Sri
Lanka

Double Taxation
Avoidance Agreement

CONVENTION FOR
AVOIDANCE OF DOUBLE TAXATION BETWEEN REPUBLIC OF INDIA AND REPUBLIC OF SRI
LANKA

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

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 Goverment hereby directs that all the provisions
of the said Convention shall be given effect to in the Union of India.

CONVENTION
BETWEEN THE GOVERNMENT OF THE REPUBLIC OF INDIA AND THE GOVERNMENT OF THE
DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR THE AVOIDANCE OF DOUBLE TAXATION
AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TOTAXES ON INCOME AND ON
CAPITAL

The
Government of the Republic of India and the Governnment of the Democratic
Socialist Republic of Sri Lanka desiring to conclude a Convention for the
avoidance of double taxation and the prevention of fiscal evasion with respect
to taxes on income and on capital, have agreed as follows:

ARTICLE
1

Personal
Scope

This
Convention shall apply to persons who are residents of one or both of the Contracting
States.

ARTICLE
2

1.     Taxes Covered

2.     This Convention shall
apply to taxes on income and on capital imposed on behalf of each Contracting
State irrespective of the manner in which they are levied.

3.     These shall be
regarded as taxes on income and on capital all taxes imposed on total income,
on total capital, or on elements of income or of capital including taxes on
gains from the alienation of movable or immovable property, as well as taxes on
capital appreciation.

4.     The existing taxes to
which this Convention shall apply are: –

a.     In Sri Lanka:

                     
i.       
the
income-tax, including the income-tax based on the turnover of enterprises
licensed by the Greater Colombo Economic Commission; and

                    
ii.       
the
wealth tax;

(hereinafter
referred to as “Sri Lanka tax”)

a.     

b.    In India:

                     
i.       
the
income-tax including any surcharge there on;

                    

ii.       
the
surtax; and

                   
iii.       
the
wealth tax.

(herein
after referred to as “Indian tax”)

1.      

2.      

3.      

4.      

5.     This Convention shall
also apply to any identical or substantially similar taxes which are imposed
after the date of signature of this Convention in addition to, or in place, of,
the existing taxes. The competent authorities of the Contracting States shall
notify, each other of any important changes which have been made in their
respective taxation laws.

ARTICLE
3

General
Definition

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;

a.     

b.     

c.     

d.     

e.     

f.     

g.    the term
“competent authority” means:

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

                    
ii.       
in
the case of India, the Central Government in the Ministry of Finance
(Department of Revenue).

1.      

2.     As regards the
application of this Government by a Contracting State any term not defined
therein shall, unless the context otherwise requires have the meaning which it
has under the laws of that State relating to the taxes which are the subject of
this Convention.

ARTICLE
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 persorn, who is liable to
tax in that State in respect only of income from sources in that State or
capital situated therein.

2.     Where by reason of
the provisions of paragraph (1) of this Article an individual is a resident of
both Contracting States, then his status shall be determined as follows:

a.     he shall be deemed to
be a resident of the State in which he has a permanent home available to him.
If he has a permanent home available to him in both States, he shall be deemed
to be a resident of the State with which his personal and economic relations
are closer (centre of vital interests);

b.    if the State in which
he has his centre of vital in terests cannot be determined, or if he has not a
permanent home available to him in either State, he shall be deemed to be a
resident of the State in which he has an habitual abode;

c.     if he has an habitual
abode in both States or in neither of them, he shall be deemed to be a resident
of the State of which he is a national;

d.    if he is a national
of both States or of neither of them, the competent authorities of the
Contracting States shall settle the question by mutual agreement.

1.      

2.      

3.     Where by reason of
the provisions of paragraph (1) of this Article a person other than an
individual is a resident of both Contracting States, then it shall be deemed to
be a resident of the State in which its place of effective management is
situated.

ARTICLE
5

Permanent
Establishment

1.     For the purpose of
this Convention, the term “permanent establishment” means a fixed
place of business through which the business of the enterprise is wholly or
partly carried on.

