Sri Lanka - Legal Draft

Double Taxation

Avoidance AgreementCONVENTION FOR

AVOIDANCE OF DOUBLE TAXATION BETWEEN REPUBLIC OF INDIA AND REPUBLIC OF SRI

LANKANOTIFICATION

No. G.S.R. 342(E) dtd. 19.4.1983Whereas

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

Government of the Democratic Socialist Republic of Sri Lanka for the avoidance

of double taxation and the prevention of fiscal evasion with respect to taxes

on income and on capital has been ratified and the instruments of ratification

exchanged as required by 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 24A of the Companies (Profits) Surtax Act,

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

of the said Convention shall be given effect to in the Union of India.CONVENTION

BETWEEN THE GOVERNMENT OF THE REPUBLIC OF INDIA AND THE GOVERNMENT OF THE

DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR THE AVOIDANCE OF DOUBLE TAXATION

AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TOTAXES ON INCOME AND ON

CAPITALThe

Government of the Republic of India and the Governnment of the Democratic

Socialist Republic of Sri Lanka 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

1. Taxes Covered2. This Convention shall

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

State irrespective of the manner in which they are levied.3. These 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, as well as taxes on

capital appreciation.4. The existing taxes to

which this Convention shall apply are: -a. In Sri Lanka:i.

the

income-tax, including the income-tax based on the turnover of enterprises

licensed by the Greater Colombo Economic Commission; andii.

the

wealth tax;(hereinafter

referred to as "Sri Lanka tax")a.b. In India:i.

the

income-tax including any surcharge there on;ii.

the

surtax; andiii.

the

wealth tax.(herein

after referred to as "Indian tax")1.2.3.4.5. This Convention shall

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

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

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

notify, each other of any important changes which have been made in their

respective taxation laws.ARTICLE

3General

Definition1. In this Convention,

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

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

Lanka or India as the context requires;b. the term

"person" includes an individual a company and any other body of persons;c. the term

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

a body, corporate for the tax purposes;d. 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;e. the term "

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

by an enterprise which has its place of effective management in a Contracting

State, except when the ship or aircraft is operated solely between places in

the other Contracting State:f. the term

"national" means:i.

an

individual possessing the nationality of a Contracting State;ii.

a

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

the laws in force in a Contracting State;a.b.c.d.e.f.g. the term

"competent authority" means:i.

in

the case of Sri Lanka, the Commissioner-General of Inland Revenue;ii.

in

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

(Department of Revenue).1.2. As regards the

application of this Government by a Contracting State any term not defined

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

has under the laws of that State relating to the taxes which are the subject of

this Convention.ARTICLE

4Fiscal

Domicile1. For the purposes of

this Convention, the term "resident of a Contracting State" means any

person who, under the law 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. But this term does not include any persorn, who is liable to

tax in that State in respect only of income from sources in that State or

capital situated therein.2. Where by reason of

the provisions of paragraph (1) of this Article 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 in terests 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) of this Article 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

5Permanent

Establishment1. For the purpose of

this Convention, 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

"pemmanent establishment" shall include especially:a. a place of

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

well, a quarry or any other place of extraction of natural resources;g. an agricultural or

farming estate or plantation;h. a building site or

construction or assembly project which exists for more than 183 days;i. the furnishing of

services, including consulttancy services, by an enterprise through employees

or other personnel, where activities of that nature Continue within the country

for a period or periods aggregat ing more than 183 days within any twelve month

period.1.2.3. 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 solely for the purpose of storage, display or

delivery;b. the maintenance of a

stock of goods or merchandise belongihg 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;d. the maintenance of a

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

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

fixed place of business solely for the purpose of advertising, for the supply

of in formation or for scientific research, being activities solely of a

preparatory or auxiliary character in the trade or business of the enterprise.1.2.3.4. A person acting in a

