United States Of America - Legal Draft

Double Taxation

Avoidance AgreementConvention between

the Government of the United States of America and the Government of the

Republic of India for the avoidance of double taxation and the prevention of

fiscal evasion with respect to taxes on incomeNotification

No. G. S. R. 990(E), dtd. 20.12.1990.Whereas

the annexed Convention between the Government of the United States of America

and the Government of the Republic of India for the avoidance of double

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

has entered into force on the 18th December, 1990, after the notification by

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

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

accordance with paragraph 1 of Article 30 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 Government hereby directs that all the provisions

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

in exercise of the powers conferred by section 44A(b) of the Wealth-tax Act,

1957 (27 of 1957) and section 44(b) of the Gift-tax Act, 1958 (18 of 1958), the

Central Government also directs that the provisions of Article 28 of the said

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

BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF

THE REPUBLIC OF INDIA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION

OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOMEThe

Government of the United States of America and the Government of the Republic

of India, desiring to conclude a Convention for the avoidance of double

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

have agreed as follows:Article

1GENERAL

SCOPE1. This Convention shall

apply to persons who are residents of one or both of the Contracting States,

except as otherwise provided in the Convention.2. The Convention shall

not restrict in any manner any exclusion, exemption, deduction, credit, or

other allowance now or hereafter accorded:a. by the laws of either

Contracting State; orb. by any other

agreement between the Contracting States.1.2.3. Notwithstanding any

provision of the Convention except paragraph 4, a Contracting State may tax its

residents (as determined under article 4 (Residence)), and by reason of

citizenship may tax its citizens, as if the Convention had not come into

effect. For this purpose, the term "citizen" shall include a former

citizen whose loss of citizenship had as one of its principal purposes the

avoidance of tax, but only for a period of 10 years following such loss.4. The provisions of

paragraph 3 shall not affect--a. the benefits

conferred by a Contracting State under paragraph 2 of article 9 (Associated

enterprises), under paragraphs 2 and 6 of article 20 (Private pensions,

annuities, alimony, and child support), and under articles 25 (Relief From

Double Taxation), 26 (Non-Discrimination), and 27 (Mutual Agreement Procedure);

andb. the benefits

conferred by a Contracting State under articles 19 (remuneration and pensions

in respect of Government service), 21 (payments received by students and

apprentices), 22 (payments received by professors, teachers and research

scholars) and 29 (diplomatic agents and consular officers), upon individuals

who are neither citizens of, nor have immigrant status in, that State.Article

2TAXES

COVERED1. The existing taxes to

which this Convention shall apply are:a. In the United States,The

federal income taxes imposed by the Internal Revenue Code (but excluding the

accumulated earnings tax, the personal holding company tax, and social security

taxes), and the excise taxes imposed on insurance premiums paid to foreign

insurers and with respect to private foundations (hereinafter referred to as

"United States tax"); provided, however, the Convention shall apply

to the excise taxes imposed on insurance premiums paid to foreign insurers only

to the extent that the risks covered by such premiums are not reinsured with a

person not entitled to exemption from such taxes under this or any other

Convention which applies to these taxes; anda.b. In India:i.

the

income-tax including any surcharge thereon, but excluding income-tax on

undistributed income of companies, imposed under the Income-tax Act; andii.

the

surtax.(hereinafter

referred to as "Indian tax").Taxes

referred to in (a) and (b) above shall not include any amount payable in

respect of any default or omission in relation to the above taxes or which

represent a penalty imposed relating to those taxes.1.2. The Convention shall

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

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

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

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

respective taxation laws and of any official published material concerning the

application of the Convention.Article

3GENERAL

DEFINITIONS1. In this Convention,

unless the context otherwise requires:a. the term

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

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

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

and in accordance with international law;b. the term "United

States", when used in a geographical sense, means all the territory of the

United States of America, including its territorial sea, in which the laws

relating to United States tax are in force, and all the area beyond its

territorial sea, including the seabed and subsoil thereof, over which the

United States has jurisdiction in accordance with international law and in

which the laws relating to United States tax are in force;c. the terms "a

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

or the United States as the context requires;d. the term

"tax" means Indian tax or United States tax, as the context requires;e. the term

"person" includes an individual, an estate, a trust, a partnership, a

company, any other body of persons, or other taxable entity;f. the term

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

a company or body corporate for tax purposes;g. 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;h. the term

