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NEPAL 32. Agreement for avoidance of double taxation
and prevention of fiscal evasion with Nepal Whereas the annexed Agreement between the Government of the Republic of
India and His Majestys Government of Nepal for the avoidance of double
taxation and the prevention of fiscal evasion with respect to taxes on income
has come into force on 1st November, 1988, on the notification by both the
Contracting States to each other, under Article 27 of the said Agreement, of
the completion of procedures required under their respective laws for bringing
the Agreement into force ; Now, therefore, in exercise of the powers conferred by section 90 of the
Income-tax Act, 1961 (43 of 1961), and section 24A of the Companies (Profits)
Surtax Act, 1964 (7 of 1964), the Central Government hereby directs that all
the provisions of the said Agreement shall be given effect to in the Union of
India. Notification : No. GSR No.
1146(E), dated 5-12-1988.
Annexure
Agreement between the Government of the republic of The Government of the Republic of India and His Majestys Government of
Nepal 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 agreement ARTICLE
1 - Personal
scope - This Agreement shall apply to persons who are residents of one or
both of the Contracting States. ARTICLE
2 - Taxes
covered - 1. The taxes to which this Agreement shall apply are : (a) in the case of India: (i) the income-tax including any surcharge
thereon imposed under the Income-tax Act, 1961 (43 of 1961) ; (ii) the surtax imposed under the Companies
(Profits) Surtax Act, 1964 (7 of 1964) (hereinafter referred to as Indian
tax) ; (b) in the case of Nepal : (i) income-tax imposed under the Income-tax Act,
2031 (hereinafter referred to as Nepal tax). 2.
The Agreement shall also apply to any identical or substantial similar taxes
which are imposed by either Contracting State after the date of signature of
the present Agreement in addition to, or in place of, the taxes referred to in
paragraph 1. The competent authorities of the Contracting States shall notify
each other of any substantial changes which are made in their respective
taxation laws.
Chapter II -
Definitions ARTICLE
3 - General
definitions - 1. In this Agreement, unless the context otherwise
requires: (a) the terms a Contracting State and the other
Contracting State mean India or Nepal, as the context requires ; (b) the term tax means Indian tax or Nepal 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
Agreement applies or which represents a penalty imposed relating to those taxes
; (c) the term person includes an individual, a
company and any other entity which is treated as a taxable unit, under the
taxation laws in force in the respective Contracting States ; (d) the term company means any body corporate or
any entity which is treated as a company or body corporate under the taxation
laws in force in the respective Contracting States ;
(e) the terms
enterprise of a Contracting State and enterprise of the other Contracting
State mean 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 ;
(f) the term competent
authority means in the case of India, the Central Government in the Ministry
of Finance (Department of Revenue) or their authorised representative; and in
the case of Nepal, His Majestys Government, Ministry of Finance or their
authorised representative ;
(g) 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 laws in force in the Contracting State ;
(h) the term
international traffic means any transport by an aircraft operated by an
enterprise of a Contracting State, except when the aircraft is operated solely
between places in the other Contracting State. 2. As
regards the application of the Agreement by a Contracting State, any term not
defined therein shall, unless the context otherwise requires, have the meaning
which it has under the law of that State concerning the taxes to which the
Agreement applies. ARTICLE
4 - Resident
- 1. For the purposes of this Agreement, the term resident of a
Contracting State means any person who, under the laws of that State, is
liable to tax therein by reason of his domicile, residence, place of management
or any other criterion of a similar nature. 2.
Where by reason of the provisions of paragraph 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 in which his economic activities are
concentrated ;
(b) if he has not a
permanent home available to him in either State, he shall be deemed to be
resident of the State in which he has an habitual abode ;
(c) if he has an
habitual abode in both States or in neither of them, he shall be deemed to be
a resident of the State in which his economic activities are concentrated ;
(d) in case of
dispute, the competent authorities of the Contracting States shall settle the
question by mutual agreement. 3.
Where by reason of the provisions of paragraph 1, a person other than an
individual is a resident of both Contracting States, then it shall be deemed to
be a resident of the State in which its place of effective management is
situated. ARTICLE
5 - Permanent
establishment - 1. For the purposes of this Agreement, the term
permanent establishment means a fixed place of business through which the
business of the enterprise is wholly or partly carried on. 2.
