Israel - Legal Draft

Double Taxation

Avoidance AgreementIncome-tax Act, 1961:

Notification under section 90: Convention between the Republic of India and the

State of Israel for the avoidance of double taxation and for the prevention of

fiscal evasion with respect to taxes on income and on capitalNotification

No. G. S. R. 256(E), dtd.26.06.1996.Whereas

the annexed convention between the Government of the Republic of India and the

Government of the State of Israel 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 15th May, 1996, after the notification by both

the Contracting States to each other of the completion of the procedures

required under their laws for bringing into force of the said Convention in

accordance with Article 29 of the said Convention.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 Convention shall be given effect to in the Union of India:ANNEXURECONVENTION

BETWEEN THE REPUBLIC OF INDIA AND THE STATE OF ISRAEL FOR THE AVOIDANCE OF

DOUBLE TAXATION AND FOR THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES

ON INCOME AND ON CAPITALThe

Government of the Republic of India and the Government of the State of Israel,Desiring

to conclude a Convention 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:Article

1PERSONAL

SCOPEThis

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

Contracting States.Article

2TAXES

COVERED1. This convention shall

apply to taxes on income imposed on behalf of a Contracting State or of its

political sub-divisions or local authorities and to taxes on capital imposed on

behalf of a 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, taxes on the total amounts of

wages or salaries paid by enterprises, as well as taxes on capital

appreciation.3. The existing taxes to

which the Convention shall apply are in particular:a. In India:i.

the

income-tax, including any surcharge thereon; and (ii) the wealth-tax,(hereinafter

referred to as "Indian tax");a.a. In Israel:i.

the

income-tax;ii.

the

company tax;iii.

the

capital gains tax;iv.

the

tax imposed upon gains from the alienation of immovable property according to

the Land Appreciation Tax Law; andv.

taxes

imposed on real property according to the Property Tax Law,(hereinafter

referred to as "Israeli tax").1.2.3.4. The Convention shall

apply also to any identical or substantially similar taxes which are imposed

after the date of signature of the Convention in addition to, or in place of,

the existing taxes. The competent authorities of the Contracting States shall

notify each other of significant changes which have been made in their

respective taxation laws.Article

3GENERAL

DEFINITIONS1. For the purposes of

this Convention, unless the context otherwise requires:a. the term

"India" means the territory of India and includes the territorial sea

and airspace above it, as well as any other maritime zone in which India has

sovereign rights, other rights and jurisdiction, according to the Indian law

and in accordance with international law, including the U.N. Convention on the

Law of the Sea;b. the term

"Israel" means the State of Israel, and when used in a geographical

sense, means the territory and the territorial sea over which it exercises its

state sovereignty and jurisdiction, as well as the continental shelf, the

exclusive economic zone and that part of the seabed and subsoil under the sea

over which it exercises sovereign rights according to the international law;c. the term

"person" includes an individual, a company, a body of persons and any

other entity which is treated as a taxable unit under the taxation laws in

force in the respective Contracting States;d. the term

"company" means any body corporate or any entity which is treated as

a body corporate for tax purposes;e. the terms "a

Contracting State" and "the other Contracting State" mean the

Republic of India or the State of Israel as the context requires;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

'international traffic' means any transport by a ship or aircraft operated by

an enterprise which is a resident of a Contracting State, except when the ship

or aircraft is operated solely between places in the other Contracting State;h. the term

"competent authority" means:i.

in

India: the Central Government in the Ministry of Finance (Department of

Revenue) or their authorised representative;ii.

in

Israel: the Minister of Finance or his authorised representative;a.b.c.d.e.f.g.h.i. the term

"national" means:i.

any

individual possessing the nationality of a Contracting State;ii.

any

legal person, partnership or association deriving its status as such from the

laws in force in a Contracting State.a.b.c.d.e.f.g.h.i.j. the term "fiscal

year" means:i.

in

the case of India, the twelve-month period beginning on the 1st of April;ii.

in

the case of Israel, the twelve-month period beginning on the 1st of January;a.b.c.d.e.f.g.h.i.j.k. the term 'tax' means