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

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

authorized representative, and in the case of the United States, the Secretary

of the Treasury or his delegate;i. the term

"national," means any individual possessing the nationality or

citizenship of a Contracting State;j. the term

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

operated by an enterprise of a Contracting State, except when the ship or

aircraft is operated solely between places within the other Contracting State;k. the term

"taxable year" in relation to Indian tax means "previous

year" as defined in the Income-tax Act, 1961.1.2. As regards the

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

therein shall, unless the context otherwise requires or the competent

authorities agree to a common meaning pursuant to the provisions of article 27

(Mutual Agreement Procedure), have the meaning which it has under the laws of

that State concerning the taxes to which the Convention applies.Article

4RESIDENCE1. For the purposes of

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

person who, under the laws of that State, is liable to tax therein by reason of

his domicile, residence, citizenship, place of management, place of

incorporation, or any other criterion of a similar nature, provided however,

thata. this term does not

include any person who is liable to tax in that State in respect only of income

from sources in that State; andb. in the case of income

derived or paid by a partnership, estate, or trust, this term applies only to

the extent that the income derived by such partnership, estate, or trust is

subject to tax in that State as the income of a resident, either in its hands

or in the hands of its partners or beneficiaries.1.2. Where by reason of

the provisions of paragraph 1, an individual is a resident of both Contracting

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

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

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

to be a resident of the State with which his personal and economic relations

are closer (centre of vital interests);b. if the State in which

he has his centre of vital interests cannot be determined, or if he does not

have 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

paragraph 1, a company is a resident of both Contracting States, such company

shall be considered to be outside the scope of this Convention except for

purposes of paragraph 2 of article 10 (Dividends), article 26

(Non-discrimination), article 27 (Mutual agreement procedure), article 28

(Exchange of information and administrative assistance) and article 30 (Entry

into force).4. Where, by reason of

the provisions of paragraph 1, a person other than an individual or a company

is a resident of both Contracting States, the competent authorities of the

Contracting States shall settle the question by mutual agreement and determine

the mode of application of the Convention to such person.Article

5PERMANENT

ESTABLISHMENT1. For the purposes of

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

place of business through which the business of an enterprise is wholly or

partly carried on.2. The term

"permanent establishment" includes especially:a. a place of

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

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

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

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

carried on;i. a store or premises

used as a sales outlet;j. an installation or

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

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

construction, installation or assembly project or supervisory activities in

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

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

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

services, other than included services as defined in article 12 (royalties and

fees for included services), within a Contracting State by an enterprise

through employees or other personnel, but only if:i.

activities

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

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

the

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

meaning of paragraph 1 of article 9 (associated enterprises)).1.2.3. Notwithstanding the

preceding provisions of this article, the term "permanent

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

following:a. the use of facilities

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

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

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

purpose of storage, display or occasional delivery;c. the maintenance of a

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

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

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

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

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

of information, for scientific research or for other activities which have a

preparatory or auxiliary character, for the enterprise.1.2.3.4. Notwithstanding the

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

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

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

enterprise shall be deemed to have a permanent establishment in the

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

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

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

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

make that fixed place of business a permanent establishment under the

provisions of that paragraph;b. he has no such

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

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

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

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

merchandise; orc. he habitually secures

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

enterprise.1.2.3.4.5. An enterprise of a

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

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

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

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

course of their business. However, when the activities of such an agent are

devoted wholly or almost wholly on behalf of that enterprise and the

transactions between the agent and the enterprise are not made under

arm's-length conditions, he shall not be considered an agent of independent

status within the meaning of this paragraph.6. The fact that a

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

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

on business in that other State (whether through a permanent establishment or

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

establishment of the other.Article

6INCOME

FROM IMMOVABLE PROPERTY (REAL PROPERTY)1. Income derived by a

resident of a Contracting State from immovable property (real 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.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

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 other State but

only so much of them as is attributable to (a) that permanent establishment;