The term permanent establishment includes especially :
(a) a place of
management ;
(b) a branch ;
(c) an office ;
(d) a factory ;
(e) a workshop ;
(f) a mine, an oil or
gas well, a quarry or any other place of extraction of natural resources ;
(g) a building site or
construction or assembly project, but only where such site, project or activity
continues for a period or periods aggregating to more than 183 days in any
twelve-month period ;
(h) the furnishing of
services by an enterprise through employees or other personnel, where
activities continue within the country for a period or periods aggregating to
more than 183 days in any twelve-month period. 3.
Notwithstanding the preceding provisions of the article, the term permanent
establishment shall be deemed not to include : (a) the use of facilities solely for the purpose
of storage or display of goods or merchandise belonging to the enterprise ; (b) the maintenance of a stock of 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 carrying on, for the enterprise, any other activity
of a preparatory or auxiliary character. 4.
Notwithstanding the provisions of paragraphs 1 and 2, where a person - other
than an agent of independent status - to whom paragraph 5 applies is acting on
behalf of an enterprise and has, and habitually exercises, in a Contracting
State an authority to conclude contracts on behalf of the enterprise, that
enterprise shall be deemed to have a permanent establishment in that State in
respect of activities which that person undertakes for the enterprise, unless the
activities of such person are limited to the purchase of goods or merchandise
for the enterprise. 5. An
enterprise of a Contracting State shall not be deemed to have a permanent
establishment in the other Contracting State merely because it carries on business
in that other State through a broker, a general commission agent or any other
agent of an independent status provided that such persons are acting in the
ordinary course of their business. However, when the activities of such an
agent are devoted wholly or almost wholly on behalf of that enterprise, he will
not be considered an agent of an independent status within the meaning of this
paragraph. 6.
The fact that a company which is a resident of a Contracting State controls or
is controlled by a company which is a resident of the other Contracting State,
or which carries on business in that other Contracting State (whether through a
permanent establishment or otherwise), shall not of itself constitute either
company a permanent establishment of the other.
Chapter III - Taxation
of 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 respecting landed property apply, usufruct of
immovable property and rights to variable or fixed payments as consideration
for the working of, or the right to work, mineral deposits, sources and other
natural resources. Ships, boats and aircraft shall not be regarded as immovable
property. 3.
The provisions of paragraph 1 shall also apply to income derived from the
direct use, letting, or use in any other form of immovable property. 4.
The provisions of paragraphs 1 and 3 shall also apply to the income from
immovable property of an enterprise and to income from immovable property used
for the performance of independent personal services. ARTICLE
7 - Business
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 that permanent establishment. 2.
Subject to the provisions of paragraph 3, where an enterprise of a Contracting
State carries on business in the other Contracting State through a permanent
establishment situated therein, there shall in each Contracting State be
attributed to that permanent establishment the profits which it might be
expected to make if it were a distinct and separate enterprise engaged in the
same or similar activities under the same or similar conditions and dealing
wholly independently with the enterprise of which it is a permanent establishment. 3. (a)
In the determination of the profits of a permanent establishment, there shall
be allowed as deductions, expenses of the enterprise which are incurred for the
purpose of the permanent establishment, including only those executive and general
administrative expenses incurred, whether in the State in which the permanent
establishment is situated or elsewhere which are allowed under the provisions
of the domestic law of the Contracting State in which the permanent
establishment is situated. (b) However, no such deduction shall be allowed in respect of
amounts, if any, paid (otherwise than towards reimbursement of actual expenses)
by the permanent establishment to the head office of the enterprise or any of
its other offices, by way of royalties, fees or other similar payments, in
return for the use of patents or other rights, or by way of commission, for
specific services performed or for management, or, except in the case of a
banking enterprise, by way of interest on monies lent to the permanent
establishment. Likewise, no account shall be taken in the determination of the profits of a permanent establishment
of amounts charged (otherwise than towards reimbursement of actual expenses) by
the permanent establishment to the head office of the enterprise or any of its
other offices, by way of royalties, fees or other similar payments in return
for the use of patents or other rights, or by way of commission for specific
services performed or for management, or, except in the case of a banking
enterprise by way of interest on monies lent to the head office of the
enterprise or any of its other offices. 4.
