Canada - Legal Draft

Double Taxation

Avoidance AgreementIncome-tax Act, 1961,

Notification under section 90: Agreement between the Government of the Republic

of India and the Government of the Republic 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 and on capitalNotification

No. G.S.R. 28(E), dtd. 15.01.1998Whereas

the agreement between the Government of the Republic of India and the

Government of Canada stated in the annexure below for the avoidance of double

taxation and for the prevention of fiscal evasion with respect to taxes on

income and on capital has entered into force on the 6th May, 1997, after the

notifications by both the Contracting States of the completion of the

procedures required under their laws for bringing into force of the said

agreement in accordance with 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 44A of the Wealth-tax Act, 1957 (27 of

1957), 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 THE REPUBLIC 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 AND ON CAPITALThe

Government of the Republic 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 and on capital, have agreed

as follows:I.

SCOPE OF AGREEMENTArticle

1PERSONAL

SCOPEThis

Agreement shall apply to persons who are residents of one or both of the

Contracting States.Article

2TAXES

COVERED1. This Agreement shall

apply to taxes on income and on capital imposed on behalf of each Contracting

State, irrespective of the manner in which they are levied.2. There shall be

regarded as taxes on income and on capital all taxes imposed on total income,

on total capital, or on elements of income or of capital, including taxes on

gains from the alienation of movable or immovable property.3. The existing taxes to

which the Agreement shall apply are in particular: (a) in the case of Canada:

the 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; (ii) the

wealth-tax imposed under the Wealth-tax Act; (hereinafter referred to as

"Indian tax").4. The Agreement shall

apply also to any identical or substantially similar taxes 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.II.

DEFINITIONSArticle

3GENERAL

DEFINITIONS1. In this Agreement,

unless the context otherwise requires:a. the term

"Canada" used in a geographical sense, means the territory of Canada,

including any area beyond the territorial seas of Canada which, in accordance

with international law and the laws of Canada, is an area within which Canada

may exercise rights with respect to the seabed and subsoil and their natural

resources;b. the term

"India" used in a geographical sense, means the territory of India,

including any area beyond the territorial seas of India which, in accordance

with international law and the laws of India, is an area within which India may

exercise rights with respect to the seabed and subsoil and their natural

resources;c. the terms "a

Contracting State" and "the other Contracting State" mean, as

the context requires, Canada or India;d. the term

"person" includes an individual, a partnership, a company and any

other entity (including a trust) which is treated as a taxable unit under the

taxation laws of a Contracting State;e. 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 a Contracting State;f. 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;g. the term

"competent authority" means:i.

in

the case of Canada, the Minister of National Revenue or his authorized

representative;ii.

in

the case of India, the Central Government in the Ministry of Finance

(Department of Revenue) or its authorized representative;a.b.c.d.e.f.g.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;a.b.c.d.e.f.g.h.i. the term

"tax" means Canadian tax or Indian tax, as the context requires, but

shall not include any amount payable in respect of any default or omission in

relation to the said taxes or which represent a penalty imposed relating to

those taxes;j. the term

"international traffic" means any voyage of a ship or aircraft

operated by an enterprise 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

4RESIDENCE1. 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 in accordance with the following

rules: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 with which his personal and economic relations

are closer (hereinafter referred to as his centre of vital interests);b. if the 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 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 of them, he shall be deemed to be a resident

of the State of which he is a national;d. if he is a national

of both 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. In the absence of

such agreement, such person shall not be considered to be a resident of either

Contracting State for the purposes of enjoying benefits under the Agreement.Article