2.     The term
“pemmanent establishment” shall include especially:

a.     a place of
management;

b.    a branch;

c.     an office;

d.    a factory;

e.     a workshop;

f.     a mine, an oil or gas
well, a quarry or any other place of extraction of natural resources;

g.    an agricultural or
farming estate or plantation;

h.     a building site or
construction or assembly project which exists for more than 183 days;

i.      the furnishing of
services, including consulttancy services, by an enterprise through employees
or other personnel, where activities of that nature Continue within the country
for a period or periods aggregat ing more than 183 days within any twelve month
period.

1.      

2.      

3.     Notwithstanding the
preceding provisions of this Article, the term “permanent
establishment” shall be deemed not to include:

a.     the use of facilities
solely for the purpose of storage, display or delivery of goods or merchandise
belonging to the enterprise solely for the purpose of storage, display or
delivery;

b.    the maintenance of a
stock of goods or merchandise belongihg to the enterprise solely for the
purpose of storage display or delivery;

c.     the maintenance of a
stock of goods or merchandise belonging to the enterprise solely for the
purpose of processing by another enterprise;

d.    the maintenance of a
fixed place of business solely for the purpose of purchasing goods or
merchandise or of collecting information, for the enterprise;

e.     the maintenance of a
fixed place of business solely for the purpose of advertising, for the supply
of in formation or for scientific research, being activities solely of a
preparatory or auxiliary character in the trade or business of the enterprise.

1.      

2.      

3.      

4.     A person acting in a
Contracting State on behalf of an enterprise of the other Contracting
State-other than an agent of an independent status to whom paragraph (6) of
this Article Applies-shall be deemed to be a permanent establishment in the
first-mentioned State if he has, and habitually exercises in that State, an
authority to conclude contracts in the name of the enterprise, unless his
activities are limited to the purchase of goods or merchandise for the
enterprise.

5.     Notwithstanding the
preceding provisions of this Article, an insurance enterprise of a Contracting
State shall, except in regard to reinsurance, be deemed to have a permanent
establishment in the other Contracting State if it collects premiums in the
territory of that other State or insures risks Sitated therein through a person
other than an agent of independent status to whom paragraph (6) of this Article
applies.

6.     An enterprise of a
Contracting State shall not be deemed to have a permanent establishment in the
other Contracting State merely because it carries on business in that State
through a broker, general commission agent or any other agent of an independent
status, provided that such persons are acting in the ordinary course of their
business. However, when the activities of such an agent are devoted wholly or
almost wholly on behalf of that enterprise, he will not be considered an agent
of an independent status within the meaning of this paragraph.

7.     The fact that a
company which is a resident of a Contracting State controls or is controlled by
a company which is a resident of the other Contracting State, or which carries
on business in that other State (whether through a permanent establishment or
otherwise) shall not of itself constitute either company a permanent
establishment of the other.

ARTICLE
9

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 imniovable property.

4.     The provisions of
paragraphs (1) and, (3) of this Article shall also apply to the income from
immovable property of an enterprise and to income from immovable property used
for the performance of professional services.

ARTICLE
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 State but only
so much of them as is attributable to-

a.     that permanent
establishment,

b.    sales in that other
State of goods or merchandise of the same or similar kind as those sold through
that permanent establishment, or

c.     other business
activities carried on in that other State of the same or state kind as those
effected through that permanent establishment.

The
provisions of sub-paragraphs (b) and (c) shall not apply if the enterprise
proves that such sales or activities are not attributable to the permanent
establishment.

1.      

2.     Subject to the
provisions of paragraph (3) of this Article, where an enterprise of a
Contracting State carries on business in the other Contracting State through a
permanent establishment situated therein, there shall in each Contracting State
be attributed to that permanent establishment the profits which it might be
expected to make if it were a distinct and separate enterprise engaged in the
same or similar activities under the same or similar conditions and dealing
wholly independently with the enterprise of which it is a permanent
establishment.

