Nepal - Legal Draft

AGREEMENT

BETWEEN THE REPUBLIC OF INDIA AND THE REPUBLIC OF NEPAL FOR THE AVOIDANCE OF

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

INCOMENotification

No. 8198 (F. No. 114/4/69--FTD)G.S.R.

1146(E).---Whereas the annexed Agreement between the Government of the Republic

of India and His Majesty's Government of Nepal for the avoidance of double

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

has come into force on 1st November, 1988, on the notification by both the

Contracting States to each other, under Article 27 of the said Agreement, of

the completion of procedures required under their respective laws for bringing

the Agreement into force;Now

therefore, in exercise of the powers conferred by section 90 of the Income-tax

Act, 1961 (43 of 1961) and section 24A of the Companies (profits) Surtax Act,

1964 (7 of 1964), the Central Government hereby directs that all the provisions

of the said agreement shall be given effect to in the Union of India.ANNEXUREAGREEMENT

BETWEEN THE GOVERNMENT OF THE REPUBLIC OF INDIA AND HIS MAJESTY'S GOVERNMENT OF

NEPAL FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION

WITH RESPECT TO TAXES ON INCOMEThe

Government of the Republic of India and His Majesty's Government of Nepal.Desiring

to conclude an agreement fro the avoidance of double taxation and the

prevention of fiscal evasion with respect to taxes on income:Have

agreed as follows:CHAPTER

I SCOPE OF THE AGREEMENTArticle

1 PERSONAL SCOPEThis

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

Contracting States.Article

2 TAXES COVERED1. The taxes to which

this Agreement shall apply are:a. in the case of India:i.

the

income-tax including any surcharge there on imposed under the Income-tax Act,

1961 (43 of 1964);ii.

the

surtax imposed under the Companies (Profits Surtax Act, 1964 (7 of 1964);(hereinafter

referred to as " Indian tax ")a.b. in the case of Nepal:i.

income-tax

imposed under the Income-Tax Act, 2031 (hereinafter referred to as " Nepal

tax ").1.2. The Agreement shall

also apply to any identical or substantial similar taxes which are imposed by

either Contractying State after the date of signature of the present Agreement

addition to, or in place of, the taxes referred to in paragraph 1. The

competent authorities of the Contracting states shall notify each other of any

substantial changes which are made in their respective taxation laws.CHAPTER

II DEFINITIONSArticle

3 GENERAL DEFINITIONS1. In this Agreement,

unless the context otherwise requires:a. the terms " a

Contracting State " and " the other Contracting State " mean

Indian or Nepal, as the context requires;b. the term " tax

" means Indian tax or Nepal tax, as the contex requires, but shall not

include any amount which payable in respect of any default or omission in

relation to the taxes to which this Agreement applies or which represents a

penalty imposed relating to those taxes;c. the term "

person " includes an individual, a company and any other entity 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

company or body corporate under the taxation laws in force in the respective

Contracting States;e. the terms "

enterprise of a Contracting State " and " enterprise of the other

Contracting State " mean a respectively an enterprise carried on by a

resident of the other Contracting State;f. the term "

competent authority " means in the case of India, the Central Government

in the Ministry of Finance (Department of Revenue) or their authorised

representative; and in the case of Nepal, His Majesty's Government, Ministry of

Finance or their authorised representative;g. the term "

national " means by any individual possessing the nationality of a

Contracting State and any legal person, partnership or association deriving its

status from the laws in force in the Contracting State;h. the term "

international traffic " means any transport by an aircraft operated by an

enterprise of a Contracting State, except when the aircraft is operated solely

between places in the other Contracting State.1.2. As regards the

application of the Agreement by a Contracting State any term not defined

therein shall, unless the context otherwise require, have the meaning which it

has under the law of that State concerning the taxes to which the Agreement

applies.Article

4 RESIDENT1. 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 I, an individual is a resident of both Contracting

States, then his status shall be determined as follows:a. he shall be deemed to

be a resident of the State in which he has a permanent home available to him;

if he has a permanent home available to him in both States, he shall be deemed

to be a resident of the State in which his economic activities are concentrated;b. if he has not a

permanent home available to him in either State, he shall be deemed to be a

resident of the State in which he has an habitual abode;c. if he has an habitual

abode in both States or in neither of them, he shall be deemed to be a resident

of the State in which his economic activities are concentrated;d. in case of dispute,

the competent authorities of the Contracting States shall settle the question

by mutual agreement.1.2.3. Where by reason of

the provisions of paragarph I, 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.Article