Insofar as it has been customary in a Contracting State to determine the
profits to be attributed to a permanent establishment on the basis of an
apportionment of the total profits of the enterprise to its various parts,
nothing in paragraph 2 shall preclude that Contracting State from determining
the profits to be taxed by such an apportionment as may be customary, the
method of apportionment adopted shall, however, be such that the result shall
be in accordance with the principles contained in this Article. 5. No
profits shall be attributed to a permanent establishment by reason of the mere
purchase by that permanent establishment of goods or merchandise for the
enterprise. 6.
For the purposes of the preceding paragraphs, the profits to be attributed to
the permanent establishment shall be determined by the same method year by year
unless there is good and sufficient reason to the contrary. 7.
Where profits include items of income which are dealt with separately in other
Articles of this Agreement, then the provisions of those Articles shall not be
affected by the provisions of this Article. ARTICLE
8 - Air
transport - 1. Profits derived by an enterprise of a Contracting
State from the operation of aircraft in international traffic shall be taxable
only in that State. 2.
The provisions of paragraph 1 shall also apply to profits from the
participation in a pool, a joint business or an international operating
agency. 3.
For the purposes of this Article, interest on funds connected with the
operation of aircraft in international traffic shall be regarded as
income/profits derived from the operation of such aircraft, and the provisions
of Article 11 shall not apply in relation to such interest. 4.
The term operation of aircraft shall mean business of transportation by air
of passengers, mail, livestock or goods carried on by the owners or lessees or
charterers of aircraft, including the sale of tickets for such transportation
on behalf of other enterprises, the incidental lease of aircraft and any other
activity directly connected with such transportation. ARTICLE
9 - Associated
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
10 - Dividends
- 1. 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 recipient is the beneficial owner of the dividends, the tax
so charged shall not exceed :
(a) 10 per cent of the
gross amount of the dividends if the beneficial owner is a company which owns
at least ten per cent of the shares of the company paying the dividends ;
(b) 15 per cent of the
gross amount of the dividends in all other cases. This paragraph shall not affect the taxation of the company in respect
of the profits out of which the dividends are paid. 3.
The term dividends as used in this Article means income from shares or other
rights, not being debt-claims, participating in profits, as well as income from
other corporate rights which is subjected to the same taxation treatment as
income from shares by the laws of the State of which the company making the
distribution is a resident. 4.
The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of
the dividends, being a resident of a Contracting State, carries on business in
the other Contracting State of which the company paying the dividends is a
resident, through a permanent establishment situated therein or performs in
that other State independent personal services from a fixed base situated
therein, and the holding in respect of which the dividends are paid is
effectively connected with such
permanent establishment or fixed base. In such case, the provisions of Article
7, or Article 13, 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 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
11 - Interest
- 1. Interest arising in a Contracting State and paid to a resident of
the Contracting State may be taxed in that other State. 2.
However, such interest may also be taxed in the Contracting State in which it
arises and according to the laws of that State, but if the recipient is the
beneficial owner of the interest the tax so charged shall not exceed 15 per cent
of the gross amount of the interest : Provided, however, that where the interest is paid to a bank carrying on bona
fide banking business, which is a resident of the other Contracting State
and is the beneficial owner of the interest, the tax charged in the Contracting
State in which the interest arises shall not exceed 10 per cent of the gross
amount of the interest. 3.
Notwithstanding the provisions of paragraph 2, interest arising in a
Contracting State shall be exempt from tax in that State provided it is derived
and beneficially owned by : (i) the Government, a political sub-division or a
local authority of the other Contracting State ; or (ii) the Central Bank of the other Contracting
State. 4.
The term interest as used in this Article means income from debt-claims of
every kind, whether or not secured by mortgage and whether or not carrying a
right to participate in the debtors profits, and in particular, income from
Government securities and income from bonds or debentures, including premiums
and prizes attaching to such securities, bonds or debentures. Penalty charges
for late payment shall not be regarded as interest for the purpose of this
Article. 5.
