Article means income from shares or other rights, not being debt-claims, participating in profits, as well as income assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident. 6. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State professional services from a fixed base situated therein, and the holding by virtue of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 15, as the case may be, shall apply. 7. 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 the company's 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 that other State. 2. Such interest may also be taxed in the Contracting State in which it arises and according to the law of that State, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 15 per cent. of the gross amount thereof. 3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State and paid to a resident of the other Contracting State shall be exempt from tax in the first-mentioned State if: (a) the payer of the interest is the Government of that Contracting State or of a political sub-division or local authority thereof; or (b) the interest is paid to any agency or instrumentality (including a financial institution) which may be agreed upon in letters exchanged between the competent authorities of the two Contracting States. 4. The term " interest " as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's profits and, in particular, income from Government Securities and income from bonds or debentures, including premiums and prizes attaching to such securities bonds or debentures, as well as income assimilated to income from money lent by the taxation law of the State in which the income arises. However, the term " interest " does not include income dealt with in Article 11. 5. The provisions of paragraph 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 provisions of Article 7 or Article 15, as the case may be, shall apply. 6. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and that interest is borne by that permanent establishment or fixed base, then such interest shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base 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 AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that State, provided that 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 signature of this Agreement, the tax so charged shall not exceed 30 per cent. of the gross amount of the royalties or fees for technical services. 3. The term " royalties " as used in this Article means payment of any kind including rentals received as a consideration for the use of, or the right to use, (a) any patent, trade mark, design or model, plan, secret formula or process; (b) industrial, commercial or scientific equipment or information concerning industrial, commercial or scientific experience: (c) any copyright of literary, artistic or scientific work, cinematographic films and films or tapes for radio or television broadcasting; but does not include royalties or other amounts paid in respect of the operation of mines or quarries or of the extraction or removal of natural resources. 4. The term " fees for technical services " as used in this Article means payments of kind to any person, other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article 15, in consideration for services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel. 5. The provisions of paragraph 2 shall not apply if the recipient of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or the fees for technical services arise, through a permanent establishment situated therein, or performs in that other State professional services from a fixed base situated therein, and the right or property in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 15, as the case may be, shall apply. 6. Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties or the fees for technical services, whether he is a resident of Contracting State or not, has in a Contracting State a permanent establishment or fixed base in connection with which the obligation to pay the royalties or fees for technical services was incurred, and those royalties or fees for technical services are borne by that permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. 7. Where, owing to a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical services paid, having regard to the 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. Gains from the alienation of ships or aircraft operated in international traffic by an enterprise of a Contracting State and movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State. 2. Gains from the alienation of any property other than those referred to in paragraph 1 may be taxed in both Contracting States. Article 15 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 shall be taxable only in that State. However, in the following circumstances, such income may be taxed in the other Contracting State, that is to say: (a) if he has or had a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other Contracting State; or (b) if his stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 183 days in the fiscal year; or (c) if the remuneration for his services in the other Contracting State is either derived from residents of that Contracting State or is borne by a permanent establishment which a person not resident in that Contracting State has in that State and such remuneration exceeds two thousand five hundred Canadian dollars ($ 2,500) or its equivalent in Indian currency in the fiscal year. 2. The term " professional services " includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants. Article 16 DEPENDENT PERSONAL SERVICES 1. Subject to the provisions of Articles 17, 19 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. 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 Contracting State for a period or periods not exceeding in the aggregate 183 days in the fiscal year concerned; (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 operated in international traffic by an enterprise of a Contracting State, shall be taxable only in that State. Article 17 DIRECTORS' FEES Directors' fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors or a similar organ of a company which is a resident of the other Contracting State, may be taxed in that other State. Article 18 ARTISTES AND ATHLETES 1. Notwithstanding the provisions of Articles 7, 15 and 16, income derived by 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. 2. Where income in respect of personal activities as such exercised in a Contracting State by an entertainer or athlete accrues not to that entertainer or athlete himself but to another person which provides the activities in that State, that income may, notwithstanding the provisions of Articles 7, 15 and 16, be taxed in that Contracting State. 