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ITALY 21. Italy - Convention for avoidance for double
taxation and prevention of fiscal evasion with Italy Whereas the annexed Convention between the Government of the Republic of India and the Government of the Republic of Italy for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income has entered into force on 23-11-1995 after the exchange of instruments of ratification by the Contracting States 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), the Central Government hereby directs that all the
provisions of the said Convention shall be given effect to in the Union of
India. Notification : No. GSR
189(E), dated 25-4-1996. Annexure
Convention
between the Government of the Republic of India and the The
Government of the Republic of India and the Government of the Republic of
Italy. Desiring
to conclude an Agreement for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with respect to Taxes on Income. Have
agreed as follows :
Chapter I - Scope of
the convention Article 1 : Personal scope - This
Convention shall apply to persons who are residents of one or both of the
Contracting States. Article 2 : Taxes covered - 1.
The taxes to which the Convention shall apply are : (a) in the case of India : 1. the Income-tax including any surcharge
thereon ; and 2. the surtax ; (hereafter referred to as Indian
tax) ; (b) in the case of Italy : 1. the personal income-tax ; 2. the corporate income-tax ; and 3. the local income-tax ;
even if they are collected by
withholding taxes at the source. (hereafter referred to as
Italian Tax). 2. The
Convention shall also apply to any identical or substantially similar taxes
which are imposed by either Contracting State after the date of signature of
the present Convention in addition to, or in place of, the taxes referred to in
paragraph 1 of this Article. 3. At the
end of each year, the competent authorities of the Contracting States shall
notify to each other any changes which have been made in their respective
taxation laws which are the subject of this Convention and furnish copies of
relevant enactments and regulations. Chapter II - Definitions Article 3 : General definitions - 1.
For the purposes of this Convention, unless the context otherwise requires : (a) the term India means the territory of India and
includes the territorial sea and airspace above it, as well as any other
maritime zone in which India has sovereign rights, other rights and
jurisdictions, according to the Indian law and in accordance with International
Law ; (b) the term Italy means the Republic of Italy
including the territorial waters of Italy and airspace above them, as well as
any area beyond the said territorial waters, specifically it includes the
sea-bed and the subsoil contiguous to the territory of the peninsula and the Italian
islands situated beyond the territorial waters within bounds indicated by the
Italian law on the exploration and the exploitation of their natural resources
; (c) the terms a Contracting State and the other
Contracting State mean India or Italy, as the context require ; (d) the term tax means Indian tax or Italian
tax, as the context requires, but shall
not include any amount which is payable in respect of any default or omission
in relation to the taxes to which this Convention applies or which represents a
penalty imposed relating to those taxes ; (e) the term person shall have the meaning
assigned to it in the taxation laws in force in the respective Contracting
States ; (f) the term company means any body corporate or
any entity which is treated as a company or a body corporate under the taxation
laws of the respective Contracting States ; (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 fiscal year in relation to Indian
tax means previous year as defined in the Income-tax Act, 1961 (43 of 1961) ; (i) 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 ; (j) the term national means any individual
possessing the nationality of a Contracting State and any legal person, partnership
or association deriving its status from the law in force in the Contracting
State ; (k) the term competent authority means in the
case of India, the Central Government in the Ministry of Finance (Deptt. of
Revenue) or their authorised representative, and in the case of Italy, the
Ministry of Finance. 2. In the
application of the provisions of this Convention by one of the Contracting
States, any term not defined herein shall, unless the context otherwise
requires, have the meaning which it has under the laws in force in that State
relating to the taxes which are the subject of this Convention. Article 4 : Fiscal domicile - 1.