The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of
the interest, being a resident of a Contracting State, carries on business in
the other Contracting State in which the interest arises through a permanent
establishment situated therein, or performs in that other State independent
personal services from a fixed base situated therein, and the debt-claim in
respect of which the interest is paid is effectively connected with such
permanent establishment or fixed base. In such case, the provisions of Article
7 or Article 13, as the case may be, shall apply. 6. Interest
shall be deemed to arise in a Contracting State when the payer is that
Contracting State itself, a political sub-division, a local authority or a
resident of that State. Where, however, the person paying the interest, whether
he is a resident of a Contracting State or not, has in a Contracting State a
permanent establishment or a fixed base in connection with which the
indebtedness on which the interest is paid was incurred, and such interest is
borne by such permanent establishment or fixed base, then such interest shall
be deemed to arise in the Contracting State in which the permanent
establishment or fixed base is situated. 7.
Where, by reason of a special relationship between the payer and the beneficial
owner or between both of them and some other person, the amount of the
interest, having regard to the debt-claim for which it is paid, exceeds the
amount which would have been agreed upon by the payer and the beneficial owner
in the absence of such relationship, the provisions of this Article shall apply
to the last mentioned amount. In such case, the excess part of the payments
shall remain taxable according to the laws of each Contracting State, due
regard being had to the other provisions of this Agreement. ARTICLE
12 - Royalties
- 1. Royalties arising in a Contracting State and paid to a resident of
the other Contracting State may be taxed in that other State. 2.
However, such royalties may also be taxed in the Contracting State in which
they arise and according to the laws of that State, but if the recipient is the
beneficial owner of the royalties, the tax so charged shall not exceed 15 per
cent of the gross amount of the royalties. 3.
The term royalties as used in this Article means payments of any kind
received as a consideration for the use 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 provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of
the royalties, being a resident of a Contracting State, carries on business in
the other Contracting State in which the royalties arise, through a permanent
establishment situated therein, or performs in that other State independent
personal services from a fixed base situated therein and the right or property
in respect of which the royalties are paid is effectively connected with such
permanent establishment or fixed base. In such case, the provisions of Article
7 or Article 13, as the case may be, shall apply. 5.
Royalties shall be deemed to arise in a Contracting State when the payer is
that State itself, a political
sub-division, a local authority or a resident of that State. Where,
however, the person paying the royalties, whether he is a resident of a Contracting
State or not, has in a Contracting State a permanent establishment or a fixed
base in connection with which the liability to pay the royalties was incurred,
and such royalties are borne by such permanent establishment or fixed base,
then such royalties shall be deemed to arise in the State in which the
permanent establishment or fixed base is situated. 6.
Where, by reason of special relationship between the payer and the beneficial
owner or between both of them and some other person, the amount of royalties,
having regard to the use, right or information for which they are paid, exceeds
the amount which would have been agreed upon by the payer and the beneficial
owner in the absence of such relationship, the provisions of this article shall
apply only to the last-mentioned amount. In such case, the excess part of the
payments shall remain taxable according to the laws of each Contracting State,
due regard being had to the other provisions of this Agreement. ARTICLE
13 - 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 shall be taxable only in that State except in the following circumstances
when such income may also be taxed in the other Contracting State :
(a) if he has a fixed
base regularly available to him in the other Contracting State for the purpose
of performing his activities; in that case, only so much of the income as is attributable
to that fixed base may be taxed in that other Contracting State ; or
(b) if his stay in the
other Contracting State is for a period or periods amounting to or exceeding in
the aggregate 183 days in the relevant previous year or year of income, as
the case may be; in that case, only so much of the income as is derived from
his activities performed in that other State may be taxed in that other State. 2.
The term professional services includes independent scientific, literary,
artistic, educational or teaching activities, as well as the independent
activities of physicians, surgeons,
lawyers, engineers, architects, dentists and accountants. ARTICLE
14 - Dependent
personal services - 1. Subject to the provisions of Articles 15, 16,
17, 18, 19 and 20, salaries, wages and other similar remuneration derived by a
resident of a Contracting State in respect of an employment shall be taxable
only in that State unless the employment is exercised in the other Contracting
State. If the employment is so exercised, such remuneration as is derived
therefrom 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 previous year or year of income, as the
case may be ; and
(b) the remuneration
is paid by, or on behalf of, an employer who is not 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 derived
in respect of an employment exercised aboard an aircraft operated in
international traffic by an enterprise of a Contracting State shall be taxable
only in that State. ARTICLE
15 - 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 State. ARTICLE
16 - Income
earned by entertainers and athletes - 1. Notwithstanding the
provisions of Articles 13 and 14, income derived by a resident of a Contracting
State as an entertainer such as a theatre, motion picture, radio or television
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.