3.     3.In the
determination of the profits of a permanent establishment, there shll be
allowed as deductions expenses which are incurred for the purpose of the
business of the permanent establishment including executive and general
administrative expenses so incurred, whether in the State in which the
permanent establishment is situated or elsewhere. However, no such deduction
shall be allowed in respect of amounts, if any, paid (otherwise than towards
reimbursement of actual expenses) by the permanent establishment to the head
office of the enterprise or any of its other offices, by way of royalties, fees
or other similar payments in return for the use of patents or other rights or
by way of commission for a specific services performed or for management or,
except in the case of a banking enterprise, by of interest on money lent to the
permanent establishment. Likewise no accotunt shall be taken, in the
determination of the profits of a permanent establishment, for amounts charged
(otherwise that towards reimbursement of actual expenses), by the permanent
establishment to the head office of the enterprise or any of its other offices
by way of royalties, fees or other similar payments in return for the use of
patents or other rights, or by way of commission for specific services
performed or for maqnagement, or except in the case of a banking enterprise by
way of interest on money lent to the head office of the enterprise or any of
its other offices.

4.     Insofar as it has
been customary in a Contracting State to determine the profits to be attributed
to a permanent establishment on the basis of an apportionment of the total
profits of the enterprise to its various parts nothing in paragraph (2) of this
Article shall preclude that Contracting State from determining the profits to
be taxed by such an apportionment as may be customary; the method of
apportionment shall, however, be such that the result will be in accordance
with the principles contained in this Article.

5.     No profits shall be
attributed to a permanent establishment by reason of the mere purchase by that
permanent establishment of goods or merchandise for the enterprise.

6.     For the purpose of
the preceding paragraphs, the profits to be attributed to the permanent
establishment shall be determined by the same method year by year unless there
is good and sufficient reason to the contrary.

7.     Where profits include
items of income which are dealt dealt with separately in other Articles of this
Convention then the provisions of those articles shall not be effected by the
provision, of this Article.

ARTICLE
8

Shipping
and air Transport

1.     Profits derived by an
enterprise of a Contracting State from the opeation of ships or aricraft in
international traffic shall be taxable only in the Contracting State in which
the place effective management of the enterprises is situated.

2.     Notwithstanding the
provisions of paragraph (1), profits derived from the operation of ships in
international traffic may be taxed in the Contracting State in which such
operation is carried on but the tax so charged shall not exceed 50 per cent of the
tax othewise imposed by the international law of that State.

Provided
that for the purpose of the calculation of the tax such profits shall be deemed
to be an amount not exceeding the rates presently provided in the taxation laws
of the respective States for the computation of such profits.

1.      

2.      

3.     The provisions of
paragraphs (1) and (2) of this Article shall likewise apply in respect of
profits from the participation in a pool, a joint business or an international
operating agency of any kind by enterprises engaged in the operation of ships
or aircraft in international traffic.

4.     For the purpose of
paragraph 1, interest on funds connected with the operation of ships or
aircraft in international traffic shall be regarded as income from the
operation of such aircraft, and the provisions of Article 11 shall not apply in
relation to such interest.

5.     If the place of
effective management of a shipping enterprise is aboard a ship, then it shall
be deemed to be situated in the Contracting State in which the home harbour of
the ship is situated or if there is no such home harbour, in the State of which
the operator of the ship is a resident.

ARTICLE
9

Associated
Enterprises

1.     Where: –

a.     an enterprise of a
Contrtacting State participates directly or indirectly in the management,
control or capital of an enterprise of the other Contracting State, 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 ease conditions are made or imposed between the two enterprises in
their or financial relations which differ from those which would be made
between independent enterprises, then any profits which would, but for those
conditions have accrued to one of the enterprises, but by reason of those
conditions, have not so accrued, may be included in the profits of that
enterprise and taxed accordingly.

1.      

2.     Where a Contracting
State includes in the profits of an enterprise of that State and taxes
accordingly profits on which an enterprise of the other Contracting State has
been charged to tax in that other State and the profits so included are profits
which would have accured to the enterprise of the first mentioned State if the
conditions made between the two enterprises had been those which would have
been made between indepedent enterprises then that other State shall make an
appropriate adjustment to the amount of the tax charged therein on those profits.
In determining such adjustment, due regard shall be had to the other provisions
of this Convention and the competent authorities of the Contracting State shall
if necessary consult each other.