Contracting State on behalf of an enterprise of the other Contracting

State-other than an agent of an independent status to whom paragraph (6) of

this Article Applies-shall be deemed to be a permanent establishment in the

first-mentioned State if he has, and habitually exercises in that State, an

authority to conclude contracts in the name of the enterprise, unless his

activities are limited to the purchase of goods or merchandise for the

enterprise.5. Notwithstanding the

preceding provisions of this Article, an insurance enterprise of a Contracting

State shall, except in regard to reinsurance, be deemed to have a permanent

establishment in the other Contracting State if it collects premiums in the

territory of that other State or insures risks Sitated therein through a person

other than an agent of independent status to whom paragraph (6) of this Article

applies.6. An enterprise of a

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

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

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

status, provided that such persons are acting in the ordinary course of their

business. However, when the activities of such an agent are devoted wholly or

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

of an independent status within the meaning of this paragraph.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

9Income

from Immovable Property1. Income from immovable

property may be taxed in the Contracting State in which such property is

situated.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) of this Article shall apply to income derived from the direct

use, letting, or use in any other form of imniovable property.4. The provisions of

paragraphs (1) and, (3) of this Article shall also apply to the income from

immovable property of an enterprise and to income from immovable property used

for the performance of professional services.ARTICLE

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 be taxed in the State but only

so much of them as is attributable to-a. that permanent

establishment,b. sales in that other

State of goods or merchandise of the same or similar kind as those sold through

that permanent establishment, orc. other business

activities carried on in that other State of the same or state kind as those

effected through that permanent establishment.The

provisions of sub-paragraphs (b) and (c) shall not apply if the enterprise

proves that such sales or activities are not attributable to the permanent

establishment.1.2. Subject to the

provisions of paragraph (3) of this Article, 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. 3.In the

determination of the profits of a permanent establishment, there shll be

allowed as deductions expenses which are incurred for the purpose of the

business 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. However, no such deduction

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

reimbursement of actual expenses) by the permanent establishment to the head

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

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

by way of commission for a specific services performed or for management or,

except in the case of a banking enterprise, by of interest on money lent to the

permanent establishment. Likewise no accotunt shall be taken, in the

determination of the profits of a permanent establishment, for amounts charged

(otherwise that 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 maqnagement, or except in the case of a banking enterprise by

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

its other offices.4. Insofar 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) of this

Article shall preclude that Contracting State from determining the profits to

be taxed by such an apportionment as may be customary; the method of

apportionment shall, however, be such that the result will 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 purpose 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 dealt with separately in other Articles of this

Convention then the provisions of those articles shall not be effected by the

provision, of this Article.ARTICLE

8Shipping

and air Transport1. Profits derived by an

enterprise of a Contracting State from the opeation of ships or aricraft in

international traffic shall be taxable only in the Contracting State in which

the place effective management of the enterprises is situated.2. Notwithstanding the

provisions of paragraph (1), profits derived from the operation of ships in

international traffic may be taxed in the Contracting State in which such

operation is carried on but the tax so charged shall not exceed 50 per cent of the

tax othewise imposed by the international law of that State.Provided

that for the purpose of the calculation of the tax such profits shall be deemed

to be an amount not exceeding the rates presently provided in the taxation laws

of the respective States for the computation of such profits.1.2.3. The provisions of

paragraphs (1) and (2) of this Article shall likewise apply in respect of

profits from the participation in a pool, a joint business or an international

operating agency of any kind by enterprises engaged in the operation of ships

or aircraft in international traffic.4. For the purpose of

paragraph 1, interest on funds connected with the operation of ships or

aircraft in international traffic shall be regarded as income from the

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

relation to such interest.5. If the place of

effective management of a shipping enterprise is aboard a ship, then it shall

be deemed to be situated in the Contracting State in which the home harbour of

the ship is situated or if there is no such home harbour, in the State of which

the operator of the ship is a resident.ARTICLE

9Associated

Enterprises1. Where: -a. an enterprise of a

Contrtacting 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 ease conditions are made or imposed between the two enterprises in

their 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 accured 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 indepedent enterprises then that other State shall make an

appropriate adjustment to the amount of the tax charged therein on those profits.

