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Article 29 - Termination - GermanyExtract ARTICLE 29 - Termination - This Agreement shall continue in effect indefinitely but either of the Contracting States may, on or before the thirtieth day of June, in any calendar year beginning after the expiration of a period of five years from the date of its entry into force, give the other Contracting State, through diplomatic channels, written notice of termination and, in such event, this Agreement shall cease to have effect : (a) in the Federal Republic of Germany : (i) in the case of taxes withheld at source on dividends, interest, royalties and fees for technical services, in respect of amounts paid on or after the first day of January of the calendar year next following that in which notice of termination is given ; (ii) in the case of other taxes, in respect of taxes levied for periods beginning on or after the first day of January of the calendar year next following that in which notice of termination is given, (b) in the Republic of India : (i) in respect of income arising in any fiscal year beginning on or after the first day of April following the calendar year in which the notice of termination is given ; (ii) in respect of capital which is held on the last day of any fiscal year beginning on or after the first day of April following the calendar year in which the notice of termination is given. In witness whereof the undersigned being duly authorised thereto, have signed the present Agreement. Done at Bonn on June 19th, 1995 in two originals, each in the German, Hindi and English languages, all three texts being authentic. In case of divergent interpretation of the German and the Hindi texts, the English text shall prevail. Protocol The Republic of India and the Federal Republic of Germany have agreed at the signing at Bonn on 19th June, 1995 of the Agreement between the two States for the avoidance of double taxation with respect to taxes on income and capital upon the following provisions which shall form an integral part of the said Agreement. With reference to Article 7 1. (a) In the determination of the profits of a building site or construction, assembly or installation project there shall be attributed to that permanent establishment in the Contracting State in which the permanent establishment is situated only the profits resulting from the activities of the permanent establishment as such. If machinery or equipment is delivered from the head office or another permanent establishment of the enterprise (situated outside that Contracting State) or a third person (situated outside the Contracting State) in connection with those activities or independently therefrom there shall not be attributed to the profits of the building site or construction, assembly or installation project the value of such deliveries. (b) Income derived by a resident of a Contracting State from planning, project, construction or research activities as well as income from technical services exercised in that State in connection with a permanent establishment situated in the other Contracting State, shall not be attributed to that permanent establishment. (c) In respect of paragraph 1 of Article 7, profits derived from the sale of goods or merchandise of the same or similar kind as those sold, or from other business activities of the same or similar kind as those effected, through that permanent establishment, may be considered attributable to that permanent establishment if it is proved that : (i) this transaction has been resorted to in order to avoid taxation in the Contracting State where the permanent establishment is situated, and (ii) the permanent establishment in any way was involved in this transaction. (d) It is understood that the deductions in respect of the head office expenses as referred to in paragraph 3 of Article 7 shall in no case be less than those allowable under the Indian Income-tax Act as on the date of entry into force of this Agreement. (e) No deduction shall be allowed in respect of amounts paid or 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 : (i) royalties, fees or other similar payments in return for the use of patents or other rights ; (ii) commission for specific services performed or for management ; and (iii) interest on moneys lent to the permanent establishment except in case of a banking institution. With reference to Article 8 2. For the purposes of Article 8, income from the operation of ships includes income derived from the use, maintenance or rental of containers (including trailers and related equipment for the transport of containers) in connection with the transport of goods or merchandise in international traffic. With reference to Article 10 3. For the purpose of taxation in the Federal Republic of Germany, the term dividends includes income derived by a sleeping partner (stiller Gesellschafter) from his participation as such and distributions on certificates of an investment fund or investment trust. For the purpose of taxation in the Republic of India, any income of a similar kind will be treated alike. With reference to Articles 10 and 11 4. Notwithstanding the provisions of these Articles, dividends and interest may be taxed in the Contracting State in which they arise, and according to the law of that State, (a) if they are derived from rights or debt claims carrying a right to participate in profits (including income derived by a sleeping partner from his participation as such, from a partiarisches Darlehen and from Gewinnobligationen within the meaning of the tax law of the Federal Republic of Germany) and (b) under the condition that they are deductible in the determination of profits of the debtor of such income. With reference to Article 13 5. In view of the position confirmed on behalf of the Government of the Federal Republic of Germany that the Deutsche Investitionsund Entwicklungsgesellschalt (DEG) is wholly owned by the Government of the Federal Republic of Germany and is exempted from paying income-tax in Germany, it is agreed that the long-term capital gains arising to the DEG due to alienation of shares in Indian companies will be exempt from taxation in India. With