ARTICLE
10

Dividends

1.     Dividends paid by a
company which is a resident of a Contracting State to a resident of the otther
Contracting State be taxed in that other State.

2.     However, such
dividends may also be taxed in the Contracting State of which the company
paying the dividends is a resident and according to the laws of that State but
the tax so charged shall not exceed 15 per cent of the gross amount of the
dividends.

3.     The term
“dividends” as used in this Article means income from shares, mining
shares, founders’ shares or other rights not being debt-claims, participating
in profits, as well as income from other corporate rights which is subjected to
the same taxation treatment as income from shares by the taxation law of the
State of which the company making the distribution is a resident.

4.     The provision of
paragraphs (1) and (2) of this Article shall not apply if the beneficial owner
of the dividends, being a resident of a Contracting State, carries on business
in the other Contracting State of which the company paving the dividends is a
resident, through a permanent establishment situated therein and the holding in
respect of which the dividends are paid is effectively connected with such
permanent establishment. In such case the provisions of Article 7 shall apply.

5.     Where a company which
is a resident of a Contracting State derives profits or income from the other
Contracting State, that other State may not impose any tax on the dividends
paid by the company, except insofar as such dividends are paid to a resident of
that other State or insofar as the holding in respect of which the dividends
are paid is effectively connected with a permanent establishment situated in
that other State, nor subject the company’s undistributed profits to a tax on
undistributed profits, even if the dividends paid or the undistributed profits
consist wholly or partly of profits or income arising in such other State.

ARTICLE
11

Interst

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.

1.      

2.      

3.      

4.     The term
“interest” as used in this Article means income from Government
securties, bonds or debentures, whether or not secured by mortgage and whether
or not carrying a right to participate in profits, and debt-claims of every
kind as well as all other income assimilated to income from money lent by the
taxation law of the state in which the income arises.

5.     The provisions of
paragraphs (1) to (3) of this Article shalt not apply if the beneficial owner
of the interest, being a resident of a Contracting State, carries on business
in the other Contracting State in which the interest arises through a permanent
establishment situated therein and the debt-claim in respect of which the
interest is paid is effectively connected with such permanent establishment. In
such case, the provisions of Article 7 shall apply.

6.     Interest shall be
deemed to arise in a Contracting State when the payer is that State itself, a
local authority or a resident of that State. Where, however, the person paying
the interest, whether he is a resident of a Contracting State or not, has in a
Contracting State a permanent establishment in connection with which the
indebtedness on which the interest is paid was incurred, and interest is borne
by such permanent establishment, then such interest shall be deemed to arise in
the Contracting State in which ‘the permanent establishment is situated.

7.     Where, by reason of a
special relationship between the payer and the beneficial owner or between both
of them and some other person, the amount of the interest, having regard to the
debt-claim for which it is paid, exceeds the amount which would have been
agreed upon by the payer and the beneficial owner in the absence of such
relationship, the provisions of this Article shall apply only to the last
mentioned amount. In such case, the excess part of the payments shall remain
taxable according to the laws of each Contracting State, due regard being had
to the other provisions of this Convention.

ARTICLE
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
establishmet. In such case the provisions of Article 7 shall apply.

5.     Royalties shall be
deemed to arise in a Contracting State when the payer is that State itself, a
local authority or a resident of that State. Where, however, the person paying
the royalties, whether he is a resident of a Contracting State or not, has in a
Contracting State a permanent establishment in connection with which the
liability to pay the royalties was incurred, and such royalties are borne by
such permanent establishment, then such royalties shall be deemed to arise in
the State in which the permanent establishment is situated.

6.     Where by reason of a
special relationship between the payer ind the beneficial owner or between both
of them and some other person, the amount of the royalties having regard to the
use, right or information for which they are paid, exceeds the amount which
would have been agreed upon by the payer and the beneficial owner in the
absence of such relationship, the provisions of this Article shall apply only
to the last-mentioned amount. In such case, the excess part of the payment
shall remain taxable according to the laws of each Contructing State, due
regard being had to the other provisions of this Convention.

