(1) This Agreement shall apply to taxes on income and on capital imposed on behalf of a Contracting State, irrespective of the procedure in which they are levied.

(2) 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, and the payroll tax.

(3) The existing taxes to which this Agreement shall apply are in particular

In the Federal Republic of Germany:
· the income tax

· the corporation tax

· the capital tax, and

· the trade tax

In the Republic of India:

· the income tax including any surcharge tax thereon and the wealth tax.

Resident

1) For the purpose of this Agreement, the term "resident of a Contracting State" is liable to tax therein by reason of his domicile, residence, place of management or any criterion of a similar nature. But this term does not include any person who is liable to tax in that State in respect of income from sources in that State or capital situated therein.

2) Where by reason of the provisions of paragraph 1 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 interests 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.

Permanent Establishment

For the purposes of this Agreement, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

The term "permanent establishment" includes especially

(a) a place of management;

(b) a branch;

(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, including an installation or structure used for the explanation or exploitation;

(g) a warehouse or sales outlet;

(h) a farm, plantation or other place where agriculture, forestry, plantation or related activities are carried on; and

(i) a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or activities continue for a period exceeding six months.

Heads of Income

Income from Immovable Property

(1) Income derived by a resident of a Contracting State from immovable property, situated in the other Contracting State may be taxed in that other State.

(1) The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property.

(2) The provisions of paragraphs 1 and 2 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

Business Profits

(1) The profits of an enterprise of a Contracting State shall be taxable only in the 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 other State but only so much of them as are attributable to that permanent establishment.

(2) Subject to the provisions of paragraph 3, 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) In the determination of the profits of a permanent establishment, there shall be allowed as deductions, expenses which are incurred for the purposes 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, and according to the domestic law of the Contracting State in which the permanent establishment is situated.

(4) Insofar as in a Contracting State and in exceptional cases the determination of the profits to be attributed to a permanent establishment in accordance with paragraph 2 is impossible or gives rise to unreasonable difficulties, nothing in paragraph 2 shall preclude the determination of the profits to be attributed to a permanent establishment by means of either apportioning the total profits of the enterprise to that permanent establishment or estimating on any other reasonable basis; the method of apportionment or estimation adopted shall, however, be such that the result shall be in accordance with the principle contained in this Section.

(5) No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of good 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 unless there is good and sufficient reason to the contrary.

(7) Where profits include items of income, which are dealt with separately in other Sections of this Agreement, then the provisions of those Sections shall not be affected by the provisions of this Section.

Shipping and Air Transport

(1) Profits from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.

(2) 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 sate in which the home harbour of the ship is situated or if there is no such home harbour in the Contracting State of which the operator of the ship is a resident.

(3) For the purposes of this Section, interest on funds connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft, and the provisions of Article 11 shall not apply in relation to such interest.

(4) The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.

Associated Enterprises

Where;

a) an enterprise of a Contracting 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 case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from 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.

Dividends

(1) Dividends paid by a company which is a resident of a Contracting State of a resident of the other Contracting State may 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 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.

This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

(3) The term "dividends" as used in this Section means

(a) dividends on shares including income from shares "jouissance "shares or jouissance' rights, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, and

(b) other income which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.

(4) The provisions of paragraphs 1 and 2 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 paying the dividends is a resident, through a permanent establishment situated therein, or performs, in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base.

(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 respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

Interest

(1) Interest arising in a Contracting State and paid to a resident of other Contracting State may be taxed in that other state.

(2) However, such interest may also be taxed in the Contracting State, 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 exceed 10 per cent of the gross amount of the interest.

(3) Notwithstanding the provisions of paragraphs 1 and 2

(a) Interest arising in the Federal Republic of Germany and paid to the Government of the Republic of India, the Reserve Bank of India, the Industrial Finance Corporation of India, the Industrial Development Bank of India, the Export-Import Bank of India, National Housing Bank and Small Industries Development Bank of India -shall be exempt from German tax:

(b) Interest arising in the Republic of India and paid to the Government of the Federal Republic of Germany, the Deutsche Bundesbank, the Kreditanstalt for Wiederaufbau or the Deutsche investitions-und Entwicklungsgesellschaft (DEG) and interest paid in consideration of a loan guaranteed by HERMES--Deckung shall be exempt from Indian tax.

(4) The term "interest" as used in this Section means income from debt--claims of every kind, whether or-not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this section.

(5) The provisions of paragraphs 1, 2 and 3 shall 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, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case maybe shall apply.