5 PERMANENT ESTABLISHMENT1. For the purposes of

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

place of business through which the business of the 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; (f) a

mine, an oil or gas well, a quarry or any other place of natural resources; (g)

a building site or construction or assembly project, but only Where such site,

project or activity continues for a period or periods aggregating more than 183

days in any twelve-month period; (h) the furnishing of services by an

enterprise through employees or other personnel, where activities Continue

within the country for a period or periods aggregating more than 183 days in

any twelve-month period.1.2.3. Notwithstanding the

preceding provisions of the Article, the term " permanent establishment

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

solely for the purpose of storage or display of goods or merchandise belonging

to the enterprise;b. the maintenance of a

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

the purpose of storage or display;c. the maintenance of a

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

purpose of processing by another enterprise;d. the maintenance of a

fixed places 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 carrying on, for the

enterprise, any other activity of a preparatory or auxiliary character.1.2.3.4. Notwithstanding the

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

independent status to whom paragraph 5 applies is acting on behalf of an

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

authority to conclude contracts on behalf of the enterprise, that enterprise

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

an activities which that person undertakes for the enterprise, unless the

activities of such person are limited to the purchase of goods or merchandise

for the enterprise.5. An enterprise of a

Contracting State shall not be deemed to have a permanent establishment in the

other Contracting State merely because it carries on business in that other

State through a broker, a general commission agent or any other agent of an

independent status provided that such persons are acting in the ordinary course

of their business. However, when the activices of such an agent are devoted

wholly or almost wholly on behalf of that enterprise, he will not be considered

an agent of an independent satus within the meaning of this paragraph.6. The fact that a

company which is a resident of a Contracting State controls or is controlled by

a company which is a resident of the other Contracting State, or which carries

on business in that other Contracting State (whether through a permanent

establishment or otherwise), shall not of itself constitute either company a

permanent establishment of the other.CHAPTER

III TAXATION OF INCOMEArticle

6 INCOME 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 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 also 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

7 BUSINESS 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 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 estabilshment the profits which it might be expected to make if it

were a distinct and separate enetrprise engaged in the same or similar

activities under the same or similar conditions and dealing wholly

independently with the enetrprise of which it is a permanent estabilshment.3.a. In the determination

of the profits of a permanent estabilshment, there shall be allowed as

deductions, expenses of the enterprise which are incurred for the purpose of

the permanent estabilishment including only those executive and general

administrative expenses incurred, whether in the State in which the perament

estabilshment is situated or elsewhere which are allowed under the provisions

of the domestic law of the Contracting State in which the permanent

estabilshment is situated.b. However, no such

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

towards re-imbursement of actual expenses) by the permanent estabilshment to

the head office of the enterprise or any of its other offices, by way of

royalties, fees or other similar payments, in return for the use of patents or

other similar payments, in return for the use of patents or other rights, or by

way of commission, of specific services performed or for management or except

in the case of a banking enterprise, by way of interest on monies lent to the

permanent estabilshment. Likewise, no account shall be taken in the

determination of the profits of a permanent establishment of amount 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 or other rights, or by way of commission for specific services

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

way of interest on monies lent to the head office of the enterprise or any of

its other offices.1.2.3.4. In so far as it has

been customary in a Contracting State to determine the profits to be attributed

to a permanent estabilshment 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 appportionment 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 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 sufficent reason to the contrary.7. Where profits include

items of income which are dealt with separately in other Articles of this

Agreement then the provisions of those Articles shall not be affected by the

provisions of this Article.Article

8 AIR TRANSPORT1. Profits derived by an

enterprise of a Contracting State from the operation of aircraft in

international traffic shall be taxable only in that State.2. The provisions of

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

business or an international operating agency.3. For the purposes of

this Article, interest on funds connected with the operation of aircraft in

international traffic shall be regarded as income/profits derived from the

operation of such aircraft, and the provisions of Article 11 shall not apply in

relation to such interest.4. The term "

operation of aircraft " shall mean business of transporting by air of

passengers, mail, livestock or goods carried on by the owners or lessees or

charterers of aircraft, including the sale of tickets for such transportation

on behalf of other enterprises the incidental lease of aircraft and any other

activity directly connected with such transportation.Article

9 ASSOCIATED ENTERPRISESWhere: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 of 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, may be included in

the profits of that enterprise and taxed accordingly.Article

10 DIVIDENDS1. Dividends paid by a

company which is 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. 10 per cent of the