While income in respect of personal activities exercised by an entertainer or
an athlete in his capacity as such accrues not to the entertainer or athlete
himself but to another person, that income may, notwithstanding the provisions
of Articles 7, 13 and 14, be taxed in the Contracting State in which the
activities of the entertainer or athlete 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 his personal activities as such
exercised in the other Contracting State, shall be taxable only in the
first-mentioned Contracting State, if the activities in the other Contracting
State are supported wholly or substantially from the public funds of the
first-mentioned Contracting State, including any of its political sub-divisions
or local authorities. 4.
Notwithstanding the provisions of paragraph 2 and Articles 7, 13 and 14, where
income in respect of personal activities exercised by an entertainer or an
athlete in his capacity as such in a Contracting State accrues not to the
entertainer or athlete himself but to another person, that income shall be
taxable only in the other Contracting State, if that other person is supported
wholly or substantially from the public funds of that other State, including
any of its political sub-divisions or local authorities. ARTICLE
17 - Remuneration
and pensions in respect of Government
service - 1. (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, 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 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 other Contracting
State if the individual is a resident of, and a national of that other State. 3.
The provisions of Articles 14, 15 and 16 shall apply to remuneration and
pensions in respect of services rendered in connection with a business carried
on by a Contracting State or political sub-division or a local authority
thereof.
Article 18 - Non-Government pensions and annuities - 1.
Any pension, other than a pension referred to in Article 17, or any annuity
derived by a resident of a Contracting State from sources within the other
Contracting State may be taxed only in the first-mentioned Contracting State. 2.
The term pension means a periodic payment made in consideration of past
services or by way of compensation for injuries received in the course of performance
of services. 3.
The term annuity means a stated sum payable periodically at stated times during life or during a
specified or ascertainable period of time, under an obligation to make the
payments in return for adequate and full consideration in money or moneys
worth.
Article 19 - Payments received by students and apprentices
- 1. A student or business apprentice who is or was a resident of one of
the Contracting States immediately before visiting the other Contracting State
and who is present in that other State solely
for the purpose of his education or training, shall be exempt from tax
in that other State on : (a) payments made to him by persons residing
outside that other State for the purposes of his maintenance, education or
training ; and (b) remuneration from employment in that other
State, in an amount not exceeding Rs. 18,000 (Indian currency) or its equivalent
in Nepalese currency during any previous year or the year of income, as the
case may be, provided that such employment is directly related to his studies
or is undertaken for the purpose of his maintenance. 2.
The benefits of this Article shall extend only for such period of time as may
be reasonable or customarily required to complete the education or training
undertaken, but in no event shall any individual have the benefits of this
Article for more than three consecutive years from the date of his first
arrival in that other Contracting State.
Article 20 - Payment received by professors, teachers and research
scholars - 1. A professor or teacher who is or was resident of one
of the Contracting States immediately
before visiting the other Contracting State
for the purpose of teaching or engaging in research, or both, at a
university, college, school or other approved institution in that other
Contracting State shall be exempt from tax in that other State on any remuneration for such teaching
or research for a period not exceeding two years from the date of his arrival
in that other State. 2.
This article shall not apply to income from research if such research is
undertaken primarily for the private benefit of a specific person or persons. 3.
For the purposes of this article and article 19, an individual shall be deemed
to be a resident of a Contracting State if he is resident in that Contracting
State in the previous year or the year of income, as the case may be, in
which he visits the other Contracting State or in the immediately preceding
previous year or year of income. 4.
For the purposes of paragraph 1, approved institution means an institution which has been approved in this
regard by the competent authority of the concerned Contracting State.
Article 21 - Other income - 1. Subject to the
provisions of paragraph 2, items of income of a resident of a Contracting
State, wherever arising which are not expressly dealt with in the foregoing
articles of this Agreement, shall be taxable only in that Contracting State. 2.