reference to Article 23 6. (a) The exemption provided for in sub-paragraph (a) of paragraph 1 of Article 23 is granted irrespective of whether the income or capital concerned is effectively taxed in the Republic of India or not. (b) Where a company being a resident of the Federal Republic of Germany distributes incomes derived from sources within the Republic of India paragraph 1 of Article 23 shall not preclude the compensatory imposition of corporation tax on such distributions in accordance with the provisions of German tax law. (c) The Federal Republic of Germany shall avoid double taxation by a tax credit as provided for in paragraph (1b) of Article 23, and not by a tax exemption under paragraph (1a) of Article 23, (aa) if in the Contracting States income is placed under differing provisions of the Agreement or attributed to different persons (other than under Article 9) and this conflict cannot be settled by procedure pursuant to Article 25 and (i) if as a result of such placement or attribution the relevant income would be subject to double taxation ; or (ii) if as a result of such placement or attribution the relevant income would remain untaxed or be subject only to inappropriately reduced taxation in the Republic of India and would (but for the application of this paragraph) remain exempt from tax in the Federal Republic of Germany ; or (bb) if the Federal Republic of Germany has, after due consultation and subject to the limitations of its internal law, notified the Republic of India through diplomatic channels of other items of income to which it intends to apply this paragraph in order to prevent the exemption of income from taxation in both Contracting States or other arrangements for the improper use of the Agreement. In the case of a notification under sub-paragraph (bb), the Republic of India may, subject to notification through diplomatic channels, characterise such income under the Agreement consistently with the characterisation of that income by the Federal Republic of Germany. A notification made under this paragraph shall have effect only from the first day of the calendar year following the year in which it was transmitted and any legal prerequisites under the domestic law of the notifying State for giving it effect have been fulfilled. With reference to Article 26 7. (a) It is also understood that in relation to the Agreement, the term information shall include documents. It is further understood that the German tax law provides for the transmission of information in terms of paragraph 3 of Article 117 of the Fiscal Code (Abgabenordnung) - upon request - and it would be possible to furnish information to the competent authority in the Republic of India under these provisions irrespective of this Article. (b) If personal data is exchanged under this Article, the following additional provisions shall apply subject to the domestic laws of each Contracting State : (i) The data supplying Contracting States shall be responsible for the accuracy of the data they supply. If it emerges that inaccurate data or data which should not have been supplied have been communicated, the receiving State shall be notified of this without delay. That State shall be obliged to correct or destroy said data; (ii) The Contracting States shall be obliged to keep official records of the transmission and receipt of personal data ; (iii) The Contracting States shall be obliged to take effective measures to protect the personal data communicated against unauthorised access, unauthorised alteration and unauthorised disclosure ; (iv) Upon application, the person concerned shall be informed of the information stored about him and of the use planned to be made of it. There shall be no obligation to give this information if on balance it appears that the public interest in withholding if outweighs the interest of the person concerned in receiving it. In all other respects, the right of the person concerned to be informed of the data stored about him shall be governed by the domestic law of the Contracting State in whose sovereign territory the application for the information is made. Done at Bonn on 19th June, 1995 in two originals, each in the German, Hindi and English languages, all three texts being authentic. In case of divergent interpretation of the German and the Hindi text, the English text shall prevail. Judicial analysis See the following cases dealing with old agreements : n Words subject to the provisions of paragraph (3) in article III(1) of Double Taxation Avoidance Agreement (between Federal Republic of Germany and India) would indicate that while industrial or commercial income of the foreign enterprise are not taxable in India, the rents, royalties, interests, dividends, etc., derived by the foreign enterprise from sources in India are taxable - CIT v.Visakhapatnam Port Trust [1983] 144 ITR 146 (AP). n Words any other form of indebtedness from sources in the other territory could only mean interest arising or accruing as a separate source of income -CIT v.Visakhapatnam Port Trust [1983] 144 ITR 146 (AP). n Mere supply of a plant by a foreign company whose assembly and erection are undertaken by purchaser under supervision of engineer deputed by supplier does not amount to foreign company having a permanent establishment - CIT v.Visakhapatnam Port Trust [1983] 144 ITR 146 (AP). n A sub-contractor cannot be treated as an agent within meaning of article II(1)(i)(dd) of Double Taxation Avoidance Agreement between Federal Republic of Germany and India - CIT v.Visakhapatnam Port Trust [1983] 144 ITR 146 (AP). n Where supplier of machinery had a permanent establishment in Germany where press was manufactured and certain services were rendered in connection with setting up of that press in India, this could not be treated as personal service in any way even if agreement for rendering service was embodied in a separate agreement; as such in view of agreement for avoidance of double taxation between Germany and India, tax was not deductible at source from amount paid to German company for such services - Andrew Yule Co. Ltd. v. CIT [1994] 207 ITR 899 (Cal.). n Fees for technical services is industrial or commercial profit and, therefore, would