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SRI
LANKA 44. Agreement for avoidance of double taxation
and prevention of fiscal evasion with Sri Lanka Whereas
the annexed Convention between the Government of the Republic of India and the
Government of the Democratic Socialist Republic of Sri Lanka for the avoidance
of double taxation and the prevention of fiscal evasion with respect to taxes
on income and on capital has been ratified and the instruments of ratification
exchanged as required by article 29 of the said Convention ; Now,
therefore, in exercise of the powers conferred by section 90 of the Income-tax
Act, 1961 (43 of 1961), and section 24A of the Companies (Profits) Surtax Act,
1964 (7 of 1964), the Central Government hereby directs that all the provisions
of the said Convention shall be given effect to in the Union of India. Notification : No. GSR
342(E), dated 19-4-1983.
TEXT OF CONVENTION, DATED 27-1-1982 The Government
of the Republic of India and the Government of the Democratic Socialist
Republic of Sri Lanka desiring to conclude a Convention for the avoidance of
double taxation and the prevention of fiscal evasion with respect to taxes on
income and on capital, have agreed as follows : ARTICLE
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. This Convention shall apply to taxes
on income and on capital imposed on behalf of each Contracting State
irrespective of the manner in which they are levied. 2. There
shall be regarded as taxes on income and on capital all taxes imposed on total
income, on total capital, or on elements of income or of capital including taxes
on gains from the alienation of movable or immovable property as well as taxes
on capital appreciation. 3. The
existing taxes to which this Convention shall apply are : (a) In Sri Lanka (i) the income-tax, including the income-tax
based on the turnover of enterprises licensed by the Greater Colombo Economic
Commission ; and (ii) the wealth-tax; (hereinafter
referred to as Sri Lanka tax). (b) In India (i) the income-tax including any surcharge
thereon; (ii) the surtax ; and (iii) the wealth-tax ; (hereinafter
referred to as Indian tax). 4. This
Convention shall also apply to any identical or substantially similar taxes
which are imposed after the date of signature of this Convention in addition
to, or in place of, the existing taxes. The competent authorities of the
Contracting States shall notify each other of any important changes which have
been made in their respective taxation laws. ARTICLE
3 - General definitions - 1. In this Convention, unless the
context otherwise requires: (a) the terms a Contracting State and the
other Contracting State mean Sri Lanka or India as the context requires; (b) the term person includes an individual, a
company and any other body of persons; (c) the term company means any body corporate or
any entity which is treated as a body corporate for the tax purposes ; (d) the terms enterprise of a Contracting State
and enterprise of the other Contracting State mean respectively an enterprise
carried on by a resident of a Contracting State and an enterprise carried on by
a resident of the other Contracting State ; (e) the term international traffic means any
transport by a ship or aircraft operated by an enterprise which has its place
of effective management in a Contracting State, except when the ship or
aircraft is operated solely between places in the other Contracting
State ; (f) the term national means : (i) an individual possessing the nationality of a
Contracting State ; (ii) a legal person, partnership or an association
deriving its status as such from the laws in force in a Contracting State ; (g) the term competent authority means : (i) in the case of Sri Lanka, the
Commissioner-General of Inland Revenue; (ii) in the case of India, the Central Government
in the Ministry of Finance (Department of Revenue). 2. As
regards the application of this Convention by a Contracting State any term not
defined therein shall, unless the context otherwise requires, have the meaning
which it has under the laws of that State relating to the taxes which are the
subject of this Convention. ARTICLE
4 - Fiscal domicile - 1. For the purposes of this Convention,
the term resident of a Contracting State means any person who, under the law
of that State, is liable to tax therein by reason of his domicile, residence,
place of management or any other criterion of a similar nature. But this term
does not include any person who is liable to tax in that State in respect only
of income from sources in that State or capital situated therein. 2. Where
by reason of the provisions of paragraph (1) of this article an
individual is a resident of both Contracting States, then his status shall be
determined as follows : (a) he shall be deemed to be a resident of the
State in which he has a permanent home available to him. If he has a permanent
home available to him in both States, he shall be deemed to be a resident of
the State with which his personal and economic relations are closer (centre of
vital interests) ; (b) if the State in which he has his centre of
vital interests cannot be determined, or if he has not a permanent home
available to him in either State he shall be deemed to be a resident of the
State in which he has an habitual abode ; (c) if he has an habitual abode in both States or
in neither of them, he shall be deemed to be a resident of the State of which
he is a national ; (d) if he is a national of both States or of
neither of them, the competent authorities of the Contracting States shall
settle the question by mutual agreement. 3. Where
by reason of the provisions of paragraph (1) of this article a person
other than an individual is a resident of both Contracting States, then it
shall be deemed to be a resident of the State in which its place of effective
management is situated. ARTICLE
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 shall include especially : (a) a place of management ; (b) a branch ; (c) an office ; (d) a factory ; (e) a workshop ; (f) a mine, an oil or gas well, a quarry or any
other place of extraction of natural resources ; (g) an agricultural or farming estate or
plantation ; 1(h) a building site or construction or assembly
project which exists for more than 183 days ; 1(i) the furnishing of services, including
consultancy services, by an enterprise through employees or other personnel,
where activities of that nature continue within the country for a period or
periods aggregating more than 183 days within any twelve-month period. 3.