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

at least ten per cent of the shares of the company paying the dividends;b. 15 per cent of the

gross amount of the dividends in all other cases.This

paragraph shall not affect the taxation of the company in respect of the

profits out of which the dividends are paid.1.2.3. 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 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.4. The provisions of

paragraphs 1 and 2 shall not apply it 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 13, as the case may be, shall apply.5. Where a company which

is a resident of a Contracting State derives profits or income front 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, not subject the company's

undistributed profit 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

11 INTEREST1. Interest arising in a

Contracting State and paid to a resident of the 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.Provided,

however, that where the interest is paid to a bank carrying on bonafide banling

business, which is resident of the other Contracting State and is the benefical

owner of the interest, the tax charged in the Contracting State in which the

interest arises shall not exceed 10 per cent of the gross amount of interest.1.2.3. Notwithstanding the

provisions of paragraph 2, interst arising in a Contracting State shall be

exempt from tax in that State provided it is derived and beneficially owned by:i.

the

Government, a political sub-division or a local authority of the other

Contracting State; orii.

the

Central Bank of the Contracting State.1.2.3.4. The term "

interest " as used in this Article means income from debts-claims of every

kind, 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 provisons of

paragraphs 1 and 2 shall not apply if the benefical 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 estabilshment of fixed base. In such case, the provisions of Article

7 or Article 13, as the case may be, shall apply.6. Interest shall be

deemed to arise in a Contracting State when the payer is that Contracting 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 resident

of a Contracting State or not, has in a Contracting State a permanent

establishment or a fixed base in connection with which the indebtness on which

the interest is paid was incurred, and 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 been agreed

upon by the payer and the beneficial owner in the absence of such relationship

the provisions of this Article shall apply 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 the Agreement.Article

12 ROYALTIES1. 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 to charged shall not exceed 15 per cent of the

gross amount of the royalties.3. The term "

royalties " as used in this Article means payments of any kind received as

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

artistic or scientific work, including cinematograph films, or films or tapes

used for the radio or television broadcasting any patent, trade mark, design or

model, plan, secret formula or process, or for the use of, or the right to use,

industrial, commercial or scientific equipment, or for information concerning

industrial, commercial or scientific experience.4. The provisions of

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

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

Contracting State in which the royalties arise, through a permanent

establishment situated therein, or performs in that other State independent

personal services from a fixed base situated therein, and the right or property

in respect of which the royalties are paid is effectively connected with such

permanent establishment or fixed base. In such case, the provisions cf Article

7 or Article 13, 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 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 of fixed

base, then such royalties shall be deemd 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 royalties having recard 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 Agreement.Article

13 INDEPENDENT PERSONAL SERVICES1. Income derived by a

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

independent activities of a similar character shall be taxable only in that

State 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 hi 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 " previous year " or "

year of income ", as the case may be; 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 independent scientific, literary,

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

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

and accountants.Article

14 DEPENDENT PERSONAL SERVICES1. Subject to the

provisions of Articles 15, 16, 17, 18, 19 and 20, salaries, wages and other

similar remuneration derived by a resident of a Contracting State in respect of

an employment shall be taxable only in that State unless the employment is

exercised in the other Contracting State. If the employment is so exercised,

such remuneration as is derived therefrom 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 in employment exercised in the other Contracting State

shall be taxable only in the first mentioned State if:a. the recipient is

present in the other State for a period or periods not exceeding in the

aggregate 183 days in the relevant " previous year " or " year

of income ", as the case may be; 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 or 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 abroad an aircraft operated in international traffic by an

enterprise of a Contracting State shall be taxeble only in that State.Article

15 DIRECTORS' FEESDirectors'

fees and 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 be taxed in that other State.Article