For the purposes of this Convention the term resident of a Contracting State
means any person who is a resident of that State in accordance with the
taxation laws of that State. 2. Where
by reason of the provisions of paragraph 1, an individual is a resident of
both Contracting States, then his residential status for the purposes of this
Convention shall be determined in accordance with the following rules : (a) he shall be deemed to be a resident of the
Contracting State in which he has a permanent home available to him. If he has
a permanent home available to him in both Contracting States, he shall be
deemed to be a resident of the Contracting State with which his personal and
economic relations are closer (hereinafter referred to as his centre of vital
interests) ; (b) if the Contracting 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 Contracting State, he shall be deemed
to be a resident of the Contracting State in which he has an habitual abode ; (c) if he has an habitual abode in both
Contracting States or in neither of them, he shall be deemed to be a resident
of the Contracting State of which he is a national ; (d) if he is a national of both Contracting States
or of neither of them, the competent authorities of the Contracting States
shall settle the question by mutual agreement. 3. Where
by reason of the provisions of paragraph 1, a person other than an individual
is a resident of both the Contracting State, then it shall be deemed to be a
resident of the Contracting State in which its place of effective management
is situated. Article 5 : Permanent establishment
- 1. For the purposes 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 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 premises used as a sales outlet or for
receiving or soliciting orders ; (i) an installation or structure used for the
exploration or exploitation of natural resources ; (j) 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, project or
activities, if any) continue for a period of more than six months, or where
such project or supervisory activity, being incidental to the sale of
machinery or equipment, continues for a period not exceeding six months and the
charges payable for the project or supervisory activity exceed 10 per cent of
the sale price of the machinery and equipment : Provided
that for the purpose of this paragraph, an enterprise shall be
deemed to have a permanent establishment in a Contracting State and to carry
on business through that permanent establishment if it provides services or
facilities in connection with or supplies plant and machinery on hire used or
to be used in, the prospecting for, or extraction or production of mineral oils
in the State. 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 or display 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 or
display ; (c) the maintenance of a stock of goods or
merchandise belonging to the enterprise solely for the purpose of processing by
another enterprise ; (d) the maintenance of a fixed 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 similar activities which have a preparatory or
auxiliary character, for the enterprise. However, the provisions of
sub-paragraphs (a) to (e) shall not be applicable where the
enterprise maintains any other fixed place of business in the other Contracting
State for any purposes other than the purposes specified in the said
sub-paragraphs. 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 that State
an authority to conclude contracts on behalf of the enterprise, unless his
activities are limited to the purchase of goods or merchandise for the
enterprise ; (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 ;
or (c) he habitually secures orders in the
first-mentioned State, wholly or almost wholly for the enterprise itself or for
the enterprise and other enterprise controlling, controlled by, or subject to
the same common control, as that enterprise, (d) in so acting, he manufactures or processes in
that State for the enterprise goods or merchandise belonging to the enterprise. 5. An enterprise of a Contracting State shall not be deemed to
have a permanent establishment in the other Contracting State merely because it
carries on business in that other State through a broker, general commission
agent or any other agent of an independent status, provided that such persons
are acting in the ordinary course of their business. However, when the
activities of such an agent are devoted wholly or almost wholly on behalf of
that enterprise itself or on behalf of that enterprise and other enterprise
controlling controlled by, or subject to the same common control, as that
enterprise, he will not be considered an agent of an 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.
Chapter III - Taxation
of income
Article
6 : Income from immovable property - 1.
Income derived by a resident of a Contracting State from immovable property (including
income from agriculture or forestry) situated in the other Contracting State
may be taxed in that other State. 2. The term immovable property shall have the meaning which
it has under the law of the Contracting State in which the property in question
is situated. The term shall in any case include property accessory to
immovable property, livestock and equipment used in agriculture and forestry,
rights to which the provisions of general law respective 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 shall also be considered as immovable
property. Ships, boats and aircraft shall not be regarded as immovable
property. 3. The provisions of paragraph 1 shall apply to income derived
from the direct use, letting, or use in any other form of immovable property. 4. The provisions of paragraphs 1 and 3 shall also apply to the
income from immovable property of an enterprise and to income from immovable
property used for the performance of independent personal services.
Article
7 : Business profits - 1. 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 that 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 that 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 separate
enterprise engaged in the same or similar activities under the same or similar
conditions and dealing wholly independently with the enterprise of which it is
a permanent establishment. In any case where the correct amount of profits
attributable to a permanent establishment is incapable of determination or of
the determination thereof presents exceptional difficulties, the profits
attributable to the permanent establishment may be estimated on a reasonable
basis. 3. In the determination of the profits of a permanent establishment,
there shall be allowed as deduction expenses which are incurred for the
purposes 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. 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 purpose of export to the enterprise of which it is the permanent
establishment. 5. For the purposes of the preceding paragraphs, the profits to
be attributed to the permanent establishment shall be determined by the same
method year by year unless there is good and sufficient reason to the
contrary. 6. Where profits include items of income which are dealt with
separately in other Articles of this Convention, then the provisions of those
Articles shall not be affected by the provisions of this Article.