Notwithstanding the preceding provisions of this article, the term permanent
establishment shall be deemed not to include : (a) the use of facilities solely for the purpose
of storage, display or delivery of goods or merchandise belonging to the
enterprise ; (b) the maintenance of a stock of goods or
merchandise belonging to the enterprise solely for the purpose of storage,
display or delivery ; (c) the maintenance of a stock of goods or
merchandise belonging to the enterprise solely for the purpose of processing by
another enterprise ; (d) the maintenance of a fixed place of business
solely for the purpose of purchasing goods or merchandise or of collecting
information, for the enterprise ; and (e) the maintenance of a fixed place of business
solely for the purpose of advertising for the supply of information or for
scientific research, being activities solely of a preparatory or auxiliary
character in the trade or business of the enterprise. 4. A
person acting in a Contracting State on behalf of an enterprise of the other
Contracting State - other than an agent of an independent status to whom paragraph
(6) of this article applies - shall be deemed to be a permanent
establishment in the first-mentioned State if he has, and habitually exercises
in that State, an authority to conclude contracts in the name of the
enterprise, unless his activities are limited to the purchase of goods or
merchandise for the enterprise. 5.
Notwithstanding the preceding provisions of this article, an insurance
enterprise of a Contracting State shall, except in regard to reinsurance, be
deemed to have a permanent establishment in the other Contracting State if it
collects premiums in the territory of that other State or insures risks
situated therein through a person other than an agent of independent status to
whom paragraph (6) of this article applies. 6. An
enterprise of a Contracting State shall not be deemed to have a permanent
establishment in the other Contracting State merely because it carries on
business in that Sate through a broker, general commission agent or any other
agent of an independent status, provided that such persons are acting in the
ordinary course of their business. However, when the activities of such an
agent are devoted wholly or almost wholly on behalf of that enterprise, he will
not be considered an agent of an independent status within the meaning of this
paragraph. 7. The
fact that a company which is a resident of a Contracting State controls or is
controlled by a company which is a resident of the other Contracting State, or
which carries on business in that other State (whether through a permanent
establishment or otherwise) shall not of itself constitute either company a
permanent establishment of the other. ARTICLE
6 - Income from immovable property - 1. Income from
immovable property may be taxed in the Contracting State in which such property
is situated. 2. The
term immovable property shall have the meaning which it has under the law of
the Contracting State in which the property in question is situated. The term
shall in any case include property accessory to immovable property, livestock
and equipment used in agriculture and forestry, rights to which the provisions
of general law respecting landed property apply, usufruct of immovable property
and rights to variable or fixed payments as consideration for the working of,
or the right to work, mineral deposits, sources and other natural resources;
ships, boats and aircraft shall not be regarded as immovable property. 3. The
provisions of paragraph (1) of this article shall apply to income
derived from the direct use, letting or use in any other form of immovable
property. 4. The
provisions of paragraphs (1) and (3) of this article shall also
apply to the income from immovable property of an enterprise and to income from
immovable property used for the performance of professional services. ARTICLE
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, (c) other business activities carried on in that
other State of the same or similar kind as those effected through that permanent
establishment. The
provisions of sub-paragraphs (b) and (c) above shall not apply if
the enterprise proves that such sales or activities are not attributable to the
permanent establishment. 2.