16 INCOME EARNED BY ENTERTAINERS AND ATHLETES1. Notwithstanding the

provisions of Articles 13 and 14, income derived by a resident of a Contracting

State as an entertainer such as a theatre, motion picture, radio or television

artists or a musician or as an athlete, from his personal activities as such

exercised in the other Contracting State may be taxed in that other State.2. While income in

respect of personal activities exercised by an entertainer or an athlete in his

capacity as such accrues not to the entertainer or athlete himself but to

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

13 and 14, be taxed in the Contracting State in which the activities of the

entertainer or athlete or exercised.3. Notwithstanding the

provisions of paragraph 1, income derived by an entertainer or an athlete 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 the

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, 13 and 14, where income in respect of

personal activities exercised by an entertainer or an athlete in his capacity

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

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

17 REMUNERATION AND PENSIONS IN RESPECT OF GOVERNMENT SERVICE1.a. Remuneration other

than a pension paid by a Contracting State or a political sub-division or a

local authorities thereof to an individual in respect of services rendered to

that State or sub-division or authority shall be taxable only in that State.b. However, such

remuneration shall be taxable only in the other Contracting State if the

services are rendered in that other State and the individual is a resident of

that State who:i.

is

a national of that State; orii.

did

not become a resident of that State solely for the put-pose 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

resident of, and a national of that other State.1.2.3. The provisions of

Articles 14, 15 and 16 shall apply to remuneration and pensions in respect of

services rendered in connection with a business carried on by a Contracting

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

18 NON-GOVERNMENT PENSIONS AND ANNUITIES1. Any pension, other

than a pension referred to in Article 17, or any annuity derived by a resident

of a Contracting State from sources within the other Contracting State may be

taxed only in the first-mentioned Contracting State.2. The term "

pension " means a periodic payment made in consideration of past services

or by way of compensation for injuries received in the course of performance of

services.3. The term "

annuity " means a stated sum paybale periodically at stated times during

life or during a specified or ascertainable period of time, under an obligation

to make the payments in return for adequate and full consideration in money or

money's worth.Article

19 PAYMENTS RECEIVED BY STUDENTS AND APPRENTICES1. A student or business

apprentice who is or was a resident of one of the Contracting States

immediately before visiting the other Contracting State and who is present in

that other State solely for the purpose of his education or training, shall be

exempt from tax in that other State on:a. payments made to him

by persons residing outside that other State for the purposes of his maintenance,

education or training; andb. remuneration from

employment in that other State, in an amount not exceeding Rs. 18,000 (Indian

currency), or its equivalent in Nepalese currency during any " previous

year " or the " year of income ", as the case may be, provided

that such employment is directly related to his studies or is undertaken for

the purpose of his maintenance.1.2. The benefits of this

Article 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 Article for more than three

consequtive years from the date of his first arrival in that other Contracting

State.Article

20 PAYMENTS RECEIVED BY PROFESSORS, TEACHERS AND RESEARCH SCHOLARS1. A professor or

teacher who is or was a resident of one of the Contracting State immediately before

visiting the other Contracting State for the purpose of teaching or engaging in

research, or both, at a university, college, school or other approved

institution in that other Contracting State shall be exempt from tax in that

other State on any remuneration for such teaching or research for a period not

exceeding two years from the date of his arrival in that other State.2. This article shall

not apply to income from reserch if such research is undertaken primarily for

the private benefit of a specific person or persons.3. For the purposes of

this article and article 19, an individual shall be deemed to be a resident of

a Contracting State if he is resident in that Contracting State in the "

previous year " or the " year of income", as the case may be, in

which he visits the other Contracting State or in the immediately preceding

" previous year " or the " year of income ".4. For the purposes of

pragraph 1, " approved institution " means an institution which has

been approved in this by the competent authority of the concerned Contracting

State.Article

21 OTHER INCOME1. Subject to the

provisions of paragraph 2, items of income of a resident of a Contracting

State, wherever arising, which are not expressly dealt with in the foregoing

articles of this Agreement shall be taxable only in that contracting State.2. The provisions of

paragraph 1 shall not apply to income, other 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 13, as the case may be,

shall apply.CHAPTER

IV METHODS OF ELIMINATION OF DOUBLE TAXATIONArticle

22 ELIMINATION OF DOUBLE TAXATION1. The laws in force in

either cf the Contracting States shall continue to govern the taxation of

income in the respective Contracting States except where provisions to the

contrary are made in this Agreement. Where income is subject to tax in both

Contracting States relief from double taxation shall be given in accordance

with this Article.2. Subject to the

provisions of the law of Nepal regarding the allowance as a credit against

Nepal's tax of tax payable in a territory outside Nepal (which shall not affected