(b) sales in the other State of goods or merchandise of the same or similar

kind as those sold through that permanent establishment; or (c) other business

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

effected through that permanent establishment.2. Subject to the

provisions of paragraph 3, where an enterprise of a Contracting State carries

on business in the other Contracting State through a permanent establishment

situated therein, there shall in each Contracting State be attributed to that

permanent establishment the profits which it might be expected to make if it

were a distinct and independent enterprise engaged in the same or similar

activities under the same or similar conditions and dealing wholly at arm's

length with the enterprise of which it is a permanent establishment and other

enterprises controlling, controlled by or subject to the same common control as

that enterprise. In any case where the correct amount of profits attributable

to a permanent establishment is incapable of determination or the determination

thereof presents exceptional difficulties, the profits attributable to the

permanent establishment may be estimated on a reasonable basis. The estimate

adopted shall, however, be such that the result shall be in accordance with the

principles contained in this article.3. In the determination

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

deductions expenses which are incurred for the purposes of the business of the

permanent establishment, including a reasonable allocation of executive and

general administrative expenses, research and development expenses, interest,

and other expenses incurred for the purposes of the enterprise as a whole (or

the part thereof which includes the permanent establishment), whether incurred

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

accordance with the provisions of and subject to the limitations of the

taxation laws of that State. However, no such deduction shall be allowed in

respect of amounts, if any, paid (otherwise than towards reimbursement of

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

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

similar payments in return for the use of patents, know-how or other rights, or

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

management, or, except in the case of banking enterprises, by way of interest

on moneys lent to the permanent establishment. likewise, no account shall be

taken, in the determination of the profits of a permanent establishment, for

amounts charged (otherwise than toward reimbursement of actual expenses), by

the permanent establishment to the head office of the enterprise or any of its

other offices, by way of royalties, fees or other similar payments in return

for the use of patents, know-how or other rights, or by way of commission or

other charges for specific services performed or for management, or, except in

the case of a banking enterprise, by way of interest on moneys lent to the head

office of the enterprise or any of its other offices.4. 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.5. For the purposes of

this Convention, the profits to be attributed to the permanent establishment as

provided in paragraph 1(a) of this article shall include only the profits

derived from the assets and activities of the permanent establishment and shall

be determined by the same method year by year unless there is good and

sufficient reason to the contrary.6. Where profits include

items of income which are dealt with separately in other articles of the

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

provisions of this article.7. For the purposes of

the Convention, the term "business profits" means income derived from

any trade or business including income from the furnishing of services other

than included services as defined in article 12 (royalties and fees for

included services) and including income from the rental of tangible personal

property other than property described in paragraph 3(b) of article 12

(royalties and fees for included services).Article

8SHIPPING

AND AIR TRANSPORT1. Profits derived by an

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

ships or aircraft in international traffic shall be taxable only in that State.2. For the purposes of

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

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

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

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

or aircraft including--a. the sale of tickets

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

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

or aircraft incidental to any activity directly connected with such

transportation.1.2.3. Profits of an

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

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

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

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

in that State.4. The provisions of

paragraphs 1 and 3 shall also apply to profits from participation in a pool, a

joint business, or an international operating agency.5. For the purposes of

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

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

operation of such ships or aircraft, and the provisions of article 11

(Interest) shall not apply in relation to such interest.6. Gains derived by an

enterprise of a Contracting State described in paragraph 1 from the alienation

of ships, aircraft or containers owned and operated by the enterprise, the

income from which is taxable only in that State, shall be taxed only in that

State.Article

9ASSOCIATED

ENTERPRISES1. Where:a. an enterprise of a

Contracting State participates directly or indirectly in the management,

control or capital of an enterprise of the other Contracting State; orb. the same persons

participate directly or indirectly in the management, control, or capital of an

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

State,and

in either case conditions are made or imposed between the two enterprises in

their commercial or financial relations which differ from those which would be

made between independent enterprises, then any profits which, but for those

conditions would have accrued to one of the enterprises, but by reason of those

conditions have not so accrued, may be included in the profits of that

enterprise and taxed accordingly.1.2. Where a Contracting

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

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

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

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

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

have been made between independent enterprises, then that other State shall

make an appropriate adjustment to the amount of the tax charged therein on

those profits. In determining such adjustment, due regard shall be had to the

other provisions of this Convention and the competent authorities of the

Contracting States shall if necessary consult each other.Article

10DIVIDENDS1. Dividends paid by a

company which is a resident of a Contracting State to a resident of the other

Contracting State may be taxed in 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 beneficial owner of the dividends is a resident of the other Contracting