Article
8 : Air transport - 1. Income
derived from the operation of aircraft in international traffic by an
enterprise of one of the Contracting States shall not be taxed in the other
Contracting State. 2. The provisions of paragraph 1 shall also apply to profits
from the participation in a pool, a joint business or an international
operating agency. 3. For the purposes of this Article : (a) interest of funds connected with the operation
of aircraft in international traffic shall be regarded as income from the
operation of such aircraft ; and (b) the term operation of aircraft shall mean
business of transportation by air of persons, livestock, goods or mail, carried
on by the owners or lessees or charterers of aircraft, including the sale of
tickets for such transportation on behalf of other enterprises, the incidental
lease of aircraft and any other activity directly connected which such
transportation.
Article
9 : Shipping - 1. Income
of an enterprise of a Contracting State from the operation of ships in
international traffic shall be taxable only in that State. 2. The provisions of paragraph 1 shall also apply to profits
from the participation in a pool, a joint business or an international
operating agency engaged in the operation of ships. 3. For the purpose of this Article, interest on funds connected
with the operation of ships in international traffic shall be regarded as
income from the operation of such ships and the provisions of Article 12 shall
not apply in relation to such interest. 4. For the purpose of paragraph 1 of this Article, income from
the operation of ships in international traffic shall include : (a) profits derived from the rental on a full or
bareboat basis of ships if such rental profits are incidental to the operation
of ships in international traffic, and (b) profits derived from the use, maintenance or
rental of containers (including trailers and related equipment for the
transport of containers) in connection with the transport of goods or
merchandise in international traffic. 5. Paragraph 1 shall not apply to profits arising as a result
of coastal traffic.
Article
10 : Associated enterprises - 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, or (b) 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 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.
Article
11 : Dividends - 1.
Dividends paid by a company which is
resident of a Contracting State to a resident of the other Contracting State
may be taxed in that other State. 2. However, such dividends may also be taxed in the Contracting
State of which the company paying the dividends is a resident and according to
the laws of that State, but if the recipient is the beneficial owner of the
dividends, the tax so charged shall not
exceed : (a) 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 shares of the company paying the dividends ; (b) 25 per cent of the gross amount of the
dividends in all other cases. This paragraph shall not affect
the taxation of the company in respect of the profits out of which the
dividends are paid. 3. The provisions of paragraph 2(a) would apply in
respect of dividends arising out of the investment made after the date of
signature of the Convention. 4. The term dividends as used in this Article means income
from shares, jouissance shares or jouissance rights, mining shares,
founders shares or other rights, not being debt-claims, participating in
profits, as well as income from other corporate rights which is subjected to
the same taxation treatment as income from shares by the taxation laws of the
State of which the company making the distribution is a resident. 5. The provisions of paragraphs 1 and 2 shall not apply if the
beneficial owner of the dividends, being a resident of a Contracting State, carries
on business in the other Contracting State of which the company paying the
dividends is a resident, through a permanent establishment situated therein or
performs in that other State independent personal services from a fixed base
situated therein, and the holding in respect of which the dividends are paid
is effectively connected with such permanent establishment or fixed base. In
such a case, the dividends shall be taxable in that other Contracting State
according to its own law. 6. Where a company which is a resident of a Contracting State
derives profits or income from the other Contracting State, that other State
may not impose any tax on the dividends paid by the company except insofar as
such dividends are paid to a resident of that other State or 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 companys undistributed profits to a tax on the companys
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
12 : Interest - 1.
Interest arising in a Contracting State and paid to a resident of the other
Contracting State may be taxed in both the Contracting States. 2. Notwithstanding the provisions of paragraph 1, the tax
chargeable in a Contracting State or interest arising in that State and paid
to a resident of the other Contracting State in respect of loans or debts shall
not exceed 15 per cent of the gross amount of such interest. 3. Notwithstanding the provisions of paragraph 2, 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, or (b) the interest is paid to any agency or
instrumentality (including a financial institution) which may be agreed upon in
this behalf by the two Contracting States. 4. The term interest as used in this Article means income
from Government securities, 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 and 2 shall not apply if the
recipient of the interest, being a resident of a Contracting State, carries on
business in the other Contracting State, in which the interest arises, through
a permanent establishment situated therein, or performs in that other State
independent personal services from a fixed base situated therein, and the
debt-claim in respect of which the interest is paid is effectively connected
with such permanent establishment or fixed base. In such a case, the interest
shall be taxable in that other Contracting State according to its own law. 6. Interest shall be deemed to arise in a Contracting State
when the payer is that State itself, a political or administrative
sub-division, a local authority or a resident of that State. Where, however,
the person paying the interest, whether he is a resident of a Contracting State
or not, has in a Contracting State a permanent establishment or a fixed base in
connection with which the indebtedness on which the interest is paid was
incurred, and such interest is borne by such permanent establishment or fixed
base, then such interest shall be deemed to arise in the State in which the permanent
establishment or fixed base is situated. 7. Where, owning to a special relationship between the payer
and the recipient or between both of them and some other person, the amount of
the interest paid, 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
recipient in the absence of such relationship, the provisions of this Article
shall apply only to the last-mentioned amount. In that case, the excess part of
the payments shall remain taxable according to the law of each Contracting
State, due regard being had to the other provisions of this Convention.