5PERMANENT

ESTABLISHMENT1. For the purposes of

this Agreement, the term "permanent establishment" means a fixed

place of business through which the business of an 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 mine, an oil or gas

well, a quarry or any other place of extraction of natural resources;g. a warehouse, in

relation to a person providing storage facilities for others;h. a farm, plantation or

other place where agriculture, forestry, plantation or related activities are

carried on;i. a store or premises

used as a sales outlet;j. an installation or

structure used for the exploration or exploitation of natural resources, but

only if so used for a period of more than 120 days in any twelve-month period;k. a building site or

construction, installation or assembly project or supervisory activities in

connection therewith, where such site, project or activities (together with

other such sites, projects or activities, if any) continue for a period of more

than 120 days in any twelve-month period;l. the furnishing of

services other than included services as defined in Article 12, within a

Contracting State by an enterprise through employees or other personnel; and

only if:----i.

activities

of that nature continue within that State for a period or periods aggregating

to more than 90 days within any twelve-month period; orii.

the

services are performed within that State for a related enterprise (within the

meaning of paragraph 1 of Article 9).1.2.3. Notwithstanding the

preceding provisions of this article, the term "permanent

establishment" shall be deemed not to include any one or more of the

following:a. the use of facilities

solely for the purpose of storage, display, or occasional delivery of goods or

merchandise belonging to the enterprise;b. the maintenance of a

stock of goods or merchandise belonging to the enterprise solely for the

purpose of storage, display, or occasional delivery;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 of 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 other activities which have a

preparatory or auxiliary character, for the enterprise.4. Notwithstanding the

provisions of paragraphs 1 and 2, where a person---other than an agent of an

independent status to whom paragraph 5 applies---is acting in a Contracting

State on behalf of an enterprise of the other Contracting State, that

enterprise shall be deemed to have a permanent establishment in the

first-mentioned State if:a. he has and habitually

exercises in the first-mentioned State an authority to conclude contracts on

behalf of the enterprise, unless his activities are limited to those mentioned

in paragraph 3 which, if exercised through a fixed place of business, would not

make that fixed place of business a permanent establishment under the provisions

of that paragraph;b. he has no such

authority but habitually maintains in the first-mentioned State a stock of

goods or merchandise from which he regularly delivers goods or mechandise on

behalf of the enterprise, and some additional activities conducted in that

State on behalf of the enterprise have contributed to the sale of the goods or

merchandise; orc. he habitually secures

orders in the first-mentioned State, wholly or almost wholly 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, 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 and the

transactions between the agent and the enterprise are not made under arm's

length conditions, he shall not be considered an agent of 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 State (whether through a permanent establishment or

otherwise), shall not of itself constitute either company a permanent

establishment of the other.III.

TAXATION OF INCOMEArticle

6INCOME

FROM IMMOVABLE PROPERTY1. 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 purposes 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

independent personal services.Article

7BUSINESS

PROFITS1. 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 State but only so much of them as is attributable to:a. that permanent

establishment; andb. 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 3, 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. 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. However, no such deduction

shall be allowed in respect of amounts, if any, paid (otherwise than as a

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, of by way of commission or other charges, for specific services performed

or for management, or, except in the case of a banking enterprise, by way of

interest on moneys 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, or, except in the case of a banking enterprise, by way of interest

on moneys lent to the head office of the enterprise or any of its other offices.4. Subject to the

provisions of paragraph 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 contained in this article.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

8SHIPPING

AND AIR TRANSPORT1. Profits derived by an

enterprise of a Contracting State from the operation by that enterprise of

ships or aircraft in international traffic shall be taxable only in that State.2. Notwithstanding the

provisions of paragraph 1 and of Article 7, profits derived by an enterprise of

a Contracting State from a voyage of a ship or aircraft where the principal

purpose of the voyage is to transport passengers or property between places in

the other Contracting State may be taxed in that other State.3. For the purposes of

