Colombo, 10 September 1956
Whereas the Government of India and the Government of Ceylon desire to conclude an Agreement for relief from or the avoidance of double
taxation of income chargeable in the two countries in accordance with their respective laws; Now, therefore, the said two Governments
do hereby agree as follows
Article I
The taxer, which are the subject of the present Agreement are: (a) In India; the taxes imposed by the Indian Income-tax Act. 1922
(XI of 1922).
(b) In Ceylon; (i) the tax imposed by the Ceylon Profits Tax Act, 1948 (No. 5 of 1948), (ii) the tax imposed by the Ceylon Income-tax
Ordinance, 1932 (2 of 1932) exclusive of the taxes mentioned in sub-clauses (i), (ii) and (iii) of section 45(4) (b) of the said
Ordinance. The present Agreement shall also apply to taxes that may be levied in India under a Profits Tax Act, similar to the Ceylon
Profits Tax Act, 1948 (No. 5 of 1948), passed after the date of the present Agreement.
Article II
The present Agreement shall come into force on the date on which the last of all such things shall have been done in India and Ceylon
as are necessary to give the Agreement the force of law in India and Ceylon respectively, and shall thereupon have effect for the
assessment year 1950-51 and subsequent assesment years : Provided that in respect of the two assessment years 1950-51 and 1951-52,
instead of the abatement provided for in Article III, IV, and V of this Agreement, double income tax relief in respect of incomes
taxed both in India and Ceylon shall be computed and allowed as if the provisions of W the Income Tax (Double Taxation Relief) (Ceylon)
Rules, 1942 in India and (ii) section 46 of the Ceylon Income-tax Ordinance, 1932 (2 of 1932) in Ceylon apply.
Article III
Each country shall make assessment in the ordinary way under its own laws; and where either country under the operation of its laws
charges any income from the sources or categories of transactions specified in column 1 of the Schedule to this Agreement (hereafter
referred to as the Schedule) in excess of the amount calculated according to the precentages specified in columns II and III thereof,
that country shall allow an abatement equal to the lower of the amounts of tax attributable to such excess in either country.
Article IV
Where any income accruing or arising outside the two countries is chargeable to tax in both the countries, each country shall allow
an abatement equal to one half of the lower"amount of tax attributable in either country to such doubly taxed income.
Article V
Where at the time of assessment in one country the tax attributable in the other country to the excess or the doubly taxed income
referred to in Article III and IV is not known, the first country shall make a demand without allowing any abatement but shall hold
in abeyance for a period of one year (or such longer period as may be allowed by the Income-tax Officer in his discretion) the collection
of a portion of the demand equal to an amount estimated by him to be the abatement likely to be due. If the assesee produces a certificate
of assessment in the other country within the period of one year or any longer period allowed by the Income-tax Officer, the uncollected
portion of the demand shall be adjusted against the abatement allowable under the Agreement; but if no such cerficate is produced
within the aforesaid period, the abatement shall cease to be operative and the outstanding demand shall be collected forthwith.
Article VI
An individual of Indian domicile, who is non-resident in Ceylon, shall be entitled to relief from the Ceylon Government equal to the
excess of the Ceylon tax paid by him, by deduction or otherwise, on his Ceylon income for any assessment year over the amount which
bears the same proportion to the amount which would be payable by him for that year by way of Ceylon tax if he were resident in Ceylon
and chargeable in respect of his total income from all sources, wherever arising, as the amount of such Ceylon income bears to the
amount of such total income from all sources :
(a) in respect of the five assessment years commencing with the assessment year 1950-51, and
(b) in respect of any assessment year subsequent to the assesment year 1954-55 provided that during that assessment year the option
provided for in the first and second provisos to sub-section (I) of section 17 of the Indian Income-tax Act, 1922 is available to
individuals resident in Ceylon in regard to the Indian tax payable by them.
Article VII
(1) The taxation authorities of the Contracting Governments shall exchange such information (being information which is at their disposal
under their respective taxation laws in the normal course of administration) as is necessary for carrying out the provisions of the
present Agreement. Amy information so exchanged shall be treated as secret and shall not be disclosed to any person other than those
concerned with the assessment and collection of the taxes which are the subject of the present Agreement. No information as aforesaid
shall be exchanged which would disclose any trade, business, industrial or professional secret or trade process.
(2) As used in this article, the term "taxation authorities" means, in the case of India, the Commissioners of Income-tax,
the Assistant Commissioners of Income-tax or the Income-tax Officers; in the case of Ceylon, the Commissioner of Income-tax or his
authorised representative.
Article VIII
(a) Nothing in this Agreement shall be construed as modifying or interpreting in any manner the provisions of the relevant Taxation
laws in force in either country.
(b) If any question arises in any country as to whether any income falls within any one of the items specified in the Schedule and
if so under which item, the question shall be decided without any reference to the treatment of such income in the assessment made
by the other country.
Article IX
The Schedule to this Agreement may be modified from time to time by agreement between the Governments of the two countries and reference
to the Schedule in the foregoing Articles shall be read as references to the Schedule as modified.
Article X
The present Agreement shall continue in effect indefinitely but either of the Contracting Governments may, on or before the 30th September
in any calendar year, give to the other Contracting Government written notice of termination, and in such event the present Agreement
shall cease to have effect in relation to assessments for the years of assessment commencing after the said date.
IN FAITH WHEREOF, the plenipotentiaries of India and Ceylon have signed the present Agreement in Hindi and English languages (the
English text shall prevail in case of conflict between the two texts) and have affixed thereto their seals.
DONE in duplicate in Colombo on the 10th of September, 1956.
