Notification No. 650(E)

A tax treaty given effect under section 24A of the Income-tax Act, 1961

What this is

Notification No. 650(E) was published on 10 July 2000. Its subject is A tax treaty given effect under section 24A of the Income-tax Act, 1961.

This one is about a tax treaty. India’s treaties enter Indian law by notification under section 90; where the instrument below is that notification, its date decides from when the treaty may be applied, and where it is a circular, it is the Board telling its officers how it reads the treaty — which is not the same thing.

What it does

Acting under section 90 of the Income-tax Act, 1961, the Central Government directs modifications to the India-France Convention for the avoidance of double taxation with respect to taxes on income and on capital, which came into force on 1 August 1994 and was notified by G.S.R. 681(E) dated 7 September 1994. The modifications are made under the most-favoured-nation clause in paragraph 7 of the Protocol dated 29 September 1992, triggered by the India-Germany Convention which entered into force on 26 October 1996 and the India-United States Convention which entered into force on 18 December 1990. With effect from 1 April 1997 paragraph 2 of Article 11 on dividends is read so that source taxation of dividends beneficially owned shall not exceed 10 per cent of the gross amount. With effect from 1 April 1995 paragraph 2 of Article 12 on interest is read so that the rate shall not exceed 10 per cent on interest on loans made or guaranteed by a bank or other financial institution carrying on bona fide banking or financial business, or by an insurance company, or by an enterprise holding directly or indirectly at least 10 per cent of the capital of the payer, and 15 per cent in all other cases; and with effect from 1 April 1997 that paragraph is read as a flat 10 per cent of the gross amount of the interest. With effect from 1 April 1995 paragraph 2 of Article 13 on royalties, fees for technical services and payments for the use of equipment is likewise substituted.

Why it was issued

Paragraph 7 of the Protocol dated 29 September 1992 requires that where, after 1 September 1989, India limits its source taxation of these items of income to a lower rate or narrower scope under a Convention with another OECD member State, the same rate or scope applies under the India-France Convention; the Conventions with Germany and the United States had that effect.

Who it reaches

French residents receiving dividends, interest, royalties, fees for technical services or equipment payments from India
Indian companies and payers withholding tax on such payments to France
Indian residents receiving the same items of income from France
assessing officers applying the modified treaty rates

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.24A	no counterpart recorded
s.44A	s.50
s.90	s.159

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

Notification No. S. O. 650(E), dated 10th July, 2000.

Whereas the Convention between the Republic of India and the French Republic for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital came into force on the 1st day of August, 1994, after the notification by both the Contracting States to each other of the completion of the procedures required under their laws for bringing into force the said Convention.

And whereas the Central Government in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), section 24A of the Companies (Profits) Surtax Act, 1964 (7 of 1969) and section 44A of the Wealth-tax Act, 1957 (27 of 1957), had directed that all the provisions of the said Convention annexed to the notification of the Government of India in the Ministry of Finance (Department of Revenue) (Foreign Tax Department) No. G.S.R. 681(E), dated 7th September, 1994, shall be given effect to in the Union of India.

And whereas paragraph 7 of the Protocol dated 29th September, 1992, to the aforesaid Convention provides that if after 1st day of September, 1989, under any Convention Agreement or Protocol concluded between India and a third State which is a member of the Organisation for Economic Co-operation and Development, India should limit its taxation at source on dividends, interest, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, then, as from the date on which the Convention between India and France or the relevant India Convention, Agreement or Protocol enters into force, whichever enters into force later, the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items of incomes shall also apply under this Convention ;

And whereas in the Convention between India and Germany which entered into force on 26th October, 1996, and the Convention between India and the United States of America which entered into force on 18th December, 1990, which States are members of the Organisation for Economic Co-operation and Development, the Government of India has limited the taxation at source on dividends, interest, royalties, fees for technical services and payments for the use of equipment to a rate lower or a scope more restricted than that provided in the Convention between India and France on the said items of income ;

Now, therefore, in exercise of the powers conferred under section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby directs that the following modifications shall be made in the Convention notified by the said notification which are necessary for implementing the aforesaid Convention between India and France, namely :---

I. With effect from 1st April, 1997, for the existing paragraph 2 of article 11 relating to "Dividends", the following paragraph shall be read ;

"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 Contracting State, but if the recipient is the beneficial owner of the dividends, the tax so charged shall not exceed 10 per cent. of the gross amount of the dividends."