Article
13 : Royalties and fees for technical
services - 1. Royalties and fees for technical services
arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State. 2. However, such royalties and fees for technical services may
also be taxed in the Contracting State in which they arise and according to the
laws of that State, but if the recipient is the beneficial owner of the
royalties, or fees for technical services, the tax so charged shall not exceed
20 per cent of the gross amount of the royalties or fees for technical
services. 3. The term royalties as used in this Article means payments
of any kind received as a consideration for the use of, or the right to use,
any copyright of literary, artistic or scientific work, including cinematograph
films or films or tapes used for radio or television broadcasting, any patent,
trade mark, design or model, plan, secret formula or process, or for the use
of, or the right to use, industrial, commercial or scientific equipment, or for
information concerning industrial, commercial or scientific experience. 4. The term fees for technical services as used in this
Article means payments of any amount to any person other than payments to an
employee of the person making payments, in consideration for the services of a
managerial, technical or consultancy nature, including the provisions of
services of technical or other personnel. 5. The provisions of paragraphs 1 and 2 shall not apply if the
beneficial owner of the royalties or fees for technical services, being a
resident of a Contracting State, carries on business in the other Contracting
State in which the royalties or fees for technical services arise, through a
permanent establishment situated therein, or performs in that other State
independent personal services from a fixed base situated therein, and the
right, property or contract in respect of which the royalties or fees for
technical services are paid is effectively connected with such permanent
establishment or fixed base. In such a case, the royalties or fees for
technical services shall be taxable in that other Contracting State according
to its own law. 6. Royalties and fees for technical services shall be deemed to
arise in a Contracting State when the payer is that State itself, a political
or administrative sub-division, a local authority or a resident of that State.
Where, however, the person paying the royalties or fees for technical services,
whether he is a resident of a Contracting State or not, has in a Contracting
State a permanent establishment or a fixed base in connection with which the
liability to pay the royalties or fees for technical services was incurred, and
such royalties or fees for technical services are borne by such permanent
establishment or fixed base, then such royalties or fees for technical services
shall be deemed to arise in the State in which the permanent establishment or
fixed base is situated. 7. Where, by reason of a special relationship between the payer
and the beneficial owner or between both of them and some other person, the
amount of royalties or fees for technical services paid exceeds the amount
which would have been paid in the absence of such relationship, the provisions
of this article shall apply only to the last-mentioned amount. In such case,
the excess part of the payments shall remain taxable according to the laws of each
Contracting State, due regard being had to the other provisions of this
Convention.
Article
14 : Capital gains - 1. Gains
derived by a resident of a Contracting State from the alienation of immovable
property referred to in Article 6 and situated in the other Contracting State
may be taxed in that other State. 2. Gains from the alienation of movable property forming part
of the business property of a permanent establishment which an enterprise of a
Contracting State has in the other Contracting State or of movable property
pertaining to a fixed base available to resident of a Contracting State in the
other Contracting State for the purpose of performing independent personal
services, including such gains from the alienation of such a permanent establishment
(alone or together with the whole enterprise) or of such fixed base, 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 and 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 shares of the capital stock of
a company the property of which consists directly or indirectly principally of
immovable property situated in a Contracting State may be taxed in that State. 5. Gains from the alienation of shares other than those
mentioned in paragraph 4 in a company which is a resident of a Contracting
State may be taxed in that State. 6. Gains from the alienation of any property other than that
referred to in paragraphs 1, 2, 3, 4
and 5 shall be taxable only in the Contracting State of which the alienator is
a resident.
Article
15 : Independent personal services - 1.
Income derived by a resident of a Contracting State in respect of professional
services or other independent activities of a similar character may be taxed in
that State. Such income may also be taxed in the other Contracting State if
such services are performed in that other State and if : (a) he is present in that other State for a period
or periods aggregating 183 days in the relevant fiscal year, or (b) he has a fixed base regularly available to him
in that other State for the purpose of performing his activities but only so
much of the income as is attributable to that fixed base. 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
16 : Dependent personal services - 1.