(6) Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a land, a political subdivision, 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 or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base 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 Section 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 Contracting State, due regard being had to the other provisions of this Agreement.

Royalties and Fees for Technical Services

(1) Royalties and fees for technical services 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 and fees for technical services may also be taxed in the Contracting State in which they arise and according to laws of that State, but if the recipient is the beneficial owner of the royalties, or fees for technical services, the tax 50 charged shall not exceed 10 percent of the gross amount of the royalties or the fee for technical services.

(3) The term "royalties' as used in this Section means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films or films or tapes used for radio, television 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 term "fees for technical services" as used in this Section means payments of any amount in consideration for the services of managerial, technical or consultancy nature, including the provision of services by technical or other personnel, but does not include payments for services technical or other personnel, but does not include payments for services mentioned in Articles 15 of this Agreement.

(5) The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting state in which the royalties or fees for technical services arise, through

a permanent establishment situated therein, or performs in that other state independent personal service from a fixed base situated therein and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base.

(6) Royalties and fees for technical services shall be deemed to arise a Contracting State when the payer is that State itself, a Land or a political subdivision, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for technical services, ether he is a resident of a contracting State or not, has in a contracting whether he is a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such moment establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

(7) Where, by reason of special relationship between the payer and beneficial owner or between both of them and some other person, amount of royalties or fees for technical services paid exceeds the amount which would have been paid in the absence of such relationship, 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 Agreement.

Capital Gains

(1) Gains derived by a resident of a Contracting State from the alienation of immovable property 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 or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, 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 shares in a company which is a resident of a Contracting State may be taxed in that State.

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

Independent Personal Services

(1) Income derived by an individual who is a resident of a Contracting State from the performance of professional services or other independent activities of a similar character shall be taxable only in that State except in the following circumstances when such income may also be taxed in the other Contracting State;

(a) if he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities in that case only so much of the income as is attributable to that fixed base may be taxed in that other State; or

(b) if his stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 120 days in the relevant fiscal year; in that case, only so much of the income as is derived from his activities performed in that other state may be taxed in that other State.

(2) The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities, as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants.

Dependent Personal Services

(1) Salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable in the other Contracting State only if the employment is exercised there.

(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 in the fiscal year concerned, and

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and

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

(3) Notwithstanding the preceding provisions of this Section, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic may be taxed in the Contracting State of which the enterprise operating the ship or aircraft is a resident.

Directors' Fees

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

Artists and Sports persons

(1) Income derived by a resident of a Contracting State as an entertainer, such as theatre, motion picture, radio or television artiste, or a musician, or as a sports person, from his personal activities as such exercised in the other contracting State may be taxed in that other State.

(2) However, such income shall not be taxed in the state mentioned paragraph 1 if the said activities are exercised during a visit to that state by a resident of the other Contracting State and where such visit is financed directly or indirectly by that other state, a Land, a political subdivision or a local authority thereof or by an organization which in that other state is recognized as a charitable organization.

Non-government Pensions

Pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment shall be taxable only in that state.

Government Service

(1)(a) Remuneration other than a pension, paid by a Contracting State, a Land, a political subdivision or a local authority thereof to an individual in respect of services rendered to that State, land, sub-division or authority 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 State and the individual is a resident of the 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

(2)(a) Any pension paid by a Contracting State, a land, a political subdivision or a local authority thereof to an individual in respect of services rendered to that State, land, sub-division or authority shall be taxable only in that State.

(b) However, such pension shall be taxable only in the other Contracting State if he individual is a resident of and a national of that other State.

(3) The provisions of Articles 15, 16 and 18 shall apply to remuneration and pensions in respect of services rendered in connection with a business carried on by a Contracting State, a Land, a political subdivision or a local authority thereof.

(4) The provisions of paragraph 1 shall likewise apply in respect' of remuneration paid, under a development assistance programme of a Contracting State, a land, a political sub-division or a local authority thereof, out of funds exclusively supplied by that State, land, political sub-division or local authority, to a specialist or volunteer seconded to the other Contracting State with the consent of that other state.

Teachers, Students and Trainees

1) An individual who visits a Contracting State at the invitation of State or of a university, college, school, museum or other cultural institution of that State or under an official programme of cultural exchange for a period not exceeding two years solely for the purpose of teaching giving lectures or carrying out research at such institution and who is or was immediately before that visit, a resident of the other Contracting State shall be exempt from tax in the first-mentioned State on his remuneration for such activity during the period of the first year on the date of his arrival and in the next year the exemption will be only in respect of remuneration derived by him from outside that State.