Indian tax or Israeli tax, as the context requires, but shall not include any

amount which is payable in respect of any default or omission in relation to

the taxes to which this Convention applies or which represents a penalty

imposed relating to those taxes.1.2.a. As regards the

application of the Convention 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 Convention

applies.b. If as a result of the

application of sub-paragraph (a), the meaning of a term under the laws of a

Contracting State is different from the meaning of that term under the laws of

the other Contracting State, or if the meaning of such term is not readily

determinable under the laws of one of the Contracting States, the competent

authorities of the Contracting States may agree upon a common meaning of that

term.c. If, in a particular

case, the application of the Convention fails to prevent double taxation

because the Contracting States have differing rules with respect to the source

of the category of income involved, the competent authorities of the

Contracting States may reach agreement as to the source of income in the

particular case so as to eliminate double taxation.Article

4RESIDENT1. For the purposes of

this Convention, 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 with which his personal and economic relations

are closer (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.1.2.3. Where by reason of

the provisions of paragraph 1 a person other than an individual is a resident

of both Contracting States, then it shall be deemed to be a resident of the

State in which its place of effective management is situated. If the State in

which its place of effective management is situated cannot be determined, then

the competent authorities of the Contracting States shall settle the question

by mutual agreement.Article

5PERMANENT

ESTABLISHMENT1. For the purposes of

this Convention, 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" includes especially:a. a place of

management;b. a branch;c. an office;d. a factory;e. a workshop; andf. a mine, an oil or gas

well, a quarry or any other place of extraction of natural resources.1.2.3. A building site of

construction or assembly project or supervisory activities in connection

therewith constitute a permanent establishment only if such site, project or

activity last more than six months.4. Notwithstanding the

preceding provisions of this article, the term "permanent

establishment" shall be deemed not to include:a. the use of facilities

solely for the purpose of storage, display or 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 delivery; (c) the maintenance of a stock of

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

processing by another enterprise;c. the maintenance of a

fixed place of business solely for the purpose of purchasing goods or

merchandise or of collecting information, for the enterprise;d. the maintenance of a

fixed place of business solely for the purpose of carrying on, for the

enterprise, any other activity of a preparatory or auxiliary character;e. the maintenance of a

fixed place of business solely for any combination of activities mentioned in

sub-paragraphs (a) to (e), provided that the overall activity of the fixed

place of business resulting from this combination is of a preparatory or

auxiliary character.1.2.3.4.5. Notwithstanding the

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

independent status to whom paragraph 6 applies--is acting on behalf of an

enterprise and has, and habitually exercises, in a Contracting State an

authority to conclude contracts in the name of the enterprise, that enterprise shall

be deemed to have a permanent establishment in that State in respect of any

activities which that person undertakes for the enterprise, unless the

activities of such person are limited to those mentioned in paragraph 4 which,

if exercised through a fixed place of business, would not make this place of

business a permanent establishment under the provisions of that paragraph.6. An enterprise shall

not be deemed to have a permanent establishment in a Contracting State merely

because it carries on business in that State through a broker, general

commission agent or any other of an independent status, provided that such

persons are acting in the ordinary course of their business, and in their

commercial and financial relations with the enterprise no conditions are agreed

or imposed which differ from those usually agreed between independent persons.7. 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.Article

6INCOME

FROM IMMOVABLE PROPERTY1. Income derived by a

resident of a Contracting State from immovable property (including income from

agriculture or forestry) situated in the other Contracting State may also be

taxed in that other State.2. The term

"immovable property" shall have the meaning which it has under the

law 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, boats 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 business

as aforesaid, the profits of the enterprise may also be taxed in the other

State but only so much of them as is attributable to 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.3. In determining the

profits of a permanent establishment, there shall be allowed as deductions

expenses which are incurred for the purposes of the permanent establishment,

including executive and general administrative expenses so incurred, whether in

the State in which the permanent establishment is situated or elsewhere.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 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