the general principle hereof) Indian tax payable under the law of India and in

accordance with the provisions of this Agreement whether or by deduction, on

income from sources within India shall be allowed as a credit against any Nepal

tax computed by reference to the same items of income by reference to which the

Indian tax is computed.3. For the purpose of

the credit referred to in paragraph (2), the term " Indian tax payable

" shall be deemed to include any amount by which tax has been reduced by the

special incentive measures under---i.

Sections

10(4), 10(4A), 10(6) (viia), 10( 15) (iv), 10(28), 10A, 32A, 33A, 80HH, 80HHA,

80-I and 80-L of the Indian Income-tax Act, 1961 (43 of 1969); andii.

any

other provision which may subsequently be enacted granting a deduction of tax

which the competent authorities of the Contracting States agree to be for the

purposes of economic development.1.2.3.4. Subject to the

provisions of the law of India regarding the allowance as a credit against

Indian tax of tax payable in a territory outside India (which shall not affect

the general principle hereof) Nepal tax payable under the law of Nepal and in

accordance with the provisions of this Agreement whether directly or by

deduction, on income from sources within Nepal shall be allowed as a credit

against any Indian tax computed by reference to the same items of income by

reference to which Nepal tax is computed.Provided

that such credit shall not exceed Indian tax (as computed before allowing any

such credit), which is appropriate to the income derived from sources within

Nepal, so however, that where such resident is a company by which surtax is

payable in India, the credit aforesaid shall be allowed in the first instance

against income-tax payable by the company in India, and as to the balance, if

any, against surtax payable by it in India.1.2.3.4.5. For the purpose of

paragraph (4) of this Article the term " Nepal tax payable " shall be

deemed to include any amount which would have been payable as Nepal tax for any

year but for an exemption or reduction of tax granted for that year or any part

thereof under:a. sub-section (2) of

section 42 of the Nepal Income-tax Act, 2031 (1974), so far as they were in

force on, and have not been modified since, the date of the signature of this

Agreement, or have been modified only in minor respects so as not to affect

their general character; orb. any other provisions

which may subsequently be made granting an exemption or reduction of tax which

is agreed by the competent authorities 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.1.2.3.4.5.6. Where under this

Agreement a resident of a Contracting State is exempt from tax in that

Contracting State in respect of income derived from the other Contracting State

then the first mentioned Contracting State may in calculating tax on the

remaining income of that person apply the rate of tax which would have been

applicable if the income exempted from tax in accordance with the Agreement had

not been so exempted.CHAPTER

V SPECIAL PROVISIONSArticle

23 NON-DISCRIMINATION1. The nationals of a

Contracting State shall not be subjected in the other Contracting State to any

taxation or any requirement connected therewith which is other or more

burdensome than the taxation and connected requirements to which nationals of

that other State in the same circumstances are or may be subjected.2. Taxation on a

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

other Contracting State shall not be less favourably levied in that other State

than the taxation levied on enterprises of that other State carrying on the

same activities in the same circumstances.3. Nothing contained in

this article shall be construed as obliging a Contracting State to persons not

resident in that State any personal allowances, reliefs, reductions and

deductions for taxation purposes which are by law available only to persons who

are so resident.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 Contracting State to any