II. With effect from 1st April, 1995, for the existing paragraph 2 of article 12 relating to "Interest", the following paragraph shall be read :

"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 ---

(a) 10 per cent. of the gross amount of the interest on loans made or guaranteed by a bank or other financial institution carrying on bona fide banking or financial business or an insurance company or by an enterprise which holds directly or indirectly at least 10 per cent. of the capital of the company paying interest ;

(b) 15 per cent. of the gross amount of the interest in all other case."

III. With effect from 1st April, 1997, for paragraph 2 of article 12 relating to "Interest", referred to in paragraph II above, the following paragraph shall be read :

"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."

IV. With effect from 1st April, 1995, for the existing paragraph 2 of article 13 relating to "Royalties and fees for technical services and payments for the use of equipment", the following paragraph shall be read :

"2. However, such royalties and fees payments may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State but if the recipient is the beneficial owner of these categories of income, the tax so charged shall not exceed---

(a) in the case of royalties and fees 20 per cent. of the gross amount of such royalties or fees ; and

(b) in the case of payments referred to in paragraph 5 of this article, 10 per cent. of the gross amount of such payments."

V. With effect from 1st April, 1997, for paragraph 2 of article 13 relating to "Royalties and fees for technical services and payments for the use of equipment", referred to in paragraph IV above, the following paragraph shall be read :

"2. However, such royalties and fees payments may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of these categories of income, the tax so charged shall not exceed 10 per cent. of the gross amount of such royalties, fees and payments."

[Notification No. 11438/F. No. 501/16/80-FTD]

From when

1 April 1995 for the interest and Article 13 modifications, and 1 April 1997 for the dividends modification and the flat 10 per cent interest rate, all retrospectively.

What to watch

The modifications carry different commencement dates: 1 April 1995 for the first version of the interest and Article 13 paragraphs, and 1 April 1997 for the dividend paragraph and the flat 10 per cent interest rate.
The reduced rates apply only where the recipient is the beneficial owner of the income.
The interest rate for 1 April 1995 to 31 March 1997 is split: 10 per cent for bank, financial institution, insurance company and 10 per cent shareholder lending, and 15 per cent otherwise.
The modifications operate under the most-favoured-nation clause in paragraph 7 of the Protocol, so they follow from the Germany and United States Conventions and not from any fresh negotiation with France.
The archived text is clipped in the middle of the Article 13 substitution, so the royalties rate is not fully set out here.

Where you meet it

In withholding on a dividend, interest, royalty or technical fee payment to a French resident, and in a claim of treaty relief in the return of income or before the assessing officer.

An example

Ours, not the Board’s: a worked case built from the rule the instrument sets, to show how it falls out.

Interest paid in the year ended 31 March 1996 by an Indian company to a French bank on a loan it made is taxable at source at not more than 10 per cent of the gross amount; the same interest paid to a French lender that is neither a financial institution nor a 10 per cent shareholder bears not more than 15 per cent until 1 April 1997, after which the ceiling is 10 per cent in either case.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 368 — A tax treaty given effect under section 24A of the Income-tax Act, 1961 15 December 2006
Notification No. 54E- — A tax treaty given effect under section 24A of the Income-tax Act, 1961 19 January 2001
Notification No. G.S.R. 38(E) — 38 e convention between the government of the republic of INDIA and the government of the kingdom of sweden for the avoi 27 March 1989
Notification No. 78 — Section 90 of the Income-tax Act, 1961 - Double taxation agreement - Agreement for Avoidance of Double Taxation and Prev 12 October 2009
Notification No. 5 — Section 90 of the Income-tax Act, 1961 - Double taxation agreement - Agreement for Avoidance of Double Taxation and Prev 7 January 2009
Notification No. 4 — Section 90 of the Income-tax Act, 1961 - Double taxation agreement - Agreement for Avoidance of Double Taxation and Prev 7 January 2009

What a notification is. A notification is made under a power the Act itself gives, and within that power it is law — unlike a circular, which only binds the department. Its reach is the reach of the enabling provision and no wider, and the date it carries decides from when it works.

Source: the Income Tax Department’s own published text — its page for this instrument.