be entitled to exemption as per article III of DTA between India and Germany - AEG Telefunken v. CIT [1998] 233 ITR 129/101 Taxman 109 (Kar.). n In case of a non-resident, who is a resident of Germany, income arising to him in India by way of royalties or technical charges could be taxed in IndiaDy. CIT v. UHDE GmbH [1996] 54 TTJ (Bom. - Trib.) 355. n Expression laws in force occurring in Article XVI, para 1 of Agreement for Avoidance of Double Taxation between India and Federal German Republic, must mean the laws in force at the time the construction of a term is to be done and the term is not restricted to the law in force at the time of execution of the AgreementITO v. Leonhardt Andra UND Partner [1987] 21 ITD 607 (Cal. - Trib.). n Where assessee German resident had adopted calendar year for his assessment in Germany, for purpose of assessment of his income in India also, same should be taken as previous year in view of article II(1)(g) of Agreement for Avoidance of Double Taxation between Germany and India and financial year could not be taken as previous year on ground that he did not maintain accountsM.G.K. Blum v. Second ITO [1984] 7 ITD 643 (Bang. - Trib.). n Where assessee was not concerned with actual installation of plant but mere supervision of same, which was not same thing as installation of project, assessee could not be said to be having a permanent establishment in India within the meaning of article II(1)(h)(cc) of AADT between Germany and IndiaUDHE GmbH v. Dy. CIT [1997] 57 TTJ (Mum. - Trib.) 447. n Where under supply and service agreement with Indian company for establishing a fertiliser project, assessee, a West German company, purchased bulk material for Indian company and charged from Indian company cost plus 4 per cent as procurement fee, procurement fee was not assessable as royalty and fee for technical services but was to be treated as industrial and commercial profit which was not taxable in view of Double Taxation Agreement between India and West GermanyLinde A.G. v. ITO [1997] 62 ITD 330 (Mum. - Trib.). n There is no merit in contention that only that amount of royalty that was derived from the operation of a mine, quarry, or any other extraction of natural resources as stated in article IX of the Double Taxation Avoidance Agreement alone was to be excluded from industrial and commercial profits and there being no provision for exclusion of other kinds of royalties, any other receipt of royalty was not subject to taxation. As provided in article XVI(I), the law of respective States shall apply unless contrary is provided in the DTA. It means that if there was no provision for the treatment to be given to the royalty, other than the royalty under Article IX of the DTA, the same would be subject to Indian taxation and taxable in India under section 9(1)(viii) of the Act. DTA does not provide that any receipt, which does not fall in any of the clauses, would be taxable under the Income-tax Act or would be excluded from the purview of Indian taxationG.U.J. Jaeger GmbH v. ITO [1991] 37 ITD 64 (Bom. - Trib.). n The contention that the consideration pertaining to the provision of recurring know-how would also be a part of industrial and commercial profits has no force. It would be in the nature of royalty and there being a specific exclusion of royalty from the definition of industrial and commercial profits, by Article III(3) of DTA, it would not enjoy the exemption on the ground that the assessee had no permanent establishment in IndiaG.U.J. Jaeger GmbH v. ITO [1991] 37 ITD 64 (Bom. - Trib.). n Rendering of consultancy service in India by non-resident in connection with industrial project would not amount to doing industrial or commercial activity within meaning of Double Taxation Avoidance Agreement between Federal Republic of Germany and India so as to make section 195 inapplicable to payments made by assessee to non-residentGujarat Narmada Valley Fertilisers Co. Ltd. v. ITO [1982] 2 ITD 515 (Ahd.). n Under no circumstances executive authority can make an item of income as of taxable nature with retrospective effect if the same is not provided in the protocol - Tata Iron Steel Co. Ltd. v. Dy. CIT [1990] 100 Taxman 51 (Mag.)/62 TTJ (Mum.) 17. n Words subject to the provisions of paragraph (3) in article III(1) of Double Taxation Avoidance Agreement (between Federal Republic of Germany and India) would indicate that while industrial or commercial income of the foreign enterprise are not taxable in India, the rents, royalties, interest, dividends, etc., derived by the foreign enterprise from sources in India are taxableCIT v. Visakhapatnam Port Trust [1983] 144 ITR 146 (AP). n Words any other form of indebtedness from sources in the other income could only mean interest arising or accruing as a separate source of incomeCIT v. Visakhapatnam Port Trust [1983] 144 ITR 146 (AP). n Mere supply of a plant by a foreign company whose assembly and erection are undertaken by purchaser under supervision of engineer deputed by supplier does not amount to foreign company having a permanent establishmentCIT v. Visakhapatnam Port Trust [1983] 144 ITR 146 (AP). n A sub-contractor cannot be treated as an agent within meaning of article II(I)(i)(dd) of Double Taxation Avoidance Agreement between Federation Republic of Germany and IndiaCIT v. Visakhapatnam Port Trust [1983] 144 ITR 146 (AP). n Where supplier of machinery had a permanent establishment in Germany where press was manufactured and certain services were rendered in connection with setting up of that press in India, this could not be treated as personal service in any way even if agreement for rendering service was embodied in a separate agreement; as such in view of agreement for avoidance of double taxation between Germany and India, tax was not deductible at source from amount paid to German company for such servicesAndrew Yule Co. Ltd. v. CIT [1994] 207 ITR 899 (Cal.). n Amendment to 1959/60 DTAA between India and Federal Republic of Germany by GSR No. 680(E), dated 26-8-1985 could not be made effective from 1-4-1984Tata Iron Steel Co. Ltd. v. Dy. CIT [1998] 100 Taxman 51 (Mum. - Trib.) (Tax. Mag.).
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