ARTICLE
13

Capital
Gains

1.     Gains derrived by a
resident of a Contracting State from the alienation of immovable property
referred to in paragrah (2) of Article 6 and situated in the other Contracting
State may be taxed in that other State.

2.     Gains from the
alienation of movable property forming part of the business property of a
permanent establishment which an enterprise of a Contracting State has in the
other Contracting State including such gains from the alternation of such a
permanent establishment alone or with the whole enterprise, may be taxed in
that other State.

3.     Gains from the
alienation of ships or aircraft operated in international traffic or movable
property pertaining to the operation of such ships or aircraft shall be taxable
only in the Contracting State in which the place of effective management of the
enterprise is situated.

4.     Gains from the
alienation of stocks shares of a company may be taxed in the Contracting State
in which they have been issued.

5.     Gains from the
alienation of any property other than that referred to in paragraphs (1) to (4)
of this Article, shall be taxable only in the Contracting State of which the
alienator is a resident.

6.     The term ”

alienation” means the sale, exchange, transfer, or relinquishment of the
property or the extinguishment of any rights therein or the compulsory
acquisition hereof under any law in force in the respective Contracting States.

ARTICLE
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 months period, when such
income may also be taxed in the other Contracting State.

2.     The term

“professional services” includes independent scientific, literary,
artistic, educational or teaching activities, as well as the independent
activities of physicians, lawyers, engineers, architects, dentists and
accountants.

ARTICLE
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 the other State for a period or periods not exceeding in the
aggregate 183 days within any 12 month period; and

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

c.     that remuneration is
not borne, by a permanent establishment or a fixed base which the employer has
in the other State.

1.      

2.      

3.     Notwithstanding the preceding
provisions of this Article remuneration in respect of an employment exercised
aboard a ship or aircraft in international traffic, may be taxed only in the
Contracting State in which the place effective management of the enterprise is
situated.

ARTICLE
16

Directors
Fees

Directors’
fees and other similar payments derived by a resident of a contracting State in
his capacity is a member of the board of directors of a company which is a
resident of the other Contracting State may be taxed in that other State.

ARTICLE
17

Artistes
and Athletes

1.    
Notwithstanding,
the provisions of Article 14 and 15, income derived by public entertainers
(such as theatre motion picture, radio or television artites and musicians) or
athlete, from their personal activities as such may be taxed in the Contracting
State in which these activities are exercised.

Provided
that such income shall not be taxed in the said Contracting State if the visit
of the public entertainers or athletes to that State is directly or indirectly
supported wholly or substtantially, from the public funds of the Government of
the other Contracting State.

1.      

2.     Where income in
respect of personal activities exercised by an entertainer or an athlete in his
capacity as such accrues not to the entertainer or athlete himself but to
another person, that income may, notwithstanding the provisions of Articles 7,
14 and 15, be taxed in the Contracting State in which the activities of the
entertainer or athlete are exercised.

3.     For the purposes of
this Article, the term “Government” includes a State Government, a
political sub-division or a local authority of either Contracting State.

ARTICLE
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 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.

1.      

2.      

3.     Any pension paid by
the Government of one of the Contracting States to any individual may be taxed
in that Contracting State.

4.     The provisions of
Articles 15, 16 and 19 shall apply to remuneration and pensions in respect of
services rendered in connection with a business carried on by a Contracting
State or a local authority thereof.

5.     For the purposes of
this Article, the term “Government” shall include any State
Government or local authority of either Contracting State, the Reserve Bank of
India and the Central Bank of Ceylon.

ARTICLE
19

Non-Governemnt
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 a stated sum payable periodically at stated times,
during life or during a specified or ascertainable period of time, under an
obligation to make the payments in return for adequate and full consideration
in money or money’s worth.

ARTICLE
20

Professors
and Teachers

A
professor or teacher who make a temporary visit to a Contracting State for a
period not exceeding two years for the purpose of teaching or conducting
research at a university, college, school or other educational institution, and
who is, or immediately before such visit was a resident of the other
Contracting State shall be exempt from tax in the first-mentioned Contracting
State in respect of remuneration for such teaching or research.

ARTICLE
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
trainning receives for the purpose of his maintenance, education or training
shall not be taxed in that State, provided that such payments arise from
sources outside that State.