Convention, then the provisions of those articles shall not be affected by the

provisions of this article.Article

8SHIPPING

AND AIR TRANSPORT1. Profits from the

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

in the Contracting State of which the enterprise is a resident.2. The term

"profits" shall include income derived by the enterprise from the

rental of ships and aircraft operated in international traffic. Such term shall

also include income derived by the enterprise from the use, maintenance or

rental of containers operated in international traffic (including trailers,

barges and related equipment for the transport of such containers) if such

income is incidental to the profits of the enterprise from the operation of

ships and aircraft in international traffic.3. The provisions of

paragraph 1 shall also apply to profits from the participation in a pool, a

joint business or an international operating agency.4. For the purposes of

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

aircraft in international traffic shall be regarded as income or profits

derived from the operation of such ships or aircraft and the provisions of

Article 11 shall not apply in relation to such interest.5. The term

"operation of ships and aircraft" shall mean business of

transportation by ships or air of passengers, mail, livestock or goods carried

on by the owners or lessees or charterers of ships and aircraft, including the

sale of tickets for such transportation on behalf of other enterprises, the

incidental lease of ships and aircraft and any other activity directly

connected with such transportation.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 other Contracting Stateand 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.1.2. Where a Contracting State

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

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

been charged to tax in that other State and the profits so included are profits

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 those

profits where that other State considers the adjustment justified. In

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

this Convention and the competent authorities of the Contracting States shall if

necessary consult each other.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 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 10 per cent of the gross amount of the dividends.3. This paragraph shall

not affect the taxation of the company in respect of the profits out of which

the dividends are paid.4. The term

"dividends" as used in this article means income from shares,

"jouissance" shares or "jouissance" rights, mining shares,

founders' shares or other rights, not being debt-claims. Participating in

profits, as well as income from other corporate rights which is subjected to

the same taxation treatment as income from shares by the laws 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 15, 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 insofar 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 10 per cent of the

gross amount of the interest.3. Notwithstanding the

provisions of paragraphs 1 and 2, interest arising in a Contracting State and

paid to a resident of the other Contracting State shall be taxable only in that

other State, if the interest is paid in respect of:-a. a bond, debenture or

other similar obligation of the Government of the first-mentioned Contracting

State or a political sub-division or local authority thereof; orb. a loan made,

refinanced, guaranteed or insured, or a credit extended, refinanced, guaranteed

or insured by-i.

in

the case of India, the Reserve Bank of India,ii.

in

the case of Israel, the Bank of Israel, oriii.

other

Governmental agencies or lending institutions as may be specified and agreed in

an exchange of notes between the competent authorities of the Contracting

States.1.2.3.4. 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. Penalty charges for

late payment shall not be regarded as interest for the purpose of this article.5. The provisions of

paragraphs 1, 2 and 3 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 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 such interest is borne by such 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, 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 laws of each Contracting State, due regard being had to the

other provisions of this Convention.Article

12ROYALTIES1. Royalties 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 may also be taxed in the Contracting State in which they arise, and

according to the laws of that State, but if the recipient is the beneficial

owner of the royalties, the tax so charged shall not exceed 10 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, any

patent, trade mark, design or model, plan, secret formula or process, 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 perform 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. In such case the provisions of Article 7

or Article 15, as the case may be, shall apply.5. Royalties 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, 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 liability to pay the royalties was

incurred, and such royalties are borne by such permanent establishment or fixed

base, then such royalties shall be deemed to arise in the State in which the

permanent establishment or fixed base is situated.6. 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, 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 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 laws of each Contracting State, due

regard being had to the other provisions of this Convention.Article

13FEES

FOR TECHNICAL SERVICES1. 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 fees

for technical services may also be taxed in the Contracting State in which they

arise and according to the laws of that State, but if the recipient is the

beneficial owner of the fees for technical services, the tax so charged shall

not exceed 10 per cent. of the gross amount of the fees for technical services.3. The term "fees

for technical services" as used in this article means payments of any kind

received as a consideration for services of a managerial, technical or

consultancy nature, including the provision of services by technical or other

personnel, but does not include payments for services mentioned in Article 16

of this Convention.4. The provisions of

paragraphs 1 and 2 shall not apply if the beneficial owner of the fees for

technical services, being a resident of a Contracting State, carries on

business in the other Contracting State, in which the fees for technical

services arise, through a permanent establishment situated therein, or perform

in that other State independent personal services from a fixed base situated

therein, and the right, property or contract in respect of which the fees for

technical services are paid is effectively connected with such permanent

establishment or fixed base. In such case, the provisions of Article 7, or

Article 15, as the case may be, shall apply.5. Fees for technical

services shall be deemed to arise in a Contracting State when the services are

rendered in that State and 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 fees for technical 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 liability to pay the