this article, profits from the operation of ships or aircraft in international

traffic shall mean profits derived by an enterprise described in paragraph 1

from the transportation by sea or air respectively of passengers, mail,

livestock or goods carried on by owners or lessees or charterers of ships or

aircraft including:a. the sale of tickets

for such transportation on behalf of other enterprises;b. other activity

directly connected with such transportation; andc. the rental of ships

or aircraft incidental to any activity directly connected with such

transportation.4. Profits of an

enterprise of a Contracting State described in paragraph 1 from the use,

maintenance, or rental of containers (including trailers, barges, and related

equipment for the transport of containers) used in connection with the

operation of ships or aircraft in international traffic shall be taxable only

in that State.5. The provisions of

paragraphs 1 and 4 shall also apply to profits from participation in a pool, a

joint business, or an international operating agency.6. For the purposes of

this article, interest on funds connected with the operation of ships or

aircraft in international traffic shall be regarded as profits derived from the

operation of such ships or aircraft, and the provisions of Article 11 shall not

apply in relation to such interest.7. The provisions of

this article shall not apply to a drilling rig or any vessel the principal

function of which is the performance of activities other than the

transportation of goods or passengers.Article

9ASSOCIATED

ENTERPRISES1. 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, orb. 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 income 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 income of that

enterprise and taxed accordingly.2. Where a Contracting

State includes in the income of an enterprise of that State---and taxes

accordingly----income on which an enterprise of the other Contracting State has

been charged to tax in that other State and the income so included is income

which would have accrued to the enterprise of the first-mentioned State if the

conditions made between the two enterprises had been those which would have

been made between independent enterprises, then that other State shall make an

appropriate adjustment to the amount of the tax charged therein on that income.

In determining such adjustment, due regard shall be had to the other provisions

of this agreement and the competent authorities of the Contracting States shall

if necessary consult each other.3. A Contracting State

shall not charge the income of an enterprise in the circumstances referred to

in paragraph 1 after the expiry of the time limits provided in its national

laws and, in any case, after five years from the end of the year in which the

income which would be subject to such charge would, but for the conditions

referred to in paragraph 1, have accrued to that enterprise.4. The provisions of

paragraphs 2 and 3 shall not apply in the case of fraud, wilful default or

neglect.Article

10DIVIDENDS1. 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 laws of that State,

but if the recipient is the beneficial owner of the dividends the tax so

charged shall not exceed:---a. 15 per cent. of the

gross amount of the dividends if the beneficial owner is a company which

controls directly or indirectly at least 10 per cent. of the voting power in

the company paying the dividends;b. 25 per cent. of the

gross amount of the dividends in all other cases.2.3. 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.4. 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.5. The provisions of

paragraphs 1 and 2 shall not apply if the beneficial owner 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 independent personal services from a fixed base situated therein, and the

holding in respect of which the dividends are paid is effectively connected with

such permanent establishment or fixed base. In such case the provisions of

Article 7 or Article 14, as the case may be, shall apply.6. 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, nor subject 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

11INTEREST1. Interest 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

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.3. Notwithstanding the

provisions of paragraph 2:-a. 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:--i.

the

payer of the interest is the Government of that Contracting State or of a

political sub-division or local authority thereofii.

the

beneficial owner of the interest is the central bank of the other Contracting

State; oriii.

the

interest is paid to an agency or instrumentality (including a financial

institution) which may be agreed upon in letters exchanged between the

competent authorities of the Contracting States.a.b.i.

interest

arising in India and paid to a resident of Canada shall be taxable only in

Canada if it is paid in respect of a loan made, guaranteed or insured, or a

credit extended, guaranteed or insured by the Export Development Corporation;

orii.

interest

arising in Canada and paid to a resident of India shall be taxable only in

India if it is paid in respect of a loan made, guaranteed or insured, or a

credit extended, guaranteed or insured by the Export Import Bank of India (Exim

Bank).4. The term

"interest" as used in this article means the income from debt-claims

of every kind, whether or not secured by mortgage, 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 8

or in Article 10.5. The provisions of

paragraphs 1 and 2 shall not apply if the beneficial owner 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 independent

personal 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 case the provisions of Article 7

or Article 14, 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 such interest is borne by such permanent

establishment or fixed base, then such interest shall be deemed to arise in the

State in which the permanent establishment or fixed base is situated.7. Where, by reason of a

special relationship between the payer and the beneficial owner or between both

of them and some other person, the amount of the interest, 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 beneficial owner in the absence of such

relationship, the provisions of this article shall apply only to the

last-mentioned amount. In such 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