Subject to the provisions of Articles 17, 18, 19 and 20 salaries, wages and
other similar remuneration derived by a resident of a Contracting State in
respect of an employment shall be taxable only in that State unless the
employment is exercised in the other Contracting State. If the employment is so
exercised, such remuneration as is derived therefrom 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 fiscal
year concerning ; (b) the remuneration is paid by, or on behalf of,
an employer who is not a resident of the other State ; and (c) the remuneration is not borne by a permanent
establishment or a fixed base which the employer has in the other State. 3. Notwithstanding the preceding provisions of this Article,
remuneration in respect of an employment exercised aboard a ship or aircraft in
international traffic, may be taxed in the Contracting State in which the
place of effective management of the enterprise is situated.
Article
17 : Directors fees - Directors
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 Contracting State.
Article
18 : Artistes and athletes - 1.
Notwithstanding the provisions of Articles 15 and 16, income derived by a
resident of a Contracting State as an entertainer such as a theatre, motion
picture, radio or television artiste or a musician or as an athlete, from his
personal activities as such exercised in the other Contracting State may be
taxed in that other State. 2. Where income in respect of personal activities exercised by
an entertainer or 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, 15 and 16, be taxed in the
Contracting State in which the activities of the entertainer or athlete are
exercised. 3. Notwithstanding the provisions of paragraph 1, income
derived by an entertainer or an athlete who is a resident of a Contracting
State from personal activities as such exercised in the other Contracting
State, shall be taxable only in the first-mentioned Contracting State, if the
activities in the other Contracting State are supported wholly or substantially
from the public funds of the first-mentioned Contracting State, including any
of its political sub-division or local authorities. 4. Notwithstanding the provisions of paragraph 2 and Articles
7, 15 and 16, where income in respect of personal activities exercised by an
entertainer or an athlete in his capacity as such in a Contracting State
accrues not to the entertainer or athlete himself but to another person, that
income shall be taxable only in the other Contracting State, if that other
person is supported wholly or substantially from the public funds of that other
State, including any of its political sub-division or local authorities.
Article
19 : Pensions -
Subject to the provisions
of paragraph 2 of Article 20, pensions and other similar remuneration paid to a
resident of a Contracting State in consideration of past employment may be
taxed in both the Contracting States.
Article
20 : Government service -
1. (a) Remuneration, other than a pension, paid by a
Contracting State or a political or administrative sub-division or a local
authority thereof to any individual in respect of services rendered to that
State or sub-division or authority shall be taxable only in that State. (b) However, such
remuneration shall be taxable only in the other Contracting State if the
services are rendered in that State and the individual is a resident of that
State, who : (i) is a national of that State, or (ii) did not become a resident of that State solely
for the purpose of rendering the services. 2.
(a) Any pension paid by, or out of funds created by, a
Contracting State or a political or administrative 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 national of and a resident of that State. 3. The provisions of Articles 16, 17, 18 and 19 shall apply to
remunerations and pensions in respect of services rendered in connection with a
business carried on by a Contracting State or a political or administrative
sub-division or a local authority thereof.
Article
21 : Professors, teachers and
researchers -
1. A professor or teacher
who makes 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, owned by the Government or
non-profit organizations, 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. 2. This Article shall not apply to income from research if such
research is undertaken primarily for the private benefit of a specific person
or persons.
Article
22 : Students and trainees -
1. An individual who is a resident of a Contracting State and
visits the other Contracting State solely : (a) as a student at a university, college or other
recognised educational institution in that other Contracting State, or (b) as a business apprentice, or (c) for the purpose of study, research or
training, as a recipient of a grant, allowance or award, from a governmental,
religious, charitable, scientific or educational organization, shall be exempt from tax in
that other Contracting State : (i) on his remuneration and all remittances from
abroad for the purposes of maintenance, education or training ; (ii) on the grant, allowance or award; and (iii) in respect of remuneration for an employment
in that other Contracting State for such period of time as may be necessarily
required for the completion of study, research or training, as the case may be. 2. An individual who is a resident of a Contracting State and
who visits the other Contracting State for a period not exceeding one year as
employee of, or under contract with, an enterprise of the first-mentioned
Contracting State or an organization referred to in paragraph 1 for the primary
purpose of acquiring technical, professional or business experience from a
person other than such enterprise or organization shall be exempt from tax in
that other Contracting State in respect of remuneration for an employment in
that other Contracting State for such a period, to the extent such remuneration
does not exceed 5,000,000 Italian Liras or its equivalent in Indian rupees, as
the case may be, in any year.