taxation or any requirement connected therewith which is other or more

burdensome than the taxation and connected requirements to which other similar

enterprises of that first-mentioned State are or may be subjected in the same

circumstances.5. In this Article, the

term " taxation " means taxes which are the subject of this

Agreement.Article

24 MUTUAL 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 this

Agreement, he may, notwithstanding the remedies provided by the national laws

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

State of which he is a resident. This case must be presented within three years

of the date of receipt of notices of the action which gives rise to taxation

not in accordance with the Agreement.2. The competent

authority shall endeavour, if the objection appears to it to be justified and

if it is not its able to arrive at an appropriate solution, to resolve the case

by mutual agreement with the competent authority of the other Contracting

State, with a view to the avoidance of taxation not in accordance with the

Agreement. Any agreement reached shall be implemented notwithstanding any time

limits in the national laws of the Contracting States.3. The competent

authorities of the Contracting State shall endeavour to resolve by mutual

agreement any difficulties or doubts arising as to the interpretation or

application of the Agreement. They may also consult together for the

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

authorities of the Contracting States may communicate with each other directly

for the purpose of reaching an agreement in the sense of the preceding

paragraphs. When it seems advisable in order to reach agreement to have an oral

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

consisting of representatives of the competent authorities of the Contracting

States.Article

25 EXCHANGE OF INFORMATION1. The competent

authorities of the Contracting States shall exchange such information

(including documents) as is necessary for carrying out the provisions of the

agreement or of the domestic laws of the Contracting States concerning taxes

covered by the Agreement, in so far as the taxation thereunder is not contrary

to the Agreement in particular for the prevention of fraud or evasion of such

taxes. Any information received by a Contracting State shall be treated as

secret in the same manner as information obtained under the domestic law of

that State. However, if the information is originally regarded as secret in the

transmitting State, it 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 which are the subject of the

Agreement. Such persons or authorities shall use the information only for such

purposes but may disclose the information in public court proceedings or in

judicial decisions. The competent authorities shall, through consultation,

develop appropriate conditions, methods and techniques concerning he matters in

respect of which such exchange of information shall be made, including where

appropriate, exchange of information regarding tax avoidance.2. 2 The exchange of

information or documents shall be either on a routine basis or on request with

reference to particular cases or both. The competent authorities of the

Contracting States shall agree from time to time on the list of the information

or documents which shall be furnished on a routine basis.3. In no case shall tbe

provisions of paragraph 1 be construed so to impose on Contracting State the

obligation:a. to carry out

administrative measures at variance with the laws or administrative practice of

that or of the other Contracting State;b. to supply information

or documents which are not obtainable under the laws or in the normal course of

the administration of that or the other Contracting State;c. to supply information

or documents which would disclose any trade, business, industrial, commercial

or professional secret or trade process or information the disclosure of which

would be contrary to public policy.Article

26 DIPLOMATIC AND CONSULAR ACTIVITIESNothing

in this Agreement shall affect the fiscal privileges of diplomatic or consular

officials under the general rules of international law or under the provisions

of special agreement.CHAPTER

VI FINAL PROVISIONSArticle

27 ENTRY INTO FORCEEach

of the Contracting States shall notify to the other completion of the procedure

required by its law for the bringing into force of this Agreement. This

Agreement shall enter into force on the date of the later of these

notifications and shall thereupon have effect:a. in India, in respect of

income arising in any previous year beginning on or after the first day of

April next following the calendar year in which the later of the notifications

is given;b. in Nepal, in respect

of income arising in any year of income beginning on or after the first day of

Nepalese fiscal year next following the calendar year in which the later of the

notification is given.Article

28 TERMINATIONThis

Agreement shall remain in force indefinitely but either of the Contracting

States may, on or before the thirtieth day of June in any calendar year

beginning after the expiration of a period of five years from the date of its

entry into force, the other Contracting State through diplomatic channel,

written notice of termination and, in such event, this agreement shall cease to

have effect:a. in India in respect

of income arising in any previous year beginning on or after the 1st day of

April next following the calendar year in which the notice of termination is

given;b. in Nepal, in respect

of income arising in any year of income begining on or after the 1st day of

Nepalese fiscal year next following the calendar year in which the notice of

termination is given.In

witness whereof

the undersigned being duly authorised thereto, have signed the present

Agreement.Done in duplicate at

Kathmandu on this eighteenth day of January, ONE THOUSAND NINE HUNDRED AND

EIGHTYSEVEN A.D. in Hindi, Nepali and English languages all the texts being

equally authentic. In ease of divergence in interpretation the English text

shall prevail.FOR

THE GOVERNMENT OF THE REPUBLIC OF INDIA.(NARRAYAN

DATT TIWARI)MINISTER

OF EXTERNAL AFFAIRS AND LAND REFORMSGOVERNMENT

OF INDIAFOR

THE GOVERNMENT OF NEPALFOR

HIS MAJESTY'S MINISTER OF FOREIGN AFFAIRS(SHAILENDRA

KUMAR UPADHYAYA)[No.

8198/F. No. 11/4/69FTD ]