ARTICLE 23

Other Income

This Article provides the rules for the taxation of items of income not dealt within the other Articles of the Convention. An item of income is "dealt with" in an Article when items in the same category are addressed or defined in the Article, whether or not any treaty benefit is granted to that item of income. This Article deals both with types of income which are not dealt with elsewhere, such as, for example, lottery winnings, and also with income of a type dealt with elsewhere in the Convention, but from sources in third States, and, therefore, not covered by the other Articles.

Paragraph 1 contains the general rule that such items of income derived by a resident of a Contracting State will be taxable only in the State of residence. This exclusive right of taxation applies irrespective of whether the residence State exercises its right to tax the income covered by the Article. The rule of this paragraph, granting exclusive taxation rights to the residence State, is modified by paragraphs 2 and 3.

Paragraph 2 contains an exception to the general rule of paragraph 1 for income, other than income from real property, which is attributable to a permanent establishment or fixed base maintained in a Contracting State by a resident of the other Contracting State. The taxation of such income is governed by the provisions of Articles 7 (Business Profits) or 15 (Independent Personal Services). Thus, In general, third-country income which is attributable to a permanent establishment maintained in the United States by a resident of India would be taxable by the United States. There is an exception to this rule for income from real property, as defined in

paragraph 2 of Article 6 (Income from Immovable Property (Real Property)). If an Indian resident derives income from real property located in a third State which is attributable to the resident's permanent establishment or fixed base in the United States, only India and not the United States may tax that income. (See the explanation above, of Article 7 (Business Profits) for a discussion of Paragraph III of the Protocol as it applies to paragraph 2 of this Article.)

Paragraph 3 modifies the exclusive residence State taxation right to tax "other income" granted by paragraph 1, and the rules of paragraph 2 relating to the taxation of "other income" attributable to a permanent establishment or fixed base. Under this paragraph, "other income" which arises in a Contracting State may be taxed by that State even if it is received by a resident of the other Contracting State. This is not an exclusive taxing right; the residence State may continue to tax. Any resulting double taxation is taken care of by the provisions of Article 25 (Relief from Double Taxation). This rule is taken from the U.N. Model, and is consistent with the rules of several other U.S. treaties.

This Article is subject to the saving clause of paragraph 3 of Article 1 (General Scope) of the Convention. Thus, the United States may tax the income of a resident of India not dealt with elsewhere in the Convention, if that Indian resident is a citizen of the United States.