12ROYALTIES

AND FEES FOR INCLUDED SERVICES1. Royalties and fees

for included 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 included services may also be taxed in the Contracting

State in which they arise and according to the laws of that State; but if the

beneficial owner of the royalties or fees for included services is a resident

of the other Contracting State, the tax so charged shall not exceed:a. in the case of

royalties referred to in sub-paragraph (a) of paragraph 3 and fees for included

services as defined in this article (other than services described in

sub-paragraph (b) of this paragraph):i.

during

the first five taxable years for which this Agreement has effect,----A. 15 per cent. of the

gross amount of the royalties or fees for included services as defined in this

article, where the payer of the royalties or fees is the Government of that

Contracting State, a political sub-division or a public sector company; andB. 20 per cent. of the

gross amount of the royalties or fees for included services in all other cases;

andi.ii.

during

the subsequent years, 15 per cent. of the gross amount of the royalties or fees

for included services; anda.b. in the case of

royalties referred to in sub-paragraph (b) of paragraph 3 and fees for included

services as defined in this article that are ancillary and subsidiary to the

enjoyment of the property for which payment is received under paragraph 3(b) of

this article, 10 per cent. of the gross amount of the royalties or fees for

included services.3. The term

"royalties" as used in this article means:--a. payment of any kind

received as a consideration for the use of, or the right to use, any copyright

of a literary, artistic, or scientific work, including cinematograph films or

work on film tape or other means of reproduction for use in connection with

radio or television broadcasting, any patent, trademark, design or model, plan,

secret formula or process, or for information concerning industrial, commercial

or scientific experience, including gains derived from the alienation of any

such right or property which are contingent on the productivity, use, or

disposition thereof; andb. payments of any kind

received as consideration for the use of, or the right to use, any industrial,

commercial, or scientific equipment, other than payments derived by an

enterprise described in paragraph 1 or Article 8 from activities described in

paragraph 3(c) or 4 of Article 8.4. For the purposes of

this article, "fees for included services" means payments of any kind

to any person in consideration for the rendering of any technical or

consultancy services (including through the provision of services of technical

or other personnel) if such servicesa. are ancillary and

subsidiary to the application or enjoyment of the right, property or

information for which a payment described in paragraph 3 is received; orb. make available

technical knowledge, experience, skill, know-how, or processes or consist of

the development and transfer of a technical plan or technical design.5. Notwithstanding

paragraph 4, "fees for included services" does not include amounts

paid: ---a. for services that are

ancillary and subsidiary, as well as inextricably and essentially linked, to

the sale of property other than a sale described in paragraph 3(a);b. for services that are

ancillary and subsidiary to the rental of ships, aircraft, containers or other

equipment used in connection with the operation of ships or aircraft in

international traffic;c. for teaching in or by

educational institutions;d. for services for the

personal use of the individual or individuals making the payment; ore. to an employee of the

person making the payments or to any individual or firm of individuals (other

than a company) for professional services as defined in Article 14.6. The provisions of

paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or

fees for included services, being a resident of a Contracting State, carries on

business in the other Contracting State in which the royalties or the fees for

included services 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, property or contract in respect of which the

royalties or fees for included services are paid is effectively connected with

such permanent establishment or fixed base. In such a case the provisions of

Article 7 or Article 14, as the case may be, shall apply.7. Royalties and fees

for included 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 included services, 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 obligation to pay the royalties or the fees for

included services was incurred, and such royalties or fees for included

services are borne by that permanent establishment or fixed base, then such

royalties or fees for included services shall be deemed to arise in the

Contracting State in which the permanent establishment or fixed base is

situated.8. Where, by reason of 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 included

services, having regard to the use, right, information or services for which

they are paid, exceeds the amount which would have been agreed upon by the

payer and the beneficial owner 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

