ARTICLE 3

General Definitions

Paragraph 1 defines a number of basic terms used in the Convention. Some terms are not defined in the Convention. These are dealt within paragraph 2. Certain others are defined in other articles of the Convention. For example, the term "resident of a Contracting State" is defined in Article 4 (Residence). The term '"permanent establishment" is defined in Article 5 (Permanent Establishment). The terms “dividends,” “interest” and “royalties” are defined in Articles 10, 11 and 12, respectively, which deal with the taxation of those classes of income.

The terms "India" and "United States" are defined in paragraphs 1(a) and (b), respectively. The term "India" means the territory of India, and is further defined to include India's continental shelf. The term "United States'" is defined geographically to mean the territory of the United States, including its continental shelf. Though not specified, the term is understood not to include Puerto Rico, the Virgin Islands, Guam or any other U.S. possession or territory.

The terms "a Contracting State'" and "the State" are defined in paragraph 1(c) to mean India, depending on the context in which the other Contracting the United States or term is used.

The term "tax'" is defined in paragraph 1(d) to mean either Indian tax or United States tax, depending on the context in which the term is used.

Paragraph 1(e) defines the term '"person'" to include an individual, an estate, a trust, a partnership, a company, and any other body of persons or taxable entity. This definition differs from that in the U.S. Model only in the addition of "any other taxable entity", which is implicitly included by the '"any other body of persons" language in the U.S. Model.

The term "company" is defined in paragraph 1(f) as a body corporate or an entity treated as a body corporate for tax purposes. Since the term "body corporate" is not defined in the Convention, in accordance with paragraph 2 of this Article, it has the meaning which it has under the law of the Contracting State whose tax is being applied.

The terms "enterprise of a Contracting State" and '"enterprise of the other Contracting State" are defined in paragraph l(g) as an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State. The term "enterprise'" is not defined in the Convention.

Paragraphs 1(h) defines the term "competent authority" for both the United States and

India. The Indian competent authority is identified as the Central Government in the Ministry of Finance (Department of Revenue) or their authorized representative. The U.S. competent authority is identified as the Secretary of the Treasury or his delegate. The Secretary of the Treasury has delegated the competent authority function to the Commissioner of Internal Revenue, who has, in turn, redelegated the authority to the Assistant Commissioner (International). With respect to interpretative issues, the Assistant Commissioner acts with the concurrence of the Associate Chief Counsel (International) of the Internal Revenue Service.

The term "national" is defined in paragraph 1(i) as an individual who is a citizen or national of the United States or India. This definition is comparable to that found in the U.S. Model, except that in that Model the definition is in Article 24 (Nondiscrimination). Since the term has application in other articles as well (e.g., Article 19 (Remuneration and Pensions in Respect of Government Service)), in this Convention it has been placed among the General Definitions.

Paragraph 1(j) defines the term '"international traffic'", which is significant principally in relation to Article 8 (Shipping and Air Transport). The term means any transport by a ship or aircraft operated by an enterprise of a Contracting State except when the vessel is operating solely between places within the other Contracting State. The exclusion' from international traffic of transport by, for example, an Indian carrier solely between places within the United States means that a carriage of goods or passengers between New York and Chicago by the Indian carrier, if such carriage were possible under U.S. law, would not be treated as international traffic. The substantive taxing rules in Article 8 of the Convention relating to the taxation of income from transport, therefore, would not apply to income from such carriage, and the United States would not be required to exempt the income under Article 8. The income would, however, be treated as business profits under Article 7 (Business Profits) and would, therefore, be taxable in the United States only if attributable to a U.S. permanent establishment, and then, only on a net basis. The gross basis U.S. tax (Code section 887) would never apply under the circumstances described. If, however, goods are carried by the Indian carrier from Bombay to New York, some of the goods are left in New York and the rest are taken to Chicago, the entire transport would be international traffic.

Several articles of the Convention use the term '"taxable year". Paragraph 1(k) defines the term, in relation to Indian tax, to mean the "previous year'" as that term is defined in the 1961 Indian Tax Act. In relation to U.S. tax, the term is defined in paragraph (a)(23) of section 7701 of the Code.

Paragraph 2 provides that, in the application of the Convention, any term used but not defined in the Convention, unless the context requires otherwise, will have the meaning which it has under the law of the Contracting State whose tax is being applied. If, however, the meaning of a term cannot be readily determined under the law of a Contracting State, or if there is a conflict in meaning under the laws of the two States which creates problems in the application of the Convention, the competent authorities may, pursuant to the provisions of paragraph 3 of Article 27 (Mutual Agreement Procedure), establish a common meaning in order to prevent double taxation or further any other purpose of the Convention. This common meaning need not conform to the meaning of the term under the laws of either Contracting State.