Article
23 : Other income -
Items of income of a
resident of a Contracting State, wherever arising, not dealt with in the foregoing
Articles of this Convention may be taxed in both the Contracting States.
Chapter IV
Article
24 : Method for elimination of
double taxation -
1. The laws in force in
either of the Contracting States will continue to govern the taxation of income
in the respective Contracting States except where provisions to the contrary
are made in this Convention. 2. It is agreed that double taxation shall be avoided in accordance
with the following paragraphs of this Article. 3.
(a) The amount of Italian tax payable under the laws
of Italy and in accordance with the provisions of this Convention, whether
directly or by deduction by a resident of India, in respect of income from
sources within Italy which has been subjected to tax both in India and Italy,
shall be allowed as a credit against the Indian tax payable in respect of such
income but in an amount not exceeding that proportion of Indian tax which such
income bears to the entire income chargeable to Indian tax. (b) For the purposes of
the credit referred to in sub-paragraph (a) above, where the resident of
India is a company by which surtax is payable, the credit to be allowed against
Indian tax shall be allowed in the first instance against the income-tax
payable by the company in India and, as to the balance, if any, against the
surtax payable by it in India. 4.
(a) If a resident of Italy owns items of income which
are taxable in India, Italy, in determining its income taxes specified in Article
2 of this Convention, may include in the basis upon which such taxes are
imposed the said items of income, unless specific provisions of this Convention
otherwise provide. In such a case, Italy shall
deduct from the taxes so calculated the Indian tax on income, but in an amount
not exceeding that proportion of the aforesaid Italian tax which such items of
income bear to the entire income. On the contrary, no deduction
will be granted if the item of income is subjected in Italy to a final
withholding tax by request of the recipient of the said income in accordance
with the Italian law. (b) For the purposes of
paragraphs 3 and 4 of this Article, where tax on business profits, dividends,
interests, royalties or fees for technical services arising in a Contracting
State is exempted or reduced in accordance with the taxation laws of that
State, such tax which has been exempted or reduced shall be deemed to have been
paid. 5. Income which is in accordance with the provisions of this
Convention is not to be subjected to tax in a Contracting State may be taken
into account for calculating the rate of tax to be imposed in that Contracting
State on other income.
Chapter V - Special
provisions
Article
25 : Non-discrimination - 1. The nationals of a Contracting State shall not
be subjected in the other Contracting State to any taxation or any requirement
connected therewith, which is other or more burdensome than the taxation and
connected requirements to which nationals of that other State in the same
circumstances and under the same conditions are or may be subjected. 2. The taxation on a permanent establishment which an
enterprise of a Contracting State has in the other Contracting State shall not
be less favourably levied in that other State than the taxation levied on
enterprises of that other State carrying on the same activities in the same
circumstances or under the same conditions. 3. Nothing contained in this Article shall be construed as obliging
a Contracting State to grant to persons not resident in that State any personal
allowances, reliefs and reductions for taxation purposes which are by law
available only to persons who are so resident. 4. Enterprises of a Contracting State, the capital of which is
wholly or partly owned or controlled, directly or indirectly, by one or more
residents of the other Contracting State, shall not be subjected in the
first-mentioned Contracting State to any taxation or any requirement connected therewith which is other or more
burdensome than the taxation and connected requirements to which other similar
enterprises of that first-mentioned State are or may be subjected in the same
circumstances and under the same conditions. 5. In this Article, the term taxation means taxes which are
the subject of this Convention.
Article
26 : Mutual agreement procedure -
1. Where a resident of a Contracting State considers that the
actions of one or both of the Contracting States result or will result for him
in taxation not in accordance with this Convention, he may, notwithstanding the
remedies provided by the national laws of those States, present his case to the
competent authority of the Contracting State of which he is a resident. The
claim must be lodged within two years from the date of the assessment or of the
withholding of tax at the source, whichever is the later. 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 an
appropriate solution to resolve the case by mutual agreement with the competent
authority of the other Contracting State, with a view to the avoidance of
taxation not in accordance with the Convention. 3. The competent authorities of the Contracting States shall
endeavour to resolve by mutual agreement any difficulties or doubts arising as
to the interpretation or application of the Convention. They may also consult
together for the elimination of double taxation in cases not provided for in
the Convention. 4. The competent authorities of the Contracting States may
communicate with each other directly for the purpose of reaching an agreement
in the sense of the preceding paragraphs. When it seems advisable in order to
reach agreement to have an oral exchange of opinions, such exchange may take
place through a Commission consisting of representatives of the competent
authorities of the Contracting States.