2.     In respect to grants,
scholarships and remuneration from employment not covered by paragraph (1) of
this Article a student or business apprentice described in paragraph (1) of
this Article shall, in addition, be entitled during such education or training
to the same exemption, reliefs or reductions in respect of taxes available to
residents of the State which he is visiting.

ARTICLE
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 unmovable property referred to in paragraph, (2) of Article 6 may be taxed
in the Contracting State in which such property is situated.

2.     Capital represented
by movable property forming part of the business property of a permanent
establishment of an enterprise may be taxed in the contracting State in which
the permanent establishment is situated.

3.     Notwithstanding the
provisions of pagraph (2) of this Article, ships and aircraft operated in
international traffic and movable property pertaining to the operation of such
ships and aircraft, shall be taxble only in the Contracting State in which the
place of effective management of the enterprise is situated.

4.     All other elements of
capital of a resident of a Contracting State shall be taxable only in that
State.

ARTICLE
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 terrritory outside India (which shall not affect
the general principle hereof) Sri Lanka tax payable under the law of Sri Lanka
and in accordance with this Convention whether directly or by deduction on
profits income or chargeable gains from sources within Sri Lanka (excluding) in
the case of a dividend, tax payable in deduction of the profits out of which
the dividend is paid) or capital in Sri Lanka shall be allowed as a credit
against any Indian tax computed by reference to the same items of income or
capital as referred to which the Sri Lanka tax is computed

Provided that such credit not exceed lndian
tax (as computed before allowing any sources such credit), which is appiopriate
to the income derived from sources within Sri Lanka or to capital in Sri Lanka,
so however, that where such resident is a company, by which surtax is payable
in India, the credit in India, the credit aforesaid shall be allowed in the
first instance aganist income-tax payable by the company in India, and as to
the balance, if any payable by it in India.

3.     For the purposes of
paragraph (2) of this Article, the term “Sri Lanka tax payable ”
shall be deemed to include any amount which would have been payable as Sri
Lanka tax for any year but for an exemption or reduction of tax granted for
that year or any part thereof under:

a.     any of the following
provisions that is to say sections 11, 16, 17, 18, 19, 20, 21, 22, and 85 of
the Sri Lanka Inland Revenue Act, No, 28 of 1979 so far as they were in force
on, and have not been modified since, the date of the signature of this
Convention, or have been modified only in minor respects so as not to affect
their general character; or

b.    any agreement entered
into section 17 of the Greater Colombo Economic Commission Law No. 4 of 1978; o

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 is has not been modified thereafter or has been modified oily
in minor respects so as not to affect its general character.

1.      

2.      

3.      

4.     Subject to the
provisions of the law of Sri Lanka regarding the allowance as a credit against
Sri Lanka tax of tax payable in a territory outside Sri Lanka (which shall not
affect the general principle hereof) Indian tax payable under the law of India
and in accordance with the Convention, whether directly or by deduction, on
profits, income or chargeable gains from sources within India (excluding in the
case of a dividend, tax-payable in respect of the profits out of which the
dividend is paid) or capital in India shall be allowed as a credit against any
Sri Lanka tax computed by reference to the same items of income or capital by
reference to which the Sri Lanka’s tax is computed:

Provided
that Such credit shall not exceed Sri Lanka tax (as computed before allowing
any such credit), which is appropriate to the income derived from sources
within India or to capital in India.

1.      

2.      

3.      

4.      

5.     For the purpose of
paragraph (4) of this Article, the term “Indian Tax payable” shall be
deemed to include any amount which would have been payable as Indian tax for
any year but for an exemption or reduction of tax granted for that year or any
part thereof under:

a.     any of the following
provisions, that is to say sections 10(4), 10(4A), 10(15)(iv), 32A, 33A, 35C,
54E, 80CC, 80HH, 80J, 80K of the Income-Tax Act, 1961; 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
provisions shall, notwithstanding the provisions of Article 1, also apply to
persons who are not residents of one or both of the Contracting States.