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

of this Convention and the competent authorities of the Contracting State 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 otther

Contracting State 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

the tax so charged shall not exceed 15 per cent of the gross amount of the

dividends.3. The term

"dividends" as used in this Article means income from shares, 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 taxation law of the

State of which the company making the distribution is a resident.4. The provision of

paragraphs (1) and (2) of this Article 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 paving the dividends is a

resident, through a permanent establishment situated therein and the holding in

respect of which the dividends are paid is effectively connected with such

permanent establishment. In such case the provisions of Article 7 shall apply.5. 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 insofar as the holding in respect of which the dividends

are paid is effectively connected with a permanent establishment situated in

that other State, nor subject the company's undistributed profits to a tax on

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

11Interst1. 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 paragraph (2) of this Article interest arising in a Contracting

State shall be exempt from tax in that State if:a. the payer of the

interest is the Government of that Contracting State or a local authority

thereof, orb. the interest is paid

to the Government of the other Contracting State or local authority thereof or

any agency or instrumentality (including a financial institution) wholly owned

by that other Contracting State or local authority thereof.1.2.3.4. The term

"interest" as used in this Article means income from Government

securties, bonds or debentures, whether or not secured by mortgage and whether

or not carrying a right to participate in profits, and debt-claims of every

kind as well as all other income assimilated to income from money lent by the

taxation law of the state in which the income arises.5. The provisions of

paragraphs (1) to (3) of this Article shalt 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 and the debt-claim in respect of which the

interest is paid is effectively connected with such permanent establishment. In

such case, the provisions of Article 7 shall apply.6. Interest shall be

deemed to arise in a Contracting State when the payer is that State itself, 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 in connection with which the

indebtedness on which the interest is paid was incurred, and interest is borne

by such permanent establishment, then such interest shall be deemed to arise in

the Contracting State in which 'the permanent establishment 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 royalty 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 any copyright of literary,

artistic or scientific work including cinematograph films, or tapes for

television or 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) of this Article 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 and the right or property in respect

of which the royalties are paid is effectively connected with such permanent

establishmet. In such case the provisions of Article 7 shall apply.5. Royalties shall be

deemed to arise in a Contracting State when the payer is that State itself, 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 in connection with which the

liability to pay the royalties was incurred, and such royalties are borne by

such permanent establishment, then such royalties shall be deemed to arise in

the State in which the permanent establishment is situated.6. Where by reason of a

special relationship between the payer ind 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 payment

shall remain taxable according to the laws of each Contructing State, due

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

13Capital

Gains1. Gains derrived by a

resident of a Contracting State from the alienation of immovable property

referred to in paragrah (2) of Article 6 and situated in the other Contracting

State may 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 including such gains from the alternation of such a

permanent establishment alone or with the whole enterprise, may 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 in which the place of effective management of the

enterprise is situated.4. Gains from the

alienation of stocks shares of a company may be taxed in the Contracting State

in which they have been issued.5. Gains from the

alienation of any property other than that referred to in paragraphs (1) to (4)

of this Article, shall be taxable only in the Contracting State of which the

alienator is a resident.6. The term "

alienation" means the sale, exchange, transfer, or relinquishment of the

property or the extinguishment of any rights therein or the compulsory

acquisition hereof under any law in force in the respective Contracting States.ARTICLE

14Independent

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

unless his stay in the other Contracting State is for a period or periods

exceeding in the aggregate 120 days within any 12 months period, when such

income may also be taxed in the other Contracting State.2. The term

"professional services" includes independent scientific, literary,

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

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

accountants.ARTICLE

15Dependent

Personal Services1. Subject to the provisions

of Articles 16, 18 and 19, salaries, wages and other similar remuneration

derived by a resident of a Contracting State in respect of an employment is

exercisable only in that State unless the employment is exercised in the other

Contracting State. If the employment is so exercised, such remuneration as is

derived therefrom may be taxed in that other Contracting 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 within any 12 month period; andb. the renumeration is

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

andc. that 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 in respect of an employment exercised

aboard a ship or aircraft in international traffic, may be taxed only in the

Contracting State in which the place effective management of the enterprise is

situated.ARTICLE

16Directors

FeesDirectors'

fees and other similar payments derived by a resident of a contracting State in

his capacity is 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

17Artistes

and Athletes1.