3. The provisions of paragraphs 1 and 2 shall not apply if the visit to a Contracting State of the entertainer or the athlete is directly or indirectly supported, wholly or substantially, from the public funds of the other Contracting State, including any political sub-division, local authority or statutory body of that other State. Article 19 PENSIONS 1. Pensions arising in a Contracting State shall be taxable only in that State. 2. Pensions shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Article 20 GOVERNMENT SERVICE 1. Remuneration, other than a pension, paid by, or out of funds created by, a Contracting State or a political sub-division or a local authority thereof to an individual in respect of services rendered to that State or sub-division or local authority thereof in the discharge of functions of a governmental nature may be taxed in that State. 2. The provisions of Articles 16 and 17 shall apply to remuneration in respect of services rendered in connection with any trade or business carried on by one of the Contracting States or a political sub-division or a local authority thereof. Article 21 STUDENTS AND APPRENTICES 1. Payments which a student, apprentice or business trainee who is, or was immediately before visiting one of the Contracting States, a resident of the other Contracting State and who is present in the first-mentioned Contracting State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in that first-mentioned State, provided that such payments are made to him from sources outside that State. 2. Students, apprentices or business trainees who are 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 students, apprentices or business trainees who are nationals of that other State in the same circumstances, are or may be subjected. Article 22 OTHER INCOME Items of income of a resident of a Contracting State, arising in the other Contracting State, not dealt with in the foregoing Articles of this Agreement, may be taxed in both Contracting States. CHAPTER IV METHODS FOR PREVENTION OF DOUBLE TAXATION Article 23 ELIMINATION OF DOUBLE TAXATION 1. The laws in force in either of the Contracting States will continue to govern the taxation of income in the respective Contracting States except where provisions to the contrary are made in this Agreement. 2. In the case of Canada, double taxation shall be avoided as follows: (a) Subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions-which shall not affect the general principle hereof-and unless a greater deduction or relief is provided under the laws of Canada, tax payable in India on profits, income or gains arising in India shall be deducted from any Canadian tax payable in respect of such profits, income or gains; (b) Subject to the existing provisions of the law of Canada regarding the determination of the exempt surplus of a foreign affiliate and to any subsequent modification of those provisions-which shall not affect the general principle hereof-for the purpose of computing Canadian tax, a company resident in Canada shall be allowed to deduct in computing its taxable income any dividend received by it out of the exempt surplus of a foreign affiliate resident in India. 3. In the case of India, double taxation shall be avoided as follows: (a) The amount of Canadian tax payable under the laws of Canada 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 Canada which has been subjected to tax both in India and Canada 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 the 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: Provided that income which in accordance with the provisions of this Agreement is not to be subjected to tax may be taken into account in calculating the rate of tax to be imposed. 4. For the purposes of paragraph 2(a), the term " tax payable in India " shall, with respect to a resident of Canada, other than an individual, be deemed to include 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: (a) sections 10(15)(iv), 32A, 80J and 80HH of the Income-tax Act, 1961 (43 of 1961), so far as they were in force on and have not 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; or (b) 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: Provided that relief from Canadian tax shall not be given by virtue of this paragraph in respect of income from any source if the income relates to a period starting more than ten fiscal years after the exemption from, or reduction of, Indian tax is first granted to the resident of Canada, in respect of that source. 5. For the purposes of this Article, profits, income or gains of a resident of a Contracting State which are taxed in the other Contracting State in accordance with this Agreement shall be deemed to arise from sources in that other State. CHAPTER V SPECIAL PROVISIONS Article 24 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 are or may be subjected. 2. 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. 3. Nothing in this Article shall be construed as obliging a Contracting State to grant to residents of the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents. 4. Nothing in this Article shall be construed as preventing: (a) Canada from imposing on the earnings of a company attributable to a permanent establishment in Canada, its Additional Tax on Corporations other than Canadian Corporations; (b) India from taxing at the rate determined by Indian law the income attributable to a permanent establishment maintained in India by a company which is a resident of Canada. 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 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 the first-mentioned State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of a third State, are or may be subjected. 6. In this Article, the term " taxation " means taxes which are the subject of this Agreement. Article 25 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 the provisions of this Agreement, he may, notwithstanding the remedies provided by the national laws of those States, present his case in writing to the competent authority of the Contracting State of which he is a resident. The case must be presented within two years from the first notification of the action which gives rise to taxation not in accordance with the Agreement. 2. The competent authority referred to in paragraph 1 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. A Contracting State shall not, after the expiry of the time-limits provided in its national laws and in any case, after five years from the end of the fiscal year in which the income concerned has accrued, increase the tax base of a resident of either of the Contracting States by including therein items of income which have also been charged to tax in the other Contracting State. This paragraph shall not apply in the case of fraud, wilful default or neglect. 4. 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. 