13CAPITAL

GAINS1. Gains from the

alienation of ships or aircraft operated in inter national 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

14INDEPENDENT

PERSONAL SERVICES1. Income derived by an

individual or a firm of individuals (other than a company) who is 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;

orb. 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 relevant fiscal year; orc. if the remuneration

for the services in the other Contracting State is either derived from residents

of that other Contracting State or is borne by a permanent establishment which

a person not resident in that other Contracting State has in that other

Contracting State and such remuneration exceeds two thousand five hundred

Canadian dollars ($2,500) or its equivalent in Indian currency in the relevant

fiscal year.1.2. 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

15DEPENDENT

PERSONAL SERVICES1. Subject to the

provisions of Articles 16, 18 and 19 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 firstmentioned 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 relevant fiscal year;b. the remuneration is

paid by, or on behalf of, an employer who is not a resident of the other State;

andc. 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 aboard a ship or aircraft operated in international traffic by an

enterprise of a Contracting State, may be taxed in that State.Article

16DIRECTORS'

FEESDirectors'

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

17ARTISTES

AND ATHLETES1. Notwithstanding the

provisions of Articles 7, 14 and 15, the income derived by a resident of a

Contracting State as an entertainer, such as a theatre, motion picture, radio

or television artiste or a musician, or an athlete, from his personal

activities as such exercised in the other Contracting State, may be taxed in

that other State.2. Where income in

respect of personal activities exercised in a Contracting State by an

entertainer or an athlete accrues not to the entertainer or athlete himself but

to another person which provides the activities in that State, that income may,

notwithstanding the provisions of Articles 7, 14 and 15, be taxed in that Contracting

State unless the entertainer, athlete, or other person establishes that neither

the entertainer or athlete nor persons related thereto participate directly or

indirectly in the profits of that other person in any manner, including the

receipt of deferred remuneration, bonuses, fees, dividends, partnership

distributions, or other distributions.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

18PENSIONS1. 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

19GOVERNMENT

SERVICE1.a. Salaries, wages and

similar 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, in any other

State (including the other Contracting State) shall be taxable only in the

first-mentioned State.b. However, such

salaries, wages or similar 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 other State who:i.

is

a national of that other State; orii.

did

not become a resident of that other State solely for the purpose of rendering

the services.1.2. The provisions of

paragraph 1 shall not apply to salaries, wages and similar remuneration in

respect of services rendered in connection with a business carried on by a

Contracting State or a political sub-division or a local authority thereof.Article

20STUDENTS

AND APPRENTICESPayments

which a student, apprentice or business trainee who is, or was immediately before

visiting a Contracting State, a resident of the other Contracting State and who

is present in the first-mentioned 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 the first mentioned State, provided that such payments

are made to him from sources outside that State.Article

21OTHER

INCOME1. Items of income of a

resident of a Contracting State, wherever arising, not dealt with in the

foregoing articles of this agreement shall be taxable only in that State.2. The provisions of

paragraph 1 shall not apply to income, other than income from immovable

property as defined in paragraph 2 of Article 6, if the recipient of such

income, being a resident of a Contracting State, carries on business in the

other Contracting State 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 income is

paid is effectively connected with such permanent establishment or fixed base.

In such case the provisions of Article 7 or Article 14, as the case may be,

shall apply.3. Notwithstanding the

provisions of paragraphs 1 and 2, items of income of a resident of a

Contracting State not dealt with in the foregoing articles, and arising in the

other Contracting State, may be taxed in that other State. However, in the case

of income derived from an estate or a trust (other than a trust to which

contributions were deductible for tax purposes), the tax so charged shall,

provided that the income is taxable in the Contracting State in which the

beneficiary is a resident, not exceed 15 per cent. of the gross amount of the

income.IV.