State, the tax so charged shall not exceed:a. 15 per cent. of the

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

at least 10 per cent. of the voting stock of the company paying the dividends;b. 25 per cent. of the

gross amount of the dividends in all other cases.Sub-paragraph

(b) and not sub-paragraph (a) shall apply in the case of dividends paid by a

United States person which is a Regulated Investment Company. Sub-paragraph (a)

shall not apply to dividends paid by a United States person which is a Real

Estate Investment Trust, and sub-paragraph (b) shall only apply if the dividend

is beneficially owned by an individual holding a less than 10 per cent.

interest in the Real Estate Investment Trust. 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, income from other

corporate rights which are subjected to the same taxation treatment as income

from shares by the taxation laws of the State of which the company making the

distribution is a resident; and income from arrangements, including debt

obligations, carrying the right to participate in profits, to the extent so

characterised under the laws of the Contracting State in which the income

arises.4. The provisions of

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

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

Contracting State, of which the company paying the dividends is a resident,

through a permanent establishment situated therein, or performs in that other

State independent personal services from a fixed base situated therein, and the

dividends are attributable to such permanent establishment or fixed base. In such

case the provisions of article 7 (business profits) or article 15 (Independent

Personal Services), as the case may be, 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 in so far 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 or a fixed

base situated in that other State, nor subject the company's undistributed

profits to a tax on the company's undistributed profits, even if the dividends

paid or the undistributed profits consist wholly or partly of profits or income

arising in such other State.Article

11INTEREST1. Interest arising in a

Contracting State and paid to a resident of the other Contracting State may be

taxed in that other State.2. However, such

interest may also be taxed in the Contracting State in which it arises, and

according to the laws of that State, but if the beneficial owner of the

interest is a resident of the other Contracting State, the tax so charged shall

not exceed:a. 10 per cent. of the

gross amount of the interest if such interest is paid on a loan granted by a

bank carrying on a bona fide banking business or by a similar financial

institution (including an insurance company); andb. 15 per cent. of the

gross amount of the interest in all other cases.1.2.3. Notwithstanding the

provisions of paragraph 2 of this article, interest arising in a Contracting

State:a. and derived and

beneficially owned by the Government of the other Contracting State, a

political sub-division or local authority thereof, the Reserve Bank of India,

or the Federal Reserve Bank of the United States, as the case may be, and such

other institutions of either Contracting State as the competent authorities may

agree pursuant to article 27 (Mutual Agreement Procedure);b. with respect to loans

or credits extended or endorsedi.

by

the Export Import Bank of the United States, when India is the first-mentioned

Contracting State; andii.