Subject to the provisions of paragraph (3) of this article, where an
enterprise of a Contracting State carries on business in the other Contracting
State through a permanent establishment situated therein, there shall in each
Contracting State be attributed to that permanent establishment the profits
which it might be expected to make if it were a distinct and separate
enterprise engaged in the same or similar activities under the same or similar
conditions and dealing wholly independently with the enterprise of which it is
a permanent establishment. 3. 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. 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 money
lent to the permanent establishment. Likewise, no account shall be taken in the
determination of the profits of a permanent establishment, for amounts charged
(otherwise than 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 sights, 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 money lent to the head office of the enterprise or any of
its other offices. 4.
Insofar as it has been customary in a Contracting State to determine the
profits to be attributed to a permanent establishment on the basis of an
apportionment of the total profits of the enterprise to its various parts
nothing in paragraph (2) of this Article shall preclude that Contracting
State from determining the profits to be taxed by such an apportionment as may
be customary ; the method of apportionment shall, however, be such that the
result will be in accordance with the principles contained in this article. 5. No
profits shall be attributed to a permanent establishment by reason of the mere
purchase by that permanent establishment of goods or merchandise for the
enterprise. 6. For
the 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 Convention, then the provisions of those articles shall not be
affected by the provisions of this article. ARTICLE
8 - Shipping and air transport - 1. Profits derived by an
enterprise of a Contracting State from the operation of ships or aircraft in
international traffic shall be taxable only in the Contracting State in which
the place of effective management of the enterprise is situated. 12.
Notwithstanding the provisions of paragraph (1), profits derived from
the operation of ships in international traffic may be taxed in the Contracting
State in which such operation is carried on ; but the tax so charged shall not
exceed 50 per cent of the tax otherwise imposed by the internal law of that
State : Provided that
for the purpose of the calculation of the tax, such profits shall be deemed to
be an amount not exceeding the rates presently provided in the taxation laws of
the respective States for the computation of such profits. 3. The
provisions of paragraphs (1) and (2) of this article shall
likewise apply in respect of profits from the participation in a pool, a joint
business or an international operating agency of any kind by enterprises
engaged in the operation of ships or aircraft in international traffic. 4. For
the purpose of paragraph (1), interest on funds connected with the
operation of ships or aircraft in international traffic shall be regarded as
income from the operation of such aircraft, and the provisions of article 11
shall not apply in relation to such interest. 5. If the
place of effective management of a shipping enterprise is aboard a ship, then
it shall be deemed to be situated in the Contracting State in which the home
harbour of the ship is situated, or if there is no such home harbour, in the
State of which the operator of the ship is a resident. ARTICLE
9 - Associated enterprises - 1. 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. 2. Where
a Contracting State includes in the profits of an enterprise of that State and
taxes accordingly profits on which an enterprise of the other Contracting State
has been charged to tax in that other State and the profits so included as
profits which would have accrued to the enterprise of the first-mentioned State
if the conditions made between the two enterprises had been those which would
have been made between the independent enterprises, then that other State
shall make an appropriate adjustment to the amount of the tax charged therein
on those profits. In determining such adjustment, due regard shall be had to
the other provisions of this Convention and the competent authorities of the
Contracting States, shall if necessary, consult each other. ARTICLE
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 the tax so charged shall not exceed 15 per cent of the gross amount
of the dividends. 3. The
term dividends as used in this article means income from shares, mining
shares, founders shares or other rights not being debt-claims, participating
in profits, as well as income from other corporate rights which is subjected to
the same taxation treatment as income from shares by the taxation law of the
State of which the company making the distribution is a resident. 4. The
provisions of paragraphs (1) and (2) of this article shall not
apply if the beneficial owner of the dividends, being a resident of a
Contracting State, carries on business in the other Contracting State of which
the company paying the dividends is a resident, through a permanent
establishment situated therein and the holding in respect of which the
dividends are paid is effectively connected with such permanent establishment.