fees for technical services was incurred, and such fees for technical services

are borne by such permanent establishment or fixed base, then such fees for

technical services shall be deemed to arise in the State in which the permanent

establishment or fixed base is situated.6. Where, by reason of

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

of them and some other person, the amount of fees for technical services paid

exceeds the amount which would have been paid 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 laws of each Contracting State, due regard

being had to the other provisions of this Convention.7. The provisions of

paragraphs 1 to 6 of this article shall not apply to payments relating to

services mentioned herein below:i.

Services

that are ancillary and subsidiary, and inextricably and essentially linked, to

a sale of property;ii.

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;iii.

Teaching

in or by an educational institution;iv.

Services

for the personal use of the individual or individuals making the payments; orv.

Professional

services as defined in Article 15.Article

14CAPITAL

GAINS1. Gains derived by a

resident of a Contracting State from the alienation of immovable property

referred to in Article 6 and situated in the other Contracting State may also

be taxed in that other State.2. Gains from the

alienation of movable property forming part of the business property of a

permanent establishment which an enterprise of a Contracting State has in the

other Contracting State or of movable property pertaining to a fixed base

available to a resident of a Contracting State in the other Contracting State

for the purpose of performing independent personal services, including such

gains from the alienation of such a permanent establishment (alone or with the

whole enterprise) or of such fixed base, may also be taxed in that other State.3. Gains from the

alienation of ships or aircraft operated in international traffic, or movable

property pertaining to the operation of such ships or aircraft, shall be

taxable only in the Contracting State or which the enterprise is a resident.4. Gains from the

alienation of shares or similar rights being shares in a company, the assets of

which consist principally of immovable property situated in a Contracting State,

may be taxed in that State. Gains from the alienation of an interest in a

partnership, trust or estate, the property of which consists principally of

immovable property situated in a Contracting State, may also be taxed in that

State.5. Gains derived by a

resident of a Contracting State from the sale, exchange or other disposition,

directly or indirectly, or shares other than those mentioned in paragraph 4, or

similar rights in a company which is a resident of the other Contracting State

may also be taxed in that other State.6. Gains from the

alienation of any property other than that referred to in paragraphs 1 through

5, shall be taxable only in the Contracting State of which the alienator is a

resident.Article

15INDEPENDENT

PERSONAL SERVICES1. Income derived by a

resident of a Contracting State in respect of professional services or other

activities of an independent character shall be taxable only in that State

except in the following circumstances, when such income may also be taxed in

the other Contracting State:a. if he has 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 State; orb. if his stay in the

other State is for a period or periods exceeding in the aggregate 183 days in

any twelve-month period commencing or ending in the fiscal year concerned; in

that case, only so much of the income as is derived from his activities performed

in that other State may be taxed in that other State.1.2. The term

"professional services" includes especially independent scientific,

literary, artistic, educational or teaching activities as well as the

independent activities of physicians, surgeons, lawyers, engineers, architects,

dentists and accountants.Article

16DEPENDENT

PERSONAL SERVICES1. Subject to the

provisions of Articles 17, 19, 20 and 21, 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 also 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 any twelve month period commencing or ending in the

fiscal year concerned, andb. 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 of a fixed base which the employer has

in the other State.1.2.3. Notwithstanding the

preceding provisions of this article, remuneration derived in respect of an

employment exercised aboard a ship or aircraft operated in international

traffic may also be taxed in the Contracting State of which the enterprise is a

resident.Article

17DIRECTORS'

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 of a company which is a

resident of the other Contracting State may also be taxed in that other State.Article

