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ARTICLE 11

Interest or Gains

(1) Interest or gains 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 interest or gains 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 or gains, the tax so charged shall not exceed 10 per cent of the gross amount of the interest or gains.

(3) Notwithstanding the provisions of paragraph (2), interest or gains arising in a Contracting State shall be exempt from tax in that State, provided that it is derived and beneficially owned by:

  • (a) the Government, a political subdivision or a local authority of the other Contracting State; or
  • (b)
    • (i) in the case 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, the National Housing bank, the Small Industries Development Bank of India and the Industrial Credit and Investment Corporation of India (ICICI); and
    • (ii) in the case of the Sudan, the Bank of Sudan and the Sudanese Development Corporation; or
  • (c) any other institution as may be agreed upon from time to time between the Competent authorities of the Contracting States through exchange of letters.

(4) The term "interest or gains" as used in this Article 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 such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest or gains for the purpose of this Article.

(5) The provisions of paragraphs (1) and (2) shall not apply if the beneficial owner of the interest or gains, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest or gains 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 or gains 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 may be, shall apply.

(6) Interest or gains shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest or gains, 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 or gains is paid was incurred, and such interest or gains is borne by such permanent establishment or fixed base, then such interest or gains 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 or gains, 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 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.