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TMI BlogAgreement between the Government of the Republic of India and His Majesty's Government of Nepal for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on incomeX X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies (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 THE REPUBLIC OF INDIA AND HIS MAJESTY'S GOVERNMENT OF NEPAL FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME. The Government of the Republic of India and His Majesty's Government of Nepal. 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: (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 "); (b) in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate. 2. As regards the application of the Agreement by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the law of that State concerning the taxes to which the Agreement applies. Article 4 RESIDENT 1. For the purposes of this Agreement, the term " resident of a Contracting State " means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. 2. Where, by reason of the provisions of paragraph 1, an individual is a resident of both Contracting States, then his status shall be determined as follows: (a) he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State in which his economic activities are concentrated; (b) if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode; (c) if he has an habitual abode in both States or in neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of activities which that person undertakes for the enterprise, unless the activities of such person are limited to the purchase of goods or merchandise for 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 other State through a broker, a general commission agent or any other agent of an independent status provided that 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 will not be considered an agent of an independent status within the meaning 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 Contracting State ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ablishment. 3. (a) In the determination of the profits of a permanent establishment, there shall be allowed as deductions, expenses of the enterprise which are incurred for the purpose of the permanent establishment, including only those executive and general administrative expenses incurred, whether in the State in which the permanent establishment is situated or elsewhere which are allowed under the provisions of the domestic law of the Contracting State in which the permanent establishment is situated. (b) However, no such 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 or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on monies lent to the permanent establishment. Likewise, no account shall be taken in the determination of the profits of a permanent establishment of amounts charged (otherwise than towards reimburs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly. Article 10 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be taxed in that other State. 2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws 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 of the interest. Provided, however, that where the interest is paid to a bank carrying on bona fide banking business, which is a resident of the other Contracting State and is the beneficial owner of the interest, the tax charged in the Contracting State in which the interest arises shall not exceed 10 per cent. of the gross amount of interest: 3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be exempt from tax in that State provided it is derived and beneficially owned by: (i) the Government, a political sub-division or a local authority of the other Contracting State; or (ii) the Central Bank of the other Contracting State. 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 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but if the recipient is the beneficial owner of the royalties, the tax so charged shall not exceed 15 per cent. of the gross amount of the royalties. 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 or films or tapes used for the 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. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants. Article 14 DEPENDENT PERSONAL SERVICES 1. Subject to the provisions of articles 15, 16, 17, 18, 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. 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 relevant " previous year " or " year of income ", as the case may be; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F GOVERNMENT SERVICE 1. (a) Remuneration, other than a pension, paid 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 authority 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 other State and the individual is a resident of that State who: (i) is a national of that State, or (ii) did not become a resident of that State solely for the purpose of rendering the services. 2. (a) Any 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 authority shall be taxable only in that State. (b) However, such pension shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that other State. 3. The provisions of articles 14, 15 and 16 shall apply to remuneration and pensions in respect of services rendered in connection with a business carried on by a Contracting Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her State on any remuneration for such teaching or research for a period not exceeding two years from the date of his arrival in that other State. 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. 3. For the purposes of this article and article 19, an individual shall be deemed to be a resident of a Contracting State if he is resident in that Contracting State in the " previous year " or the " year of income ", as the case may be, in which he visits the other Contracting State or in the immediately preceding " previous year " or the " year of income ". 4. For the purposes of paragraph 1, " approved institution " means an institution which has been approved in this regard by the competent authority of the concerned Contracting State. Article 21 OTHER INCOME 1. Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State, wherever arising, which are not expressly dealt with in the foregoing articles of this Agreement, shall be taxable only in that Contracting State. 2. The provisions of paragraph 1 shall not apply to income, other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of this Agreement whether directly or by deduction, on income from sources within Nepal shall be allowed as a credit against any Indian tax computed by reference to the same items of income by reference to which Nepal tax is computed: Provided that such credit shall not exceed Indian tax (as computed before allowing any such credit), which is appropriate to the income derived from sources within Nepal, so however, that where such resident is a company by which surtax is payable in India, the credit aforesaid shall be allowed in the first instance against income tax payable by the company in India, and as to the balance, if any, against surtax payable by it in India. 5. For the purpose of paragraph (4) of this article, the term " Nepal tax payable " shall be deemed to include any amount which would have been payable as Nepal tax for any year but for an exemption or reduction of tax granted for that year or any part thereof under: (a) sub-section (2) of section 42 of the Nepal Income-tax Act, 2031 (1974), so far as they were in force on, and have not been modified since, the date of the signature of this Agreement, or have been modified only in minor respects so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RE 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 those States, present his case to the competent authority of the Contracting State of which he is a resident. This case must be presented within three years of the date of receipt of notice of the action which gives rise to taxation not in accordance with the Agreement. 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. Any agreement reached shall be implemented notwithstanding any time limits in the national laws of the Contracting States. 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive measures at variance with the laws or administrative practices 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 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 26 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 agreement. CHAPTER VI FINAL PROVISIONS Article 27 ENTRY INTO FORCE Each of the Contracting States shall notify to the other the completion of the procedure required by its law for the bringing into force of this Agreement. This Agreement shall enter into force on the date of the latter of these notifications and shall thereupon have effect: (a) in India, in respect of income arising in any previous year beginning on or after the first day of Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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