2.     The taxation on a
permanent establishment which an enterprise of a Contracting State has in the
other Contracting State shall not be less favourably levied in that other State
than the taxation levied on enterprises of that other State carrying on the
same activities. This provision shall not be construed as obliging a
Contracting State to grant to residents of the other Contracting State any
personal allowances, reliefs and reductions for taxation purposes on account of
civil status or family responsibilities which it grants to its own residents.

3.     Except where the
provisions of paragraph (1) of, Article 9, paragraph (7) of Article 11 or
paragraph (6) of Article 12, apply, interest, royalties and other disbursements
paid by an enterprise of a Contracting State to a resident of the other
Contracting State shall for the purpose of determining the taxable profits of
such enterprise, be deductible under the same conditions as if they had been
paid to a resident of the first-mentioned State. Similarly, any debts of an enterprise
of a Contracting State to a resident of the other Contracting State shall, for
the purpose of determining the taxable capital of such enterprise, be
deductible under the same conditions as if they had been contracted to a
resident of the first-mentioned state.

4.     Enterprises of a
Contracting state, the capital of which is wholly or partly owned or
controlled, directly or indirectly, by one or more residents of the other
Contracting State, shall not be subjected in the first-mentioned State to any
taxation or any requirement connected therewith which is other or more
burdensome than the taxation and connected requirements to which other simiar
enterprises of the fist-metioned State are or may be subjected.

5.     The provisions of
this Article shall notwithstanding the provisions of Article 2, apply to taxes
of every kind and description.

ARTICLE
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 of that of the Contracting State of which he is a national. The case
must be presented within three years from the first notification of the action
resulting in taxation not in accordance with the provisions of the Convention.

2.     The competent
authority shall endeavour, if the objection appears to it to be justified and
if it is not itself able to arrive at a satisfactory solution, to resolve the
case by mutual agree ment with the competent authority of the other Contracting
State with a view to the avoidance of taxation which is not in accordance with
the Convention. Any agreement reached shall be implemented notwithstanding
limits in the domestic law of the Contracting States.

3.     The competent
authorities of the Contracting States shall endeavour to resolve by mutual
agreement any difficulties or doubts arising as to the interpretation or
application of the Convention. They may also consult together for the
elimination of double taxation in cases not provided for in the Convention.

4.     The competent
authorities of the Contracting States may communicate with each other directly
for the purpose of reaching an agreement in the sense of the preceding
paragraphs. The competent authorities through consultation shall develop
appropriate bilateral procedures, conditions, methods and techniques for the
implementation of the mutual agreement procedure provided for in this Article.
In addition, a competent authority may devise appropriate unilateral
procedures, conditions, methods and techniques to facilitate the abovementioned
bilateral actions and the implementation of the mutual agreement procedure.

ARTICLE
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 is information
obtained under the domestic laws of that State. However, if the information is
originally regarded as secret in the transmitting State it shall be disclosed
only to persons or authorities (including courts and administrative bodies)
involved in the assessment or collection of the enforcement or, proscecution in
of, or the determination of appeals in respect to, the tax which are the
subject of the Convention. Such persons or shall use the information only for
such purposes but may disclose the informatiom in public court proceeding of in
judicial decisions. The competent authorities shall through consulation develop
appropriate conditions, methods and techniques concerning the matters in
respect of which such exchanges of information shall be made, including where
appropriate, exchanges of information regarding tax avoidance.

2.     In no case shall the
provisions of partagraph 1 be constructed so as to impose on a Contracting
State the obligation:

a.     to carry out
administrative measures at variance with the laws and administrative practice
of that or of the oother Contracting state;

b.    to supply information
which is not obtainable under the laws or in the normal course of the
administration of that or of the other Contracting State;

c.     to supply information
which would disclose any trade business, industrial commercial or professional
secret or trade process, or information, the disclosure of which would be
contrary to public policy (order public).

ARTICLE
28

Diplolmatic
Agents and Consular Offcials

Nothing
in this Convention shall affect the fiscal privilegs of diplomatic agents or
consular officials under the general rules of international law or under the
provisions of special agreements.

ARTICLE
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;

a.     

b.    In India-

                     
i.       

(i)in
respect of income assessable for any year

 

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