In such case the provisions of article 7 shall apply. 5. Where
a company which is a resident of a Contracting State derives profits or income
from the other Contracting State, that other State may not impose any tax on
the dividends paid by the company, except insofar as such dividends are paid to
a resident of that other State or insofar as the holding in respect of which
the dividends are paid is effectively connected with a permanent establishment situated in that other State, nor
subject the companys undistributed profits to a tax on undistributed
profits, even if the dividends paid or the undistributed profits consist
wholly or partly of profits or income arising in such other State. ARTICLE
11 - Interest - 1. Interest arising in a Contracting State and
paid to a resident of the other Contracting State may be taxed in that other
State. 2.
However, such interest may also be taxed in the Contracting State in which it
arises and according to the laws of that State, but if the recipient is the
beneficial owner of the interest the tax so charged shall not exceed 10 per
cent of the gross amount of the interest. 3.
Notwithstanding the provisions of paragraph (2) of this article interest
arising in a Contracting State shall be exempt from tax in that State if : (a) the payer of the interest is the Government of
that Contracting State or a local authority thereof, or
(b) the interest is
paid to the Government of the other Contracting State or local authority
thereof or any agency or instrumentality (including a financial institution)
wholly owned by that other Contracting State or local authority thereof. 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) to (3) of this article 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 and the
debt-claim in respect of which the interest is paid is effectively connected
with such permanent establishment. In such case, the provisions of article 7
shall apply. 6.
Interest shall be deemed to arise in a Contracting State when the payer is that
State itself, a local authority or a resident of that State. Where, however,
the person paying the interest, whether he is a resident of a Contracting State
or not, has in a Contracting State a permanent establishment in connection with
which the indebtedness on which the interest is paid was incurred, and
interest is borne by such permanent establishment, then such interest shall be
deemed to arise in the Contracting State in which the permanent establishment
is situated. 7. Where,
by reason of a special relationship between the payer and the beneficial owner
or between both of them and some other person, the amount of the interest,
having regard to the debt-claim for which it is paid, exceeds the amount which
would have been agreed upon by the payer and the beneficial owner in the
absence of such relationship, the provisions of this article shall apply only
to the last-mentioned amount. In such a 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
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 royalty, the tax so charged shall not exceed 10 per
cent of the gross amount of the royalties. 3. The
term royalties as used in this article means payments of any kind received as
a consideration for the use of or the right to any copyright of literary,
artistic or scientific work including cinematograph films, or tapes for
television or broadcasting any patent,
trade-mark, design or model, plan, secret formula or process, or for the use
of, or the right to use industrial, commercial or scientific equipment, or for
information concerning industrial, commercial or scientific experience. 4. The
provisions of paragraphs (1) and (2) of this article shall not
apply if the beneficial owner of the royalties, being a resident of a
Contracting State, carries on business in the other Contracting State in which
the royalties arise, through a permanent establishment situated therein and
the right or property in respect of which the royalties are paid is effectively
connected with such permanent establishment. In such a case the provisions of
article 7 shall apply. 5.