5. The competent authorities of the Contracting States may consult together for the elimination of double taxation in cases not provided for in the Agreement. Article 26 EXCHANGE OF INFORMATION 1. The competent authorities of the Contracting States shall exchange such information as is necessary for the carrying out of this Agreement, or of the domestic laws of the Contracting States (including the provisions thereof dealing with the prevention of fiscal evasion) concerning taxes covered by this agreement insofar as the taxation thereunder is not contrary to this agreement. The exchange of information is not restricted by Article 1. Any information received by a contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement in respect of, or the determination of appeals in relation to, the taxes which are the subject of the Agreement. Such persons or authorities shall use the information only for such purposes. These persons or authorities may disclose the information in public court proceedings or in judicial decisions. 2. In no case shall, the provisions of paragraph 1, be construed so as to impose on one of the Contracting States the obligation: (a) to carry out administrative measures at variance with the laws or the 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 the administration of that or of the other Contracting State; (c) to supply information 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 (order public). Article 27 DIPLOMATIC AND CONSULAR OFFICIAL S Nothing in this Agreement shall affect the fiscal privileges of members of diplomatic or consular missions under the general rules of international law or under the provisions of special agreements. Article 28 MISCELLANEOUS RULES 1. The provisions of this Agreement shall not be construed to restrict in any manner any exclusion, exemption, deduction, credit, or other allowance now or hereafter accorded by the laws of one of the Contracting States in the determination of the tax imposed by that Contracting State. 2. The competent authorities of the Contracting States may communicate with each other directly for the purpose of applying this Agreement. CHAPTER VI FINAL PROVISIONS Article 29 ENTRY INTO FORCE 1. This Agreement shall be ratified and the instruments of ratification shall be exchanged at...Ottawa 2. The Agreement shall enter into force upon the exchange of instruments of ratification and its provisions shall have effect: (a) in Canada: (i) in respect of tax withheld at the source on amounts paid or credited to non-residents on or after the first day of January in the calendar year next following that in which the exchange of instruments of ratification takes place; and (ii) in respect of other Canadian tax for taxation years beginning on or after the first day of January in the calendar year next following that in which the exchange of instruments of ratification takes place; (b) in India, in respect of income assessable for any assessment year commencing on or after the first day of April in the calendar year next following that in which the exchange of instruments of ratification takes place. 3. Notwithstanding the provisions of paragraph 2, the provisions of Article 9 shall have effect for taxation years beginning on or after the day which is six years prior to the day of the exchange of instruments of ratification. Article 30 TERMINATION This Agreement shall continue in effect indefinitely but either Contracting State may, on or before June, 30, in any calendar year after the expiry of five years from the year in which it enters into force, give notice of termination to the other Contracting State and in such event the Agreement shall cease to have effect: (a) in Canada: (i) in respect of tax withheld at the source on amounts paid or credited to non-residents on or after the first day of January in the calendar year next following that in which the notice is given; and (ii) in respect of other Canadian tax for taxation years beginning on or after the first day of January in the calendar year next following that in which the notice is given; (b) in India, in respect of income assessable for any assessment year commencing on or after the first day of April in the calendar year next following that in which the notice is given. IN WITNESS WHEREOF the undersigned, duly authorized to that effect, have signed this Agreement. DONE in duplicate at NEW DELHI........., this 30th day of October One thousand nine hundred and eighty-five in the Hindi, English and French languages, each version being equally authentic. FOR THE GOVERNMENT OF INDIA : (M. S. Narayanan) ADDITIONAL SECRETARY. FOR THE GOVERNMENT OF CANADA : (William T. Warden) HIGH COMMISSIONER. PROTOCOL At the signing of the Agreement between Canada and India 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 provisions which shall be an integral part of the Agreement: 1. With reference to paragraph 1 of Article 6, it is understood that it also applies to profits derived from the alienation of immovable property. 2. With reference to paragraph 4 of Article 7, it is understood that no deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office 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, know-how or other rights, or by way of commission or other charges, for specific services performed or for management, by way of interest on money lent to the permanent establishment. Likewise, no account shall be taken, in the determination of the profits of a permanent establishment for amounts charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head office 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, know-how or other rights, or by way of commission or other charges for specific services performed or for management, by way of interest on money lent to the head office of the enterprise or any of its other offices. 3. With reference to paragraph 2(a) of Article 11, it is understood that, in the case of India, the limitation provided therein shall apply only as long as for the purpose of computing Canadian tax, a company which is a resident of Canada is allowed to deduct in computing its taxable income any dividend received by it out of the exempt surplus of a foreign affiliate resident in India. 4. 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. 5. With reference to Article 14, it is understood that the term " alienation " includes a " transfer " within the meaning of Indian taxation laws. 6. With reference to Article 26, it is understood that the term " information " includes documents. 7. With reference to the said Agreement, it is understood and agreed that nothing therein stated shall be construed as preventing Canada from imposing a tax on amounts included in the income of a resident of Canada according to section 91 (Foreign Accrual Property Income) of the Canadian Income-tax Act. IN WITNESS WHEREOF the undersigned, duly authorised to that effect, have signed this Protocol. DONE in duplicate at NEW DELHI........., this 30th day of October One thousand nine hundred and eighty-five in the Hindi, English and French languages, each version being equally authentic. FOR THE GOVERNMENT OF INDIA : (M. S. Narayanan) ADDITIONAL SECRETARY. FOR THE GOVERNMENT OF CANADA : (William T. Warden) HIGH COMMISSIONER.