CIRCULAR NO. 39, DATED 13-04-1970
Double Taxation Avoidance Agreement between India and the Republic of France
DOUBLE TAXATION RELIEF
1.A comprehensive agreement for the avoidance of double taxation of income between India and Republic of France was signed by the representatives of the two countries on 26th March, 1969, and a notification under s.90 of the IT Act and s. 24A of the Companies (Profits) Surtax Act, to give effect to the provisions of the Agreement, has been issued on the 18th Feb., 1970. In India, the Agreement will be applicable in respect of income of the previous year beginning on or after 1st Jan., 1970. Thus, in a case where the accounts are maintained on the basis of the calendar year or financial year, the Agreement will be effective for the asst. yr. 1971-72 and later years, while in a case where the previous year ends on any earlier date, say, on 30th June, this will have effect from the asst. yr. 1972-73 onwards.
2. The Agreement is based on the principles which have been adopted by India in the Agreements concluded by her so far with other West European countries. It provides, in substance, that the country in which the income from a particular source arises will be primarily entitled to tax that income and if such income is also taxable in the home country under the operation of its laws, double taxation will be relieved by the home
country. For this purpose, either the income is exempted from tax in the home country of the recipient of the income or the tax charged on that income in the source country is given credit for against the home country’s tax. In relieving double taxation by the latter method, the home country gives credit not only for the tax actually charged on such income in the source country but also the tax spared in that country under the special
concessional provisions in her taxation laws for encouraging investment and promoting industrial development. In the Indo-French Agreement, both these methods have been used.
3. As regards industrial and commercial profits derived by an enterprise of one country in the other country, the same are taxable in the source country if and to the extent that they are derived from a “permanent establishment” of the enterprise in the country of source. As regards income from investments, viz., dividends, interest and royalties, such income may be taxed in both the countries, i.e., the country of residence as well as the country of source. Thus, royalty, dividends and interest paid by an Indian enterprise to a French enterprise may be taxed in both the countries. In such cases, France will allow credit against the French tax payable by a French enterprise in respect of such income on the following basis :
(i) In respect of royalty income, an amount equal to the tax charged in India on such income, subject to a maximum of the tax payable in France under the French law;
(ii) In respect of interest income—
(a) where the interest has been subjected to tax in India, an amount equal to the tax charged in India on such income, subject to a maximum of the tax payable in France under the French law;
(b) where the interest is exempt from tax under s. 10(15) of the IT Act, 1961, an amount equal to 50 per cent of the tax payable on such interest in France under the French law.
(iii) In respect of dividends, an amount equal to 30 per cent of the gross amount of dividends, subject to a maximum of the tax payable in France under the French law. In computing the French tax for this purpose, tax spared in India under ss. 80J, 80K and 80M of the IT Act, 1961, shall be presumed to have been actually paid in India.
4. Profits from the operation of aircraft in international traffic will be taxed exclusively in the country in which the aircraft is registered. This is in line with the provisions incorporated in our agreements with other countries. As regards shipping profits arising to an enterprise of one treaty country in the other treaty country, the agreement provides for the abatement of the tax chargeable in the latter country on the profit arising in it to
the extent of 50% of such tax. The balance of 50% of the tax retained in the source country is to be allowed as a credit against the home country’s tax in order to relieve double taxation. The provisions of sub-ss. (1) to (6) of s. 172 of the IT Act, 1961, relating to the provisional assessment of profits from occasional shipping or tramp steamers will, however,continue to be operative even in such cases, but the abatement in terms of the agreement will be made while making the regular assessment in the subsequent year.
5. In the case of Government employees, the salary is taxable in the home State, irrespective of the place where the services are rendered. In other cases, with a few exceptions, the salary for services as an employee is taxable by the country where the service is rendered. Similarly, income arising from independent professional services will be taxable in the country where the services are rendered. Under the terms of letters
exchanged at the time of signing the agreement (and forming part of the agreement), any remuneration received by a resident of one of the treaty countries in connection with any activities in the other country concerning cultural, scientific and technical co- operation between the two countries under the terms of the agreement dt. 7th July, 1966, between India and France is, however, exempt from tax in the latter country.
SOURCE :[Reported in (1970) 76 ITR (St) 118]