Royalties shall be deemed to arise in a Contracting State when the payer is
that State itself, a local authority or a resident of that State. Where,
however, the person paying the royalties, whether he is a resident of a
Contracting State or not, has in a Contracting State a permanent establishment
in connection with which the liability to pay the royalties was incurred, and
such royalties are borne by such permanent establishment, then such royalties
shall be deemed to arise in the State in which the permanent establishment is
situated. 6. Where
by reason of a special relationship between the payer and the beneficial owner
or between both of them and some other person, the amount of the royalties
having regard to the use, right or information for which they are paid exceeds
the amount which would have been agreed upon by the payer and the beneficial
owner in the absence of such relationship, the provisions of this article shall
apply only to the last-mentioned amount. In such a case, the excess part of the
payment shall remain taxable according to the laws of each Contracting State,
due regard being had to the other provisions of this Convention. ARTICLE
13 - Capital gains - 1. Gains derived by a resident of a
Contracting State from the alienation of immovable property referred to in
paragraph (2) of Article 6 and situated in the other Contracting State
may be taxed in that other State. 2. Gains
from the alienation of immovable property forming part of the business property
of a permanent establishment which an enterprise of a Contracting State has in
the other Contracting State (including such gains from the alienation of such a
permanent establishment alone or with the whole enterprise) may be taxed in
that other State. 3. Gains
from the alienation of ships or aircraft operated in international traffic or
movable property pertaining to the operation of such ships or aircraft shall be
taxable only in the Contracting State in which the place of effective
management of the enterprise is situated. 4. Gains
from the alienation of stocks/shares of a company may be taxed in the
Contracting State in which they have been issued. 5. Gains
from the alienation of any property other than that referred to in paragraphs (1)
to (4) of this Article, shall be taxable only in the Contracting State
of which the alienator is a resident. 6. The
term alienation means the sale, exchange, transfer, or relinquishment of the
property or the extinguishment of any rights therein or the compulsory
acquisition hereof under any law in force in the respective Contracting States. ARTICLE
14 - Independent personal services - 1. Income derived by a
resident of a Contracting State in respect of professional services or other
activities of an independent character shall be taxable only in that State
unless his stay in the other Contracting State is for a period or periods
exceeding in the aggregate 120 days within any 12 month period, when such
income may also be taxed in the other Contracting State. 2. The
term professional services includes independent scientific, literary,
artistic, educational or teaching activities, as well as the independent
activities of physicians, lawyers, engineers, architects, dentists and
accountants. ARTICLE
15 - Dependent personal services - 1. Subject to the
provisions of articles 16, 18 and 19, salaries, wages and other similar
remuneration derived by a resident of a Contracting State in respect of an
employment is exercisable only in that State unless the employment is exercised
in the other Contracting State. If the employment is so exercised, such
remuneration as is derived therefrom, may be taxed in that other Contracting
State. 2.
Notwithstanding the provisions of paragraph (1), remuneration derived by
a resident of a Contracting State in respect of an employment exercised in the
other Contracting State shall be taxable only in the first-mentioned State if (a) the recipient is present in other State for a
period or periods not exceeding in the aggregate 183 days within any 12-month
period ; and (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 only in the Contracting State in which the place of
effective management of the enterprise is situated. ARTICLE
16 - Directors fees - Directors fees and other 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
17 - Artistes and athletes - 1. Notwithstanding the
provisions of articles 14 and 15 income derived by public entertainers (such
as theatre, motion picture, radio or television artistes and musicians) or
athletes, from their personal activities as such may be taxed in the
Contracting State in which these activities are exercised : Provided that
such income shall not be taxed in the Contracting State if the visit of the
public entertainers or athletes to that State is directly or indirectly
supported wholly or substantially, from the public funds of the Government of
the other Contracting State. 2. Where
income in respect of personal activities exercised by an entertainer or an
athlete in his capacity as such accrues not to the entertainer or athlete
himself but to another person, that income may, notwithstanding the provisions
of articles 7, 14 and 15 be taxed in the Contracting State in which the
activities of the entertainer or athlete are exercised. 3. For
the purposes of this article, the term Government includes a State
Government, a political sub-division or a local authority of either Contracting
State. ARTICLE
18 - Government service - 1. (a) Remuneration other
than a pension, paid by the Government of a Contracting State to an individual
in respect of services rendered to that State or a local authority thereof
shall be taxable only in that State. (b)