Notwithstanding,

the provisions of Article 14 and 15, income derived by public entertainers

(such as theatre motion picture, radio or television artites and musicians) or

athlete, from their personal activities as such may be taxed in the Contracting

State in which these activities are exercised.Provided

that such income shall not be taxed in the said Contracting State if the visit

of the public entertainers or athletes to that State is directly or indirectly

supported wholly or substtantially, from the public funds of the Government of

the other Contracting State.1.2. Where 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,

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

entertainer or athlete are exercised.3. For the purposes of

this Article, the term "Government" includes a State Government, a

political sub-division or a local authority of either Contracting State.ARTICLE

18Government

Service1.a. Remuneration, other

than a pension, paid by the Government of a Contracting State to an individual

in respect of services rendered to that State or a local authority thereof

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 purpose of rendering the

services.1.2.3. Any pension paid by

the Government of one of the Contracting States to any individual may be taxed

in that Contracting State.4. The provisions of

Articles 15, 16 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 local authority thereof.5. For the purposes of

this Article, the term "Government" shall include any State

Government or local authority of either Contracting State, the Reserve Bank of

India and the Central Bank of Ceylon.ARTICLE

19Non-Governemnt

Pensions and Annuities1. Any pension (other

than a pension referred to in Article 18) or 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 services

rendered in the past or by way of compensation for injuries received in the

course of Performance of services.3. The term

"annuity" means a stated sum payable 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

20Professors

and TeachersA

professor or teacher who make a temporary visit to a Contracting State for a

period not exceeding two years for the purpose of teaching or conducting

research at a university, college, school or other educational institution, and

who is, or immediately before such visit was a resident of the other

Contracting State shall be exempt from tax in the first-mentioned Contracting

State in respect of remuneration for such teaching or research.ARTICLE

21Students

and Apprentices1. 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

trainning 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.2. In respect to grants,

scholarships and remuneration from employment not covered by paragraph (1) of

this Article a student or business apprentice described in paragraph (1) of

this Article shall, in addition, be entitled during such education or training

to the same exemption, reliefs or reductions in respect of taxes available to

residents of the State which he is visiting.ARTICLE

22Other

IncomeItems

of income of a resident of a Contracting State which are not expressly

mentioned in the foregoing Article of this Agreement in respect of which he is

subject to tax in that State shall be taxable only in that State.ARTICLE

23Capital1. Capital represented

by unmovable property referred to in paragraph, (2) of Article 6 may be taxed

in the Contracting State in which such property is situated.2. Capital represented

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

establishment of an enterprise may be taxed in the contracting State in which

the permanent establishment is situated.3. Notwithstanding the

provisions of pagraph (2) of this Article, ships and aircraft operated in

international traffic and movable property pertaining to the operation of such

ships and aircraft, shall be taxble only in the Contracting State in which the

place of effective management of the enterprise is situated.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. The laws in force in

either of the Contracting states shall Continue to govern the taxation of

income and capital in the respective Contracting States except when express

provision to the contrary is made in this Convention. When income or capital is

subject to tax in both Contracting States, relief from double taxation shall be

given in accordance with the following paragraphs of this Article.2. Subject to the