Article
27 : Exchange of information -
1. 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 this Convention insofar as the taxation thereunder is not
contrary to the Convention as well as to prevent fraud or evasion of such
taxes. The exchange of information is not restricted by Article 1. Any
information received by a Contracting State shall be treated as secret in the
same manner as information obtained under the domestic laws of that State and
shall be disclosed only to persons or authorities (including courts and
administrative bodies) involved in the assessment or collection of, the
enforcement or prosecution in respect of, or the determination of appeals in
relation to, the taxes covered by this Convention. Such persons or authorities
shall use the information only for such purposes. They may disclose the
information in public court proceedings or in judicial decisions. 2. In no case shall the provisions of paragraph 1 be construed so
as to impose on a Contracting State the obligation : (a) to carry out administrative measures at
variance with the laws or the administrative practice of that or of the other
Contracting State ; (b) to supply information which is not obtainable
under the laws or in the normal course of the administration of that or of the
other Contracting State ; (c) to supply information which would disclose any
trade, business, industrial, commercial or professional secret or trade process
or information, the disclosure of which would be contrary to public policy
(ordre public).
Article
28 : Diplomatic and consular activities
- Nothing in this Convention shall affect the fiscal privileges of diplomatic
or consular officials under the general rules of international law or under the
provisions of special agreements.
Article
29 : Refunds - 1. Tax
withheld at source in a Contracting State shall be refunded on application by
or on behalf of the taxpayer or by the State of which he is a resident if such
resident is entitled to a refund of that tax under the provisions of this
Convention. 2. Application for refund shall be made within the time limit
fixed by the law of the Contracting State in which the tax has been withheld
and shall be accompanied by a certificate of the Contracting State of which the
taxpayer is a resident certifying that the conditions required for
entitlement to the refund have been
fulfilled. 3. The competent authorities of the Contracting States shall by
mutual agreement settle the mode of application of this Article, in accordance
with the provisions of Article 26 of this Convention.
Chapter VI Final
Provisions
Article
30 : Entry into force - 1.
This Convention shall be ratified and the instruments of ratification shall be
exchanged at Rome as soon as possible. 2. This Convention shall enter into force on the date of
exchange of instruments of ratification and its provisions shall have effect : (a) in India, in respect of income assessable in
any previous year commencing on or after the first day of April of the
calendar year next following the calendar year in which the Convention enters
into force ; (b) in Italy, in respect of income assessable in
any taxable period commencing on or after the first day of January of the
calendar year next following the calendar year in which the Convention enters
into force. 3. The existing Agreement between the Government of India and
the Government of Italy for the avoidance of double taxation and the prevention
of fiscal evasion with respect to taxes on income signed at Rome on 12th
January, 1981 shall cease to have effect at the time when the provisions of
this Convention shall be effective in accordance with the provisions of
paragraph 2.
Article
31 : Termination - This Convention
shall remain in force indefinitely, but either of the Contracting States may on
or before 30th June in any calendar year beginning after the expiration of a
period of five years from the date of its entry into force give to the other
Contracting State, through diplomatic channels, written notice of termination. In such event the Convention
shall cease to have effect : (a) in India, in respect of income assessable for
any taxable period (previous year) commencing on or after the 1st day of April
in the calendar year next following that in which such notice is given. (b) in Italy, in respect of income assessable for
any taxable period commen-cing on or
after the 1st day of January in the calendar year next following that in which
such notice is given. In witness whereof the
undersigned, duly authorised thereto by their respective Governments, have
signed the present convention. Done in duplicate at New Delhi
the 19th day of February, 1993, in Hindi, Italian and English languages, all
texts being equally authoritative except in the case of doubt when the English
text shall prevail. Protocol To the Convention between the
Government of the Republic of India and the Government of the Republic of Italy
for the avoidance of double taxation and the prevention of fiscal evasion with
respect to taxes on income. At the signing of the
Convention concluded today between the Government of the Republic of Italy 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, the
undersigned have agreed upon the following additional provisions which shall
form an integral part of the said Convention. It is understood : (a) that, with reference to Article 7, paragraph
3, the expression expenses which are incurred for the purposes of the business
of the permanent establishment means the expenses directly connected with the
activity of the permanent establishment, and royalties, commission and interest
to the extent of the actual amount of expenses reimbursed, and in both cases as
admissible in accordance with the provisions of the taxation laws of the Contracting
State in which the permanent establishment is situated ; (b) that, with reference to Article 12, paragraph
2, the expression loans or debts means, in the case of India, loans or debts
approved in this behalf by the Government of India ; (c) that, with reference to Article 20, the
remuneration paid to an individual in respect of services rendered to the Bank
of Italy, to the Italian State Railways (FF.SS.), to the Italian State Post
undertaking (PP.TT.), to the Italian Foreign Trade Institution (I.C.E.), to the
Italian Tourism Body (E.N.I.T.), and to any corresponding Indian body or
institution, are covered by the provisions concerning Government service and,
consequently, by paragraphs 1 and 2 of the aforesaid Article.