However, such remuneration shall be taxable only in the other Contracting State
if the services are rendered in that other State and the individual is 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. Any
pension paid by the Government of one of the Contracting States to any
individual may be taxed in that Contracting State. 3. The
provisions of articles 15, 16 and 19 shall apply to remuneration and pensions
in respect of services rendered in connection with a business carried on by a
Contracting State or a local authority thereof. 4. For
the purposes of this article, the term Government shall include any State
Government or local authority of either Contracting State, the Reserve Bank of
India and the Central Bank of Ceylon. ARTICLE
19 - Non-Government pensions and annuities - 1. Any pension
(other than a pension referred to in article 18) or annuity derived by a
resident of a Contracting State from sources within the other Contracting State
may be taxed only in the first-mentioned Contracting State. 2. The
term pension means a periodic payment made in consideration of services
rendered in the past or by way of compensation for injuries received in the
course of performance of services. 3. The
term annuity means 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
20 - Professors and teachers - 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, and who is, or immediately before such visit
was a resident of the other Contracting State shall be exempt from tax in the
first-mentioned Contracting State in respect of remuneration for such teaching
or research. ARTICLE
21 - Students and apprentices - 1. Payments which a student
or business apprentice who is or was immediately before visiting a Contracting
State, a resident of the other Contracting State and who is present in the
first-mentioned State solely for the purpose of his education or training
receives for the purpose of his maintenance, education or training shall not be
taxed in that State, provided that such payments arise from sources outside
that State. 2. In
respect to grants, scholarships and remuneration from employment not covered by
paragraph (1) of this article a student or business apprentice described
in paragraph (1) of this article shall, in addition, be entitled during
such education or training to the same exemptions, reliefs or reductions in
respect of taxes available to residents of the State which he is visiting. Article 22 - Other income - Items
of income of a resident of a Contracting State which are not expressly
mentioned in the foregoing article of this agreement in respect of which he is
subject to tax in that State shall be taxable only in that State. Article 23 - Capital - 1. Capital
represented by immovable property referred to in paragraph (2) of
article 6 may be taxed in the Contracting State in which such property is
situated. 2.
Capital represented by movable property forming part of the business property
of a permanent establishment of an enterprise may be taxed in the Contracting
State in which the permanent establishment is situated. 3.
Notwithstanding the provisions of paragraph (2) of this article, ships
and aircraft operated in international traffic and movable property pertaining
to the operation of such ships and aircraft, shall be taxable only in the
Contracting State in which the place of effective management of the enterprise
is situated. 4. All
other elements of capital of a resident of a Contracting State shall be taxable
only in that State. Article 24 - Elimination of double
taxation - 1. The laws in force in either of the Contracting States shall
continue to govern the taxation of income and capital in the respective
Contracting States except when express provision to the contrary is made in
this Convention. When income or capital is subject to tax in both Contracting
States, relief from double taxation shall be given in accordance with the
following paragraphs of this article. 2.
Subject to the provisions of the law of India regarding the allowance as a
credit against Indian tax of tax payable in a territory outside India (which
shall not affect the general principle hereof) Sri Lanka tax payable under the
law of Sri Lanka and in accordance with this Convention whether directly or by
deduction on profits, income or chargeable gains from sources within Sri Lanka
(excluding in the case of a dividend, tax payable in respect of the profits
out of which the dividend is paid) or capital in Sri Lanka shall be allowed as
a credit against any Indian tax computed by reference to the same items of
income or capital by reference to which the Sri Lanka 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 Sri
Lanka or to capital in Sri Lanka, so however, that where such resident is a
company by which surtax is payable in India, the credit aforesaid shall be
allowed in the first instance against income-tax payable by the company in
India, and as to the balance if any against surtax payable by it in India. 3. For
the purposes of paragraph (2) of this article, the term Sri Lanka tax
payable shall be deemed to include any amount which would have been payable as
Sri Lanka tax for any year but for an exemption or reduction of tax granted for
that year or any part thereof under : (a) any of the following provisions, that is to
say sections 11, 16, 17, 18, 19, 20, 21, 22 and 85 of the Sri Lanka Inland
Revenue Act No. 28 of 1979 so far as they were in force on, and have not been
modified since, the date of the signature of this Convention, or have been
modified only in minor respects so as not to affect their general character; or (b) any agreement entered into under section 17 of the Greater Colombo
Economic Commission Law No. 4 of 1978; or (c) 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. 4.