18ARTISTES

AND SPORTSPERSONS1. Notwithstanding the

provisions of Articles 15 and 16, 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 as a sportsperson, 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 by an entertainer or a sportsperson in

his capacity as such accrues not to the entertainer or sportsman himself but to

another person, that income may, notwithstanding the provisions of Articles 7,

15 and 16, be taxed in the Contracting State in which the activities of the

entertainer or sportsperson are exercised.3. Notwithstanding the

provisions of paragraph 1, income derived by an entertainer or a sportsperson

who is a resident of a Contracting State from his personal activities as such

exercised in the other Contracting State, shall be taxable only in

first-mentioned Contracting State, if the activities in the other Contracting

State are supported wholly or substantially from the public funds of the first-mentioned

Contracting State, including any of its political sub-divisions or local

authorities.4. Notwithstanding the

provisions of paragraph 2 and Articles 7, 15 and 16, where income in respect of

personal activities exercised by an entertainer or a sportsperson in his

capacity as such in a Contracting State accrues not to the entertainer or

sportsperson himself but to another person, that income shall be taxable only

in the other Contracting State, if that other person is supported wholly or

substantially from the public funds of that other State, including any of its

political sub-divisions or local authorities.Article

19PENSIONSSubject

to the provisions of paragraph 2 of Article 20, pensions and other similar

remuneration paid to a resident of a Contracting State in consideration of past

employment shall be taxable only in that State.Article

20GOVERNMENT

SERVICE1.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 State and the individual is a resident of that

State who:i.

is

a national of that State; orii.

did

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

services.1.2.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 State.1.2.3. The provisions of

Articles 16, 17 and 19 shall apply to remuneration and pensions 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

21PROFESSORS,

TEACHERS AND STUDENTS1. Remuneration received

for education or scientific research by an individual 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 for the purpose of scientific

research or for teaching at an educational institution shall be exempt from tax

in the first-mentioned State. This exemption shall be granted for a period that

shall not exceed two years from the date on which the teacher or researcher

first entered the first-mentioned State for the purpose of engaging in

scientific research or for teaching. This article shall not apply to income

from research if such research is undertaken not in the public interest but

primarily for the private benefit of a specific person or persons.2.a. Payments which a

student or business apprentice 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 that State, provided that such payments arise from

sources outside that State.b. Payments which a

student or business apprentice receives as remuneration from employment in the

first-mentioned State, in an amount not exceeding a sum equivalent to 3,000 U.

S. dollars in the currency of the first-mentioned State during any fiscal year

shall be exempt from tax in the first-mentioned State.The

benefit of this paragraph shall extend only for such period of time as may be

reasonable or customarily required to complete the education or training

undertaken, but in no event shall any individual have the benefits of this

paragraph for more than three consecutive years from the date of this first

arrival in the first-mentioned Contracting State.Article

22OTHER

INCOME1. Items of income of a

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

foregoing articles of this Convention 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 15, as the case may be,

shall apply.3. Notwithstanding the

provisions of paragraph 1, any winnings from lotteries, crossword puzzles,

races including horse races, card games and other games of any form or nature

whatsoever may also be taxed in the Contracting State where they arise.Article

23CAPITAL1. Capital represented

by immovable property referred to in Article 6, owned by a resident of a

Contracting State and situated in the other Contracting State, may be taxed in

that other State.2. Capital represented

by movable property forming part of the business property of a permanent

establishment which an enterprise of a Contracting State has in the other

Contracting State or by movable property pertaining to a fixed base available

to a resident of a Contracting State in the other Contracting State for the

purpose of performing independent personal services, may also be taxed in that

other State.3. Capital represented

by ships and aircraft operated in international traffic, and by movable

property pertaining to the operation of such ships and aircraft, shall be

taxable only in the Contracting State of which the enterprise is a resident.4. All other elements of

capital of a resident of a Contracting State shall be taxable only in that

State.Article

24ELIMINATION

OF DOUBLE TAXATION1. Subject to the laws

of Israel from time to time in force regarding the allowance as a credit

against Israeli tax of tax paid in any country other than Israel (which shall

not affect the general provision contained in this paragraph), Indian tax paid

in respect of income derived from or capital owned in India shall be allowed as

a credit against Israeli tax payable in respect of that income or capital. The

credit shall not, however, exceed that portion of Israeli tax which the income

or capital from sources within India bears to the entire income or capital, as

the case may be, subject to Israeli tax.2. Where a resident of

India derives income or owns capital which, in accordance with the provisions

of this convention, may be taxed in Israel, India shall allow:a. as a deduction from