Other
public bodies or institutions may also be included in the preceding list by
mutual agreement between the competent authorities of the Contracting States ; (d) that, with reference to Article 24, paragraph
4(b), tax exempted or reduced means, in the case of India, any amount
which would have been payable, in respect of a taxable year as Indian tax but for
a deduction allowed in computing the taxable income or an exemption or
reduction of tax granted for that year under : (i) Sections
10(4), 10(4A), 10(4B), 10(15)(iv), 10A,
32AB, 80HH, 80HHC, 80-I and 80-U of the Income-tax Act, 1961 (43 of 1961), so
far as they were in force on and have
not been modified since the date of signature of this Convention or have been
modified only in minor respects so as not to affect their general character ; (ii) any
other provision which may subsequently be made granting an exemption or
reduction from tax which is agreed by the competent authorities of the
Contracting States to be of a substantially similar character, if it has been
modified only in minor respects so as not to affect its general character ; (e) that, with reference to Article 26,
paragraph 1, the expression notwithstanding the remedies provided by the
national laws means that the mutual agreement procedure is not alternative to
the national ordinary proceedings which shall be, in any case, preventively
initiated, when the claim is related to an assessment of taxes not in
accordance with this Convention ; (f) that, with reference to paragraph 3 of Article
29, the provisions herein contained shall not be construed as preventing the
competent authorities of the Contracting States from mutually agreeing upon a
different procedure for the granting of tax benefits provided by this
Convention. In witness whereof the
undersigned, duly authorised thereto by their respective Governments, have
signed the present Protocol. Done in duplicate at New Delhi
the 19th day of February, 1993, in the Hindi, Italian and English languages,
all texts being equally authoritative except in the case of doubt when the
English text shall prevail. Judicial analysis
The assessee (an Italian company) had entered
into a technical collaboration agreement with Modipan, an Indian company.
Under the agreement the assessee was to supply copies of specifications
and/or drawings for the modification of the equipment installed at Modis for
achieving the results. As per clause (3) of the agreement the assessee was to
make available outside India for use by the Modis any improvements which were
successfully developed and put into commercial use by the assessee in the
field. For that purpose the assessee was required to permit annual technical
visits to its plant, relevant parts of its research centre, any factory in
Italy as specified by a specified number of technicians of Modis for a
specified period per year, the cost of which was to be borne by Modis. In
clause (4) of the Agreement the assessee was required to depute its technicians
twice a year to the Modis plant to inspect the plant, progress and assess the
problems, if any, at the cost of Modis. Clause 9 of the agreement bound Modis not
to engage any technician of the assessee without its previous written consent
during the term of the agreement and for a further period of 5 years. As per
article III, the term of agreement was
five years and it was provided that even after the expiry of 5 years and for a
further period of 5 years, the secrecy clause shall continue to be in force.
Article IV of the agreement dealt with secrecy and bound Modis to condition
that all designs, etc., supplied by the assessee and any knowledge received as a
result of implementation of the agreement should be kept confidential and to
be used by Modis only and enjoined upon Modis not to divulge or disclose
directly or indirectly to any third party without prior written consent of the
assessee. The agreement provided for renewal at the expiry of the term of the
agreement on the terms to be mutually agreed upon. The question was whether the
payment received by the assessee under the agreement was royalty within the
meaning of Double Taxation Avoidance Agreement between Italy and India. It was held that viewed in the context of
terms of agreement, it could not be said that the assessee parted with its
property in the form of designs/technical detail, formula, etc., forever in
favour of Modi in consideration of the amount received. The assessee continued
to hold property right in the information/designs, formula, etc., under the
agreement with Modi and also bound Modis fully not to pass on the information,
formula, etc., supplied to anybody else without written consent of the
assessee, which could not be in the case of an outright sale. Therefore, the
amount received was royalty under the terms of DTAA between India and Italy
and, therefore, taxable as such in IndiaAsstt. CIT v. Snla Fibre SPA
[1996] 55 TTJ (Delhi) 554.
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