TAXATION OF CAPITALArticle

22CAPITAL1. Capital represented

by ships and aircraft operated by a resident of a Contracting State in

international traffic and by movable property pertaining to the operation of

such ships and aircraft, shall be taxable only in that State.2. All other elements of

capital of a resident of a Contracting State may be taxed in both Contracting

States.V.

METHODS FOR PREVENTION OF DOUBLE TAXATIONArticle

23ELIMINATION

OF DOUBLE TAXATION1. 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 which is a resident of 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 which is a

resident of India.c. Where a resident of

Canada owns capital which, in accordance with the provisions of the agreement

may be taxed in India, Canada shall allow as a deduction from the tax on

capital of that resident an amount equal to the capital tax paid in India. Such

deduction shall not, however, exceed that part of the capital tax (as computed

before the deduction is given) which is attributable to the capital which may

be taxed in India.d. Where in accordance

with any provision of the agreement income derived or capital owned by a

resident of Canada is exempt from tax in Canada, Canada may nevertheless, in

calculating the amount of tax on the remaining income or capital of such

resident, take into account the exempted income or capital.3. In the case of India,

double taxation shall be avoided as follows: ---a. The amount of

Canadian tax paid, under the laws of and in accordance with the provisions of

the 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. Where a resident of

India owns capital, which, in accordance with the provisions of the agreement,

may be taxed in Canada, India shall allow as a deduction from the tax on the

capital of that resident an amount equal to the capital tax paid in Canada.

Such deduction shall not, however, exceed that part of the capital tax (as

computed before the deduction is given) which is attributable to the capital

which may be taxed in Canada:Provided

that income which in accordance with the provisions of the agreement is not to

be subjected to tax may be taken into account in calculating the rate of tax

imposed.4. For the purposes of

paragraph 2(a), the term "tax payable in India" shall, with respect

to a company which is a resident of Canada, 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),

10A, 32A (but not the part dealing with ships and aircraft), 80HH, 80HHD and

80-IA (but not the part dealing with ships) of the Income-tax Act, 1961, as

amended, so far as they were in force on and have not been modified since the

date of signature of the agreement, or have been modified only in minor

respects so as not to affect their general character.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 State 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 the agreement shall be deemed to arise from sources in that other State.VI.

SPECIAL PROVISIONSArticle

24NON-DISCRIMINATION1. 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.a. Nothing in this

agreement shall be construed as preventing Canada from imposing on the earnings

of a company, which is a resident of India, attributable to a permanent

establishment in Canada, a tax in addition to the tax which would be chargeable

on the earnings of a company which is a national of Canada, provided that any

additional tax so imposed shall not exceed the rate specified in sub-paragraph

2(a) of Article 10 of the amount of such earnings which have not been subjected

to such additional tax in previous taxation years. For the purpose of this

provision, the term "earnings" means the profits attributable to a

permanent establishment in Canada in a year and previous years after deducting

therefrom all taxes, other than the additional tax referred to herein, imposed

on such profits by Canada.The

provisions of this sub-paragraph shall also apply with respect to earnings from

the disposition of immovable property situated in Canada by a company carrying

on a trade in immovable property without a permanent establishment in Canada

but only in so far as these earnings may be taxed in Canada under the

provisions of Article 6 or paragraph 2 of Article 13.a.b. A company which is a

resident of Canada may be subject to tax in India at a rate higher than that

applicable to Indian domestic companies. The difference in tax rate shall not,

however, exceed 15 percentage points.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 firstmentioned 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

25MUTUAL

AGREEMENT PROCEDURE1.

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, irrespective of the

remedies provided by the domestic law of those States, present his case in

writing to the competent authority of the Contracting State of which he is a

resident. The case