the tax on the income of that resident, an amount equal to the income-tax paid

in Israel, whether directly or by deduction.b. as a deduction from

the tax on the capital of that resident, an amount equal to the capital tax

paid in Israel.Such deduction in either case shall not, however, exceed that part of the

income-tax or capital tax, as computed before the deduction is given, which is

attributable, as the case may be, to the income or the capital which may be

taxed in Israel.1.2.3. Notwithstanding the

provisions of paragraphs 1 and 2 of this article, where a resident of a

Contracting State derives income by way of dividends on shares of companies

resident in the other Contracting State, the first-mentioned Contracting State

shall allow credit of 15 per cent. of the gross amount of such dividend from the

tax payable.4. Notwithstanding the

provisions of paragraphs 1 and 2 of this article, where a resident of a

Contracting State derives income by way of interest from any source in the

other Contracting State, the first mentioned Contracting State shall allow a

credit of 10 per cent. of the gross amount of such interest from the tax

payable.5. Where in accordance

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

resident of a Contracting State is exempt from tax in that State, such State

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.Article

25NON-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. This

provision shall, notwithstanding the provisions of Article 1, also apply to

persons who are not residents of one or both of the Contracting States.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. This provision shall not be construed as preventing a

Contracting State from charging the profits of a permanent establishment which

a company of the other Contracting State has in the first-mentioned State at a

rate of tax which is higher than that imposed on the profits of a similar

company of the first-mentioned Contracting State, nor as being in conflict with

the provision of paragraph 3 of Article 7 of the Convention.3. Except where the

provisions of paragraph 1 of Article 9, paragraph 7 of Article 11, paragraph 6

of Article 12, or paragraph 6 of Article 13, apply, interest, royalties and

other disbursements paid by an enterprise of a Contracting State to a resident

of the other Contracting State shall, for the purpose of determining the

taxable profits of such enterprise, be deductible under the same conditions as

if they had been paid to a resident of the first-mentioned State. Similarly,

any debts of an enterprise of a Contracting State to a resident of the other

Contracting State shall, for the purpose of determining the taxable capital of

such enterprise be deductible under the same conditions as if they had been

contracted to a resident of the first-mentioned State.4. 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 are or may be subjected.Article

26MUTUAL

AGREEMENT PROCEDURE1. Where a person

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

convention, he may, irrespective of the remedies provided by the domestic law

of those States, present his case to the competent authority of the Contracting

State of which he is a resident or, if his case comes under paragraph 1 of

Article 25, to that of the Contracting State of which he is a notional. The

case must be presented within three years from the first-notification of the

action resulting in taxation not in accordance with the provisions of the

Convention.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 a satisfactory 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 which is not in accordance with

the Convention. Any agreement reached shall be implemented notwithstanding any

time limits in the domestic law 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 Convention. They may also consult together for the

elimination of double taxation in cases not provided for in the Convention.4. The competent authorities

of the Contracting States may communicate with each other directly for the

purpose of reaching an agreement in the sense of the preceding paragraphs. When

it seems advisable in order to reach agreement to have an oral exchange of

opinions, such exchange may take place through a Commission consisting of

representatives of the competent authorities of the Contracting States.Article

27EXCHANGE

OF INFORMATION1. The competent

authorities of the Contracting States shall exchange such information (including

documents), as is necessary for carrying out the provisions of this Convention

or of the domestic laws of the Contracting States concerning taxes covered by

the Convention in so far as the taxation thereunder is not contrary to the

Convention in particular for the prevention of fraud or evasion of such taxes.

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 or

prosecution in respect of, or the determination of appeals in relation to, the

taxes covered by the Convention. Such persons or authorities shall use the

information only for such purposes. They 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 a Contracting State

the obligation:a. to carry out

administrative measures at variance with the laws and 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

28DIPLOMATIC

AGENTS AND CONSULAR OFFICERSNothing

in this Convention shall affect the fiscal