Subject to the provisions of the law of Sri Lanka regarding the allowance as a
credit against Sri Lanka tax of tax payable in a territory outside Sri Lanka
(which shall not affect the general principle hereof) Indian tax payable under
the law of India and in accordance with the Convention, whether directly or by
deduction, on profits, income or chargeable gains from sources within India
(excluding in the case of a dividend, tax payable in respect of the profits
out of which the dividend is paid) or capital in India shall be allowed as a
credit against any Sri Lanka tax computed by reference to the same items of
income or capital by reference to which the Sri Lanka tax is computed: Provided
that such credit shall not exceed Sri Lanka tax (as computed before
allowing any such credit), which is appropriate to the income derived from
sources within India or to capital in India. 5. For
the purpose of paragraph (4) of this article, the term Indian tax
payable shall be deemed to include any amount which would have been payable as
Indian tax for any year but for an exemption or reduction of tax granted for
that year or any part thereof under: (a) any of the following provisions, that is to
say, sections 10(4), 10(4A), 10(15)(iv), 32A, 33A,
35C, 54E, 80CC, 80HH, 80J, 80K of the Income-tax Act, 1961; 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. Article 25 - Non-discrimination - 1.
Nationals of a Contracting State shall not be subjected in the other
Contracting State to any taxation or any requirement connected therewith, which
is other or more burdensome than the taxation and connected requirements to
which nationals of that other State in the same circumstances are or may be
subjected. This provision shall, notwithstanding the provisions of article 1,
also apply to persons who are not residents of one or both of the Contracting
States. 2. The
taxation on a permanent establishment which an enterprise of a Contracting
State has in the other Contracting State shall not be less favourably levied in
that other State than the taxation levied on enterprises of that other State
carrying on the same activities. This provision shall not be construed as obliging
a Contracting State to grant to residents of the other Contracting State any
personal allowances, reliefs and reductions for taxation purposes on account of
civil status or family responsibilities which it grants to its own residents. 3.
Except where the provisions of paragraph (1) of article 9, paragraph (7)
of article 11 or paragraph (6) of article 12 apply, interest, royalties
and other disbursements paid by an enterprise of a Contracting State to a
resident of the other Contracting State shall for the purpose of determining
the taxable profits of such enterprise, be deductible under the same conditions
as if they had been paid to a resident of the first-mentioned State. Similarly,
any debts of an enterprise of a Contracting State to a resident of the other
Contracting State shall, for the purpose of determining the taxable capital of
such enterprise, be deductible under the same conditions as if they had been
contracted to a resident of the first-mentioned State. 4.
Enterprises of a Contracting State, the capital of which is wholly or partly
owned or controlled, directly or indirectly, by one or more residents of the
other Contracting State, shall not be subjected in the first-mentioned State to
any taxation or any requirement connected therewith which is other or more
burdensome than the taxation and connected requirements to which other similar
enterprises of the first-mentioned State are or may be subjected. 5. The
provisions of this article shall, notwithstanding the provisions of article 2,
apply to taxes of every kind and description. Article 26 - Mutual agreement
procedure - 1. Where a person considers that the actions of one or both of
the Contracting States result or will result for him in taxation not in accordance
with the provisions of this Convention, he may, irrespective of the remedies
provided by the domestic law of those States, present his case to the competent
authority of the Contracting State of which he is a resident or, if his case
comes under paragraph (1) of article 25 to that of the Contracting State
of which he is a national. The case must be presented within three years from
the first notification of the action resulting in taxation not in accordance
with the provisions of the Convention. 2. The
competent authority shall endeavour, if the objection appears to it to be
justified and if it is not itself able to arrive at a satisfactory solution, to
resolve the case by mutual agreement with the competent authority of the other
Contracting State, with a view to the avoidance of taxation which is not in
accordance with the Convention. Any agreement reached shall be implemented
notwithstanding any time limits in the domestic law of the Contracting States. 3. The
competent authorities of the Contracting States shall endeavour to resolve by
mutual agreement any difficulties or doubts arising as to the interpretation or
application of the Convention. They may also consult together for the
elimination of double taxation in cases not provided for in the Convention. 4. The
competent authorities of the Contracting States may communicate with each other
directly for the purpose of reaching an agreement in the sense of the preceding
paragraphs. The competent authorities, through consultations, shall develop
appropriate bilateral procedures, conditions, methods and techniques for the
implementation of the mutual agreement procedure provided for in this article.