(2) An individual who is present in a Contracting State solely

(a) as a student at a university, college or school in that Contracting State.

(b) as a business apprentice (including in the case of the Federal Republic of Germany a "Volontar" or a Praktikant")

(c) as the recipient of a grant, allowance or award for the primary purpose of study or research from a religious, charitable, scientific or educational organisation, or,

(d) as member of a technical cooperation programme entered into by the Government of that Contracting State, and who is, or was immediately before visiting that State, a resident of the other Contracting State, shall be exempt from tax in the first mentioned Contracting State in respect of

(i) remittances from abroad for the purposes of his maintenance, education or training and

(ii) remuneration from employment in that other State, in an amount not exceeding DM 7,200 or its equivalent in Indian currency during any fiscal year, as the case may be, provided that such employment is directly related to his studies or is undertaken for the purpose of his maintenance.

Other Income

Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Sections of this Agreement shall taxable only in that State.

The provisions of paragraph 1 shall not apply to income, other than income from immovable property, if the recipient of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base.

Notwithstanding the provisions of paragraph 1, if a resident of a Contracting State derives income from sources within the other Contracting State in the form of lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any form or nature whatsoever, such income may be taxed in the other Contracting state.

Capital

· Capital represented by immovable property, owned by a resident of a Contracting State and situated in the other Contracting State, may be taxed in that other State.

· Capital represented by 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 or by movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, may be taxed in that other State.

· Capital represented by ships and aircraft operated in international traffic and by mdvable 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.

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

Relief from Double Taxation

· Tax shall be determined in the case of a resident of the Federal Republic of Germany as follows:

Unless foreign tax credit is to be allowed under subparagraph

There shall be exempted from German tax any item of income arising in the Republic of India and any item of capital situated within the Republic of India, which, according to this Agreement, may be taxed in the Republic of India. The Federal Republic of Germany, however, retains the right to take into account in the determination of its rate of tax the items of income and capital so exempted.

In the case of dividends exemption shall apply only to such dividends as are paid to a company (not including partnership) being a resident of the Federal Republic of Germany by a company being a resident of Republic of India at least 10 per cent of the capital of which is owned directly by the German company.

b) Subject to the provisions of German tax law regarding credit for foreign tax, there shall be allowed as a credit against German tax payable in respect of the following items of income arising in the Republic of India and the items of capital situated there the Indian tax paid under laws of the Republic of India and in accordance with this Agreement.

i) dividends not dealt with in the previous section

ii) interest;

iii) royalties and fees for technical services;

iv) income in the meaning of paragraph 4 of Article 13;

v) directors' fees,

vi) income of artistes and sports persons

c) For the purpose of credit referred to in letter (ii) of sub paragraph (b) the Indian tax shall be deemed to be 10 per cent of the gross amount of the interest, if the Indian tax is reduced to a lower rate or totally waived according to domestic law, irrespective of the amount of tax actually paid.

d) The provisions of sub-paragraph (c) shall apply for the first 12 fiscal years for which this Agreement is effective.

e) Notwithstanding the provisions of sub-paragraph (a) items of income dealt with in Articles 7 and 10 and gains derived from the alienation of the business property of a permanent establishment as well as the items of capital underlying such income shall be exempted from German tax only if the resident of the Federal Republic of Germany can prove the receipts of the permanent establishment or company are derived exclusively or almost exclusively from action operations.

In the case of items of income dealt within Article 10 and the items of capital underlying such income the exemption shall apply even if the dividends are derived from holding in other companies being residents of the Republic of India which carry on active operations and in which the company which last made a distribution has a holding of more than 25 per cent.

Active operations are the following: producing or selling goods or merchandise, giving technical advice or rendering engineering services, or doing banking or insurance business, within the Republic of India.

If this is not proved, only the credit procedure as per sub-paragraph b) shall apply.

· Tax shall be determined in the case of a resident of the Republic of India as follows:

Where a resident of the Republic of India derives income or owns capital which, in accordance with the provisions of this Agreement, may be taxed in the Federal Republic of Germany, the Republic of India shall allow as a deduction from the tax on such income of that resident an amount equal to the income tax paid in the Federal Republic of Germany, whether directly or by deduction, and as a deduction from the tax on such capital of that resident an amount equal to the capital tax paid in the Federal Republic of Germany. Such deduction in their case shall not, however, exceed that part of the income-tax or capital tax (as computed before the deduction is given) which is attributable, as the case may be to the income or the capital which may be taxed in the Federal Republic of Germany.

· 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 where express provision to the country is made in this Agreement.