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

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

the general principle hereof) Sri Lanka tax payable under the law of Sri Lanka

and in accordance with this Convention whether directly or by deduction on

profits income or chargeable gains from sources within Sri Lanka (excluding) in

the case of a dividend, tax payable in deduction of the profits out of which

the dividend is paid) or capital in Sri Lanka shall be allowed as a credit

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

capital as referred to which the Sri Lanka tax is computedProvided that such credit not exceed lndian

tax (as computed before allowing any sources such credit), which is appiopriate

to the income derived from sources within Sri Lanka or to capital in Sri Lanka,

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

in India, the credit in India, the credit aforesaid shall be allowed in the

first instance aganist income-tax payable by the company in India, and as to

the balance, if any payable by it in India.3. For the purposes of

paragraph (2) of this Article, the term "Sri Lanka tax payable "

shall be deemed to include any amount which would have been payable as Sri

Lanka tax for any year but for an exemption or reduction of tax granted for

that year or any part thereof under:a. any of the following

provisions that is to say sections 11, 16, 17, 18, 19, 20, 21, 22, and 85 of

the Sri Lanka Inland Revenue Act, No, 28 of 1979 so far as they were in force

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

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

their general character; orb. any agreement entered

into section 17 of the Greater Colombo Economic Commission Law No. 4 of 1978; oc. 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 is has not been modified thereafter or has been modified oily

in minor respects so as not to affect its general character.1.2.3.4. Subject to the

provisions of the law of Sri Lanka regarding the allowance as a credit against

Sri Lanka tax of tax payable in a territory outside Sri Lanka (which shall not

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

and in accordance with the Convention, whether directly or by deduction, on

profits, income or chargeable gains from sources within India (excluding in the

case of a dividend, tax-payable in respect of the profits out of which the

dividend is paid) or capital in India shall be allowed as a credit against any

Sri Lanka tax computed by reference to the same items of income or capital by

reference to which the Sri Lanka's tax is computed:Provided

that Such credit shall not exceed Sri Lanka tax (as computed before allowing

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

within India or to capital in India.1.2.3.4.5. For the purpose of

paragraph (4) of this Article, the term "Indian Tax payable" shall be

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

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

part thereof under:a. any of the following

provisions, that is to say sections 10(4), 10(4A), 10(15)(iv), 32A, 33A, 35C,

54E, 80CC, 80HH, 80J, 80K of the Income-Tax Act, 1961; 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.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

provisions 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 obliging a

Contracting State to grant to residents of the other Contracting State any

personal allowances, reliefs and reductions for taxation purposes on account of

civil status or family responsibilities which it grants to its own residents.3. Except where the

provisions of paragraph (1) of, Article 9, paragraph (7) of Article 11 or

paragraph (6) of Article 12, 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 simiar

enterprises of the fist-metioned State are or may be subjected.5. The provisions of

this Article shall notwithstanding the provisions of Article 2, apply to taxes

of every kind and description.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 of that of the Contracting State of which he is a national. 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 agree ment 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

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. The competent authorities through consultation shall develop

appropriate bilateral procedures, conditions, methods and techniques for the

implementation of the mutual agreement procedure provided for in this Article.

In addition, a competent authority may devise appropriate unilateral

procedures, conditions, methods and techniques to facilitate the abovementioned

bilateral actions and the implementation of the mutual agreement procedure.ARTICLE

27Exchange

of Information1. The competent

authorities of the Contracting States shall exchange such information 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,

insofar 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 is information

obtained under the domestic laws 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, proscecution in

of, or the determination of appeals in respect to, the tax which are the

subject of the Convention. Such persons or shall use the information only for

such purposes but may disclose the informatiom in public court proceeding of in

judicial decisions. The competent authorities shall through consulation develop

appropriate conditions, methods and techniques concerning the matters in

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

appropriate, exchanges of information regarding tax avoidance.2. In no case shall the

provisions of partagraph 1 be constructed 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 oother 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

28Diplolmatic

Agents and Consular OffcialsNothing

in this Convention shall affect the fiscal privilegs of diplomatic agents or

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

provisions of special agreements.ARTICLE

29Entry

into Force1. This Convention shall

be ratified and the instruments of ratification shall be exchanged at Colombo

as soon as possible.2. The Convention shall

enter into force upon the exchange of instruments of ratification and its

provisions shall have effect:a. In Sri Lanka-i.

in

respect of income assessable for any year of assessment commencing on or after

1st April,1980;ii.

in

respect of capital assessable for any year of assessment commencing on or after

1st April,1980;a.b. In India-i.

(i)in

respect of income assessable for any year