The provisions of paragraph 1 shall not apply to income, other than income from
immovable property as defined in paragraph 2 of Article 6, if the recipient of
such income, being a resident of a Contracting State, carries on business in
the other Contracting State through a permanent establishment situated therein,
or performs in that other State independent personal services from a fixed base
situated therein, and the right or property in respect of which the income is
paid is effectively connected with such permanent establishment or fixed base.
In such case, the provisions of Article 7 or Article 13, as the case may be,
shall apply. Chapter IV - Methods of elimination of double taxation
Article 22 - Elimination of double taxation - 1.
The laws in force in either of the Contracting States shall continue to govern
the taxation of income in the respective Contracting States except where
provisions to the contrary are made in this Agreement. Where income is subject
to tax in both Contracting States, relief from double taxation shall be given
in accordance with this article. 2.
Subject to the provisions of the law of Nepal regarding the allowance as a
credit against Nepals tax or tax payable in territory outside Nepal (which
shall not affect the general principle hereof) Indian tax payable under the law
of India and in accordance with the provisions of this Agreement, whether
directly or by deduction, on income from sources within India shall be allowed
as a credit against any Nepal tax computed by reference to the same items of
income by reference to which the Indian tax is computed. 3.
For the purpose of the credit referred to in paragraph 2, the term Indian tax
payable shall be deemed to include any amount by which tax has been reduced by
the special incentive measures under : (i) sections 10(4), 10(4A), 10(6)(viia),
10(15)(iv), 10(28), 10A, 32A, 33A, 80HH, 80HHA, 80-I and
80L of the Income-tax Act, 1961 (43 of 1961) ; and (ii) any other provisions, which may subsequently
be enacted granting a reduction of tax which the competent authorities of the
Contracting States agree to be for the purposes of economic development. 4.
Subject to the provisions of the law of India regarding the allowance as a
credit against Indian tax of tax payable in a territory outside India (which
shall not affect the general principle hereof) Nepal tax payable under the law
of Nepal and in accordance with the provisions of this Agreement whether
directly or by deduction, on income from sources within Nepal shall be allowed
as a credit against any Indian tax computed
by reference to the same items of income by reference to which Nepal tax
is computed : Provided that such credit shall not exceed Indian tax (as computed before
allowing any such credit), which is appropriate to the income derived from
sources within Nepal, so however, that where such resident is a company by
which surtax is payable in India, the credit aforesaid shall be allowed in the
first instance against income-tax
payable by the company in India, and as to the balance, if any, against payable
by it in India. 5.
For the purpose of paragraph 4 of this article the term Nepal tax payable shall be deemed to include any
amount which would have been payable as Nepal tax for any year but for an
exemption or reduction of tax granted for that year or any part thereof under : (a) sub-section (2) of section 42 of the Nepal
Income-tax Act, 2031 (1974), so far as they were in force on, and have been
modified since, the date of the signature of this Agreement, or have been
modified only in minor respects so as not to affect their general character ;
or (b) any other provisions which may subsequently be
made granting an exemption or reduction of tax which is agreed by the competent
authorities to be of a substantially
similar character, if it has not been modified thereafter or has been modified
only in minor respects so as not to affect its general character. 6.
Where under this Agreement a resident of a Contracting State is exempt from tax
in that Contracting State in respect of income derived from the other
Contracting State, then the first-mentioned Contracting State may, in
calculating tax on the remaining income of that person, apply the rate of tax
which would have been applicable if the income exempted from tax in accordance
with the Agreement had not been so exempted. Chapter V - special provisions
Article 23 - 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 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. 3.
Nothing contained in this article shall be construed as obliging Contracting
State to grant to persons not resident in that State any personal allowances,
reliefs, reductions and deductions for taxation purpose which are by law
available only to persons who are so resident. 4.
Enterprises of a Contracting State, the capital of which is wholly or partly
owned or controlled, directly or indirectly, by one or more residents of the
other Contracting State, shall not be subjected in the first-mentioned
Contracting State to any taxation or any requirement connected therewith which
is other or more burdensome than the taxation and connected requirements to
which other similar enterprises of that first-mentioned State are or may be
subjected in the same circumstances. 5. In
this article, the term taxation means taxes which are the subject of this
Agreement.
Article 24 - Mutual agreement procedure - 1.
