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ARTICLE 21
OTHER INCOME
(1) Items of income of a resident of a Contracting State,
wherever arising, not dealt with in the foregoing Articles of this Convention shall be
taxable only in that State.
(2) The provisions of paragraph (1) shall not apply to income, other .than income from
immovable property as defined in paragraph (2) of 6, if the recipient of such income,
being a resident of a Contracting State, carries on business in the other Contracting
State through 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. In such case the provisions of Article 7 or Article 14, as
the case may be, shall apply.
3. Notwithstanding the provisions of paragraphs (1) and (2), items of income of a resident
of a Contracting State not dealt with in the foregoing Articles of this Convention and
arising in the other Contracting State may also be taxed in that other State.
104. Scope
Income not covered with any of the preceding Articles is dealt with under this
Article. Each Article specifies nature of income and then defines the income sought to be
covered by it. Because of its nature or its source not expressly referred to in these
Articles, if an income could not be covered under any of them, it is covered. under this
Article. The Article also covers income arising in the third States as well as income
from a Contracting State. It is a residuary Article, to come into operation only when the
preceding Articles are excluded. This Article can be resorted to only if none of the
specific Articles is applicable to the income in question.
The object of this Article is specified in the first paragraph as to the nature of income
covered by it. Exclusive right to levy tax is given to the State of residence on income
which has not been dealt with under any of the foregoing Articles irrespective of where it
arises. If the source or nature of the income has not been specified under any of the
foregoing Articles, such income is taxable only in the State of residence. The
expression 'taxable does not suggest that income must be taxed and if it is not taxed, it
could he done by the other State. Non-exercise of the right by the resident State does not
mean its forfeiture or non-existence. Once the right is vested, it cannot be taken away on
account of its non-exercise or its exercise is presumed to be a precondition of its
existence.
105. Right to tax depends upon determination of residential status
Allocation of the right to tax income under this Article depends upon the
determination of the residential status of its recipient, and the residential status is
determined in terms of Article 4. Article 4 thus allocates the taxation rights in respect
of a third State income, in case the recipient is a resident of both the-Contracting
States by reason of his domicile, residence, place of management or any other criterion of
similar nature under their respective domestic laws. Once the fiscal residence has been
decided and the right to levy tax has been allocated to one Contracting State, the other
Contracting State withdraws its claim to levy tax. This might lead to no-taxation
situation. The State which has right to levy tax does not levy, and the other State which
does not have the right cannot levy on the ground that income has not suffered tax in the
former.
To avoid the situation of non-taxation, some agreements grant rights to both the
Contracting States to levy tax. Agreements with Canada, Italy, Singapore provide
taxability of income under this Article in both the Contracting States. In case double
taxation occurs, the State of residence should give relief under provisions of Article 23A
or 23B.
106. Exception
Paragraph (2) carves out an exception. It relates to the income in respect of the
right or property effectively associated with the permanent establishment or a fixed base
which the recipient being a resident of one Contracting State has in the other Contracting
State. The source of income is the right to movable property and not the business or
professional activity. In the absence of business or professional activity income would
fall outside the ambit of Article 7 or 14. But as per provision of paragraph (2) of this
Article, it is still taxable in terms of these Articles, in the State where such permanent
establishment or fixed base is situated. That State will also have the right even where
the beneficiary and payer of the income are both residents of the same Contracting State,
and income is attributable to the permanent establishment or fixed base situated therein.
The source principle of taxation has been recognised in paragraph (3). Commentary on the
UN Model Convention on the paragraph reads as follows:
"This paragraph constitutes an addition to Article 21 of the OECD Model Convention.
Its provisions are intended to permit the country in which the income arises to tax such
income if its law so provides while the provisions of paragraph (1) would permit taxation
in the country of residence; the concurrent application of the provisions contained in the
two paragraphs may result in double taxation. In such a situation, the provisions of
Article 23A or 23B as appropriate would be applicable, as in other cases of double
taxation. In some cases paragraphs' (2) and (3) may overlap; they would then produce the
same result."
Agreements with Hungary, Indonesia, Kenya and Norway contain a paragraph giving rights
also to the source State to levy tax on income arising in that State.