by

the EXIM Bank of India, when the United States is the first-mentioned

Contracting State; anda.b.c. to the extent

approved by the Government of that State, and derived and beneficially owned by

any person, other than a person referred to in sub-paragraphs (a) and (b), who

is a resident of the other Contracting State, provided that the transaction

giving rise to the debt-claim has been approved in this behalf by the

Government of the first-mentioned Contracting State; shall be exempt from tax

in the first-mentioned Contracting State.1.2.3.4. The term

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

of every kind, whether or not secured by mortgage, and whether or not carrying

a right to participate in the debtor's profits, and in particular, income from

government securities, and income from bonds or debentures, including premiums

or prizes attaching to such securities, bonds, or debentures. Penalty charges

for late payment shall not be regarded as interest for the purposes of the

Convention. However, the term "interest" does not include income

dealt with in article 10 (Dividends).5. The provisions of

paragraphs 2 and 3 shall not apply if the beneficial owner of the interest,

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

Contracting State in which the interest arises, through a permanent

establishment situated therein, or performs in that other State independent

personal services from a fixed base situated therein, and the interest is

attributable to such permanent establishment or fixed base. In such case the

provisions of article 7 (Business Profits) or article 15 (Independent Personal

Services), as the case may be, shall apply.6. Interest shall be

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

political sub-division, local authority, or resident of that State. Where,

however, the person paying the interest, whether he is a resident of a

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

or a fixed base, and such interest is borne by such permanent establishment or

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

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

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

of them and some other person, the amount of the interest, having regard to the

debt-claim for which it is paid, exceeds the amount which would have been

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

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

last-mentioned amount. In such case the excess part of the payments shall remain

taxable according to the laws of each Contracting State, due regard being had

to the other provisions of the Convention.Article

12ROYALTIES

AND FEES FOR INCLUDED SERVICES1. Royalties and fees

for included services arising in a Contracting State and paid to a resident of

the other Contracting State may be taxed in that other State.2. However, such

royalties and fees for included services may also be taxed in the Contracting

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

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

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

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

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

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

during

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

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

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

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

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

andi.ii.

during

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

included services; anda.b. in the case of

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

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

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

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

included services.1.2.3. The term

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

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

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

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

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

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

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

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

disposition thereof; andb. payments of any kind

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

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

described in paragraph 1 of article 8 (Shipping and Air Transport) from

activities described in paragraph 2(c) or 3 of article 8.1.2.3.4. For purposes of this

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

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

services (including through the provision of services of technical or other

personnel) if such services:a. are ancillary and

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

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

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

the development and transfer of a technical plan or technical design.1.2.3.4.5. Notwithstanding

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

paid:a. for services that are

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

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

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

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

international traffic;c. for teaching in or by

educational institutions;d. for services for the

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

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

than a company) for professional services as defined in article 15 (Independent

Personal Services).1.2.3.4.5.6. The provisions of

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

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

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

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

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

therein, and the royalties or fees for included services are attributable to

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

article 7 (business profits) or article 15 (Independent Personal Services), as

the case may be, shall apply.7.a. Royalties and fees

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

payer is that State itself, a political sub-division, a local authority, or a

resident of that State. Where, however, the person paying the royalties or fees

for included services, whether he is a resident of a Contracting State or not,

has in a Contracting State a permanent establishment or a fixed base in

connection with which the liability to pay the royalties or fees for included

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

borne by such permanent establishment or fixed base, then such royalties or

fees for included services shall be deemed to arise in the Contracting State in

which the permanent establishment or fixed base is situated.b. Where under

sub-paragraph (a) royalties or fees for included services do not arise in one

of the Contracting States, and the royalties relate to the use of, or the right

to use, the right or property, or the fees for included services relate to

services performed, in one of the Contracting States, the royalties or fees for

included services shall be deemed to arise in that Contracting State.1.2.3.4.5.6.7.8. Where, by reason of a

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

of them and some other person, the amount of the royalties or fees for included

services paid exceeds the amount which would have been paid in the absence of

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

last-mentioned amount. In such case, the excess part of the payments shall

remain taxable according to the laws of each Contracting State, due regard

being had to the other provisions of the Convention.Article

13GAINSExcept

as provided in article 8 (Shipping and Air Transport) to this Convention, each

Contracting State may tax capital gains in accordance with the provisions of

its domestic law.Article

14PERMANENT

ESTABLISHMENT TAX1. A company which is a

resident of India may be subject in the United States to a tax in addition to

the tax allowable under the other provisions of this Convention.a. Such tax, however,

may be imposed only on:i.

the

portion of the business profits of the company subject to tax in the United

States which represents the dividend equivalent amount; andii.

the

excess, if any, of interest deductible in the United States in computing the

profits of the company that are subject to tax in the United States and either

attributable to a permanent establishment in the United States or subject to

tax in the United States under article 6 (Income From Immovable Property (Real

Property)), article 12 (Royalties and Fees for Included Services) as fees for

included services, or article 13 (Gains) of this Convention over the interest

paid by or from the permanent establishment or trade or business in the United

States.a.b. For purposes of this

article, business profits means profits that are effectively connected (or

treated as effectively connected) with the conduct of a trade or business

within the United States and are either attributable to a permanent

establishment in the United States or subject to tax in the United States under

article 6 (Income From Immovable Property (Real Property)), article 12

(Royalties and Fees for Included Services) as fees for included services or

article 13 (Gains) of this Convention.c. The tax referred to

in sub-paragraph (a) shall not be imposed at a rate exceeding:i.