In addition, a competent authority may devise appropriate unilateral
procedures, conditions, methods and techniques to facilitate the
above-mentioned bilateral actions and the implementation of the mutual
agreement procedure. 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
the Convention, insofar as the taxation thereunder is not contrary to the
Convention in particular for the prevention of fraud or evasion of such taxes.
The exchange of information is not restricted by article 1. Any information
received by a Contracting State shall be treated as secret in the same manner
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 Convention. 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 the matters in respect of which such exchanges of
information shall be made, including, where appropriate, exchanges of
information regarding tax avoidance. 2. In no case shall the provisions of 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 and 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. Article 28 - Diplomatic agents and
consular officials - Nothing in this Convention shall affect the fiscal
privileges of diplomatic agents or consular officials under the general rules
of international law or under the provisions of special agreements. Article 29 - Entry into force - 1.
This convention shall be ratified and the instruments of ratification shall be
exchanged at Colombo as soon as possible. 2. The Convention shall enter into force upon the
exchange of instruments of ratification and its provisions shall have effect
(a) in
Sri Lanka
(i) in
respect of income assessable for any year of assessment commencing on or after
1st April, 1980;
(ii) in
respect of capital assessable for any year of assessment commencing on or
after 1st April, 1980.
(b) in
India
(i) in
respect of income assessable for any year of assessment commencing on or after
1st April, 1981;
(ii) in
respect of capital assessable for any year of assessment commencing on or
after 1st April, 1980. 3. The agreement between the Government of Ceylon and the
Government of India or relief from or the avoidance of double taxation of
income, signed on 10th September, 1956, shall terminate and cease to have
effect as respects taxes on income to which the present Convention applies in
accordance with the provisions of paragraph (2) of this Article. Article 30 - Termination - This
Convention shall remain in force indefinitely but either Contracting State may,
on or before June 30 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
Sri Lanka
(i) in
respect of income assessable for any year of assessment commencing on or after
1st April in the calendar year next following that in which such notice is
given;
(ii) in
respect of capital assessable for any year of assessment commencing on or after
1st April in the calendar year next following that in which such notice is
given.
(b) in
India
(i) in
respect of income assessable for the assessment year commencing on the 1st day
of April in the second calendar year next following the calendar year in which
the notice is given, and subsequent years;
(ii) in
respect of capital assessable for any year of assessment commencing on or after
1st April in the calendar year next following that in which such notice is
given. In witness whereof the
undersigned, duly authorised thereto, have signed this Convention. Done in duplicate at New Delhi this
27th day of January, 1982, in the Sinhala, Hindi and English languages, all
texts being equally authentic. In the case of divergence of interpretations the
English text shall prevail. ** ** ** Judicial Analysis n
Amount of tax attributable to income-tax in a country means the tax actually
payable in that countryO.A.P. Andiappan v. CIT [1971] 82 ITR 876
(SC). n
Agreement with Ceylon allows only abatement of tax and not total exemptionA.C.
Paul v. CIT [1974] 97 ITR 652 (Mad.). n
Mere failure to produce finality certificate is not enough to deny assessee
relief from double taxationA.S. Sivan Pillai v. CIT [1960] 40
ITR 450 (Mad.). n
Revenue should allow an abatement equal to lower of amounts of tax attributable
to such excess in either countryCIT v. V.S. Sivalingam Chettiar
[1972] 86 ITR 772 (Mad.)/CIT v. S.K. Srinivasan [1970] 75 ITR 93
(Mad.). n
Under article III of agreement between India and Ceylon abatement is equal to
lower of two taxes on the same incomeM. Abubacker v. CIT [1968]
69 ITR 809 (Ker.). n Ceylon income-tax for the purpose of
double income-tax relief would be tax as computed under section 20(7) of the Ceylon Income-tax Ordinance less the
deduction under section 45(4)(b)(ii)
of that OrdinanceCIT v. Madras Palyakai Co. (P.) Ltd. [1969] 74
ITR 642 (Mad.).
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