Where a resident of a Contracting State considers that the actions of one or
both of the Contracting States results or will result for him in taxation not
in accordance with this Agreement, he may, notwithstanding the remedies
provided by the national laws of those States, present his case to the
competent authority of the Contracting State of which he is a resident. This
case must be presented within three years of the date of receipt of notice of
the action which gives rise to taxation not in accordance with the Agreement. 2.
The competent authority shall endeavour, if the objection appears to it to be
justified and if it is not 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 Agreement. Any agreement reached shall be implemented notwithstanding
any time limits in the national laws of the Contracting States. 3.
The competent authorities of the Contracting States shall endeavour to resolve
by mutual agreement any difficulties or doubts arising as to the interpretation
or application of the Agreement. They may also consult together for the
elimination of double taxation in cases not provided for in the Agreement. 4.
The competent authorities of the Contracting State may communicate with each
other directly for the purpose of reaching an agreement in the sense of the
preceding paragraphs. When it seems advisable in order to reach agreement to
have an oral exchange of opinions, such exchange may take place through a
Commission consisting of representatives of the competent authorities of the Contracting States.
Article 25 - Exchange of information - 1. The
competent authorities of the Contracting States shall exchange such
information (including documents) as is necessary for carrying out the provisions
of the agreement or of the domestic laws of the Contracting States concerning
taxes covered by the Agreement, insofar as the taxation thereunder is not
contrary to the Agreement, in particular for the prevention of fraud or
evasion of such taxes. Any information received by a Contracting State shall be
treated as secret in the same manner as information obtained under the domestic
laws of that State. However, if the information is originally regarded as secret in the transmitting
State, it shall be disclosed only to persons or authorities (including courts
and administrative bodies) involved in the assessment or collection of, the
enforcement or prosecution in respect of, or the determination of appeals in
relation to, the taxes which are the subject of the Agreement. Such persons or
authorities shall use the information only for such purposes but may disclose
the information in public court proceedings or in judicial decisions. The
competent authorities shall, through consultation, develop appropriate
conditions, methods and techniques concerning matters in respect of which such exchange of information shall be
made, including, where appropriate, exchange of information regarding tax
avoidance. 2.
The exchange of information or documents shall be either on a routine basis or
on request with reference to particular cases or both. The competent
authorities of the Contracting States shall agree from time to time on the list
of the information or documents which shall be furnished on a routine basis. 3. In
no case, shall 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 administrative practices of that or of the other
Contracting State ; (b) to supply information or documents which are
not obtainable under the laws or in the normal course of the administration
of that or of the other Contracting
State ; (c) to supply information or documents which would
disclose any trade, business, industrial, commercial or professional secret or
trade process or information the disclosure of which would be contrary to
public policy.
Article 26 - Diplomatic and consular activities -
Nothing in this Agreement shall affect the fiscal privileges of diplomatic or
consular officials under the general rules of international law or under the
provisions of special agreement. Chapter VI - final provisions
Article 27 - Entry into force - Each of the Contracting
State shall notify to the other completion of the procedure required by its law for the bringing into force of this
Agreement. This Agreement shall enter into force on the date of the later of
these notifications and shall thereupon have effect :
(a) in India, in
respect of income arising in any previous year beginning on or after the first
day of April next following the calendar year in which the later of the
notifications is given ;
(b) in Nepal, in
respect of income arising in any year of income beginning on or after the 1st
day of Nepalese fiscal year next following the calendar year in which the later
of the notifications is given.
Article 28 - Termination - This Agreement shall remain
in force indefinitely but either of the Contracting States may, on or before
the thirtieth day of June in any calendar year beginning after the expiration
of a period of five years from the date of its entry into force, give the other
Contracting State through diplomatic channel, written notice of termination
and, in such event, this Agreement shall cease to have effect :
(a) in India, in respect
of income arising in any previous year beginning on or after the 1st day of April next following the calendar
year in which the notice of termination is given ;
(b) in Nepal, in
respect of income arising in any year of income beginning on or after the 1st
day of Nepalese fiscal year next following the calendar year in which the
notice of termination is given.
In witness whereof the undersigned, being duly authorised thereto,
have signed the present Agreement.
Done in duplicate at Kathmandu on this eighteenth day of January, one
thousand nine hundred and eighty seven in Hindi, Nepalese and English
languages, all the texts being equally authentic. In case of divergence in
interpretation, the English text shall prevail.
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