the

rate specified in paragraph 2(a) of article 10 (Dividends) for the tax

described in sub-paragraph (a)(i); andii.

the

rate specified in paragraph 2(a) or (b) (whichever is appropriate) of article

11 (Interest) for the tax described in sub-paragraph (a)(ii).1.2. A company which is a

resident of the United States may be subject to tax in India at a rate higher

than that applicable to the domestic companies. The difference in the tax rate

shall not, however, exceed the existing difference of 15 per centage points.3. In the case of a

banking company which is a resident of the United States, the interest paid by

the permanent establishment of such a company in India to the head office may

be subject in India to a tax in addition to the tax imposable under the other

provisions of this Conventon at a rate which shall not exceed the rate

specified in paragraph 2(a) of article 11 (Interest).Article

15INDEPENDENT

PERSONAL SERVICES1. Income derived by a

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

is a resident of a Contracting State from the performance in the other

Contracting State of professional services or other independent activities of a

similar character shall be taxable only in the first-mentioned State except in

the following circumstances when such income may also be taxed in the other

Contracting State:a. if such person has a

fixed base regularly available to him in the other Contracting State for the

purpose of performing his activities, in that case, only so much of the income

as is attributable to that fixed base may be taxed in that other State; orb. if the person's stay

in the other Contracting State is for a period or periods amounting to or

exceeding in the aggregate 90 days in the relevant taxable year.1.2. The term

"professional services" includes independent scientific, literary,

artistic, educational or teaching activities as well as the independent

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

and accountants.Article

16DEPENDENT

PERSONAL SERVICES1. Subject to the

provisions of article 17 (Director's Fees), 18 (Income Earned by Entertainers

and Athletes), 19 (Remuneration and Pensions in Respect of Government Service),

20 (Private Pensions, Annuities, Alimony and Child Support), 21 (Payments

Received by Students and Apprentices) and 22 (Payments Received by Professors,

Teachers and Research Scholars), salaries, wages, and other similar

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

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

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

as is derived therefrom may be taxed in that other State.2. Notwithstanding the

provisions of paragraph 1, remuneration derived by a resident of a Contracting

State in respect of an employment exercised in the other Contracting State

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

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

aggregate 183 days in the relevant taxable year;b. the remuneration is

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

andc. the remuneration is

not borne by a permanent establishment or a fixed base or a trade or business

which the employer has in the other State.1.2.3. Notwithstanding the

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

employment exercised aboard a ship or aircraft operating in international

traffic by an enterprise of a Contracting State may be taxed in that State.Article

17DIRECTOR'S

FEESDirector's

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

18INCOME

EARNED BY ENTERTAINERS AND ATHLETES1. Notwithstanding the

provisons of articles 15 (Independent Personal Services) and 16 (Dependent

Personal Services), income derived by a resident of a Contracting State as an

entertainer, such as a theatre, motion picture, radio or television artiste, or

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

the other Contracting State, may be taxed in that other State, except where the

amount of the net income derived by such entertainer or athlete from such

activities (after deduction of all expense incurred by him in connection with

his visit and performance) does not exceed one thousand five hundred United

States dollars ($1,500) or its equivalent in Indian rupees for the taxable year

concerned.2. Where income in

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

as such accrues not to the entertainer or athlete but to another person, that

income of that other person may, notwithstanding the provisions of articles 7

(Business Profits), 15 (Independent Personal Services) and 16 (Dependent

Personal Services), be taxed in the Contracting State in which the activities

of the entertainer or athlete are exercised unless the entertainer, athlete, or

other person establishes that neither the entertainer or athlete nor persons

related thereto participate directly or indirectly in the profits of that other

person in any manner, including the receipt of deferred remuneration, bonuses,

fees, dividends, partnership distributions, or other distributions.3. Income referred to in

the preceding paragraphs of this article derived by a resident of a Contracting

State in respect of activities exercised in the other Contracting State shall

not be taxed in that other State if the visit of the entertainers or athletes

to that other State is supported wholly or substantially from the public funds

of the Government of the first-mentioned Contracting State, or of a political

sub-division or local authority thereof.4. The competent

authorities of the Contracting States may, by mutual agreement, increase the

dollar amounts referred to in paragraph 1 to reflect economic or monetary

developments.Article

19REMUNERATION

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 authority thereof to an individual in respect of services rendered to

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

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

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

that State who:i.

is

a national of that State; orii.

did

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

services.1.2.a. Any pension paid by,

or out of funds created by a Contracting State or a political sub-division or a

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

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

shall be taxable only in the other Contracting State if the individual is a

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

16 (Dependent Personal Services), 17 (Directors' Fees), 18 (Income Earned by

Entertainers and Athletes) and 20 (Private Pensions, Annuities, Alimony and

Child Support) 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

20PRIVATE

PENSIONS, ANNUITIES, ALIMONY AND CHILD SUPPORT1. Any pension, other

than a pension referred to in article 19 (Remuneration and Pensions in Respect

of Government Service), 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. Notwithstanding

paragraph 1, and subject to the provisions of article 19 (Remuneration and

Pensions in Respect of Government Service), Social security benefits and other

public pensions paid by a Contracting State to a resident of the other

Contracting State or a citizen of the United States shall be taxable only in

the first-mentioned State.3. 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.4. The term

"annuity" means stated sums payable periodically at stated times

during life or during a specified or ascertainable number of years, under an

obligation to make the payments in return for adequate and full consideration

in money or money's worth (but not for services rendered).5. Alimony paid to a

resident of a Contacting State shall be taxable only in that State. The term

"alimony" as used in this paragraph means periodic payments made

pursuant to a written separation agreement or a decree of divorce, separate

maintenance, or compulsory support, which payments are taxable to the recipient

under the laws of the State of which he is a resident.6. Periodic payments for

the support of a minor child made pursuant to a written separation agreement or

a decree of divorce, separate maintenance or compulsory support, paid by a

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

shall be taxable only in the first-mentioned State.Article

21PAYMENTS

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 principally for the purpose of his education or training shall

be exempt from tax in that other State, on payments which arise outside that

other State for the purposes of his maintenance, education or training.2. In respect of grants,

scholarships and remuneration from employment not covered by paragraph 1, a

student or business apprentice described in paragraph 1 shall, in addition, be

entitled during such education or training to the same exemptions, reliefs or

reductions in respect of taxes available to residents of the State which he is

visiting.3. 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.4. For the purposes of

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

State if he is resident in that Contracting State in the taxable year in which

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

year.Article

22PAYMENTS

RECEIVED BY PROFESSORS, TEACHERS AND RESEARCH SCHOLARS1. An individual who

visits a Contracting State for a period not exceeding two years for the purpose

of teaching or engaging in research at a university, college or other

recognized educational institution in that State, and who was immediately

before that visit a resident of the other Contracting State, shall be exempted

from tax by the first-mentioned Contracting State on any remuneration for such

teaching or research for a period not exceeding two years from the date he

first visits that State for such purpose.2. This article shall

apply to income from research only if such research is undertaken by the

individual in the public interest and not primarily for the benefit of some

other private person or persons.Article

23OTHER

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 within the foregoing

articles of this Convention 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 (Income from Immovable Property

(Real Property)), if the beneficial owner of the 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

income is attributable to such permanent establishment or fixed base. In such

case the provisions of article 7 (Business Profits) or article 15 (Independent

Personal Services), as the case may be, shall apply.3. Notwithstanding the

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

Contracting State not dealt with in the foregoing articles of this Convention

and arising in the other Contracting State may also be taxed in that other

State.Article

24LIMITATION

ON BENEFITS1. A person (other than

an individual) which is a resident of a Contracting State and derives income

from the other Contracting State shall be entitled under this Convention to

relief from taxation in that other Contracting State only if:a. more than 60 per

cent. of the beneficial interest in such person (or in the case of a company,

more than 50 per cent. of the number of shares of each class of the company's

shares) is owned, directly or indirectly, by one or more individual residents

of one of the Contracting States, one of the Contracting States or its

political sub-divisions or local authorities, or other individuals subject to

tax in either Contracting State on their worldwide incomes, or citizens of the

United States; andb. the income of such