Nepal & India
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India and Nepal on 27 November 2011 signed a revised Double Taxation Avoidance Agreement (DTAA). This will help prevent tax evasion and facilitate exchange of information on banking between the two countries. DTAA, will allow Indian traders and investors to enjoy tax relaxation in India once they pay taxes in Nepal. The agreement is also likely to increase confidence of investors and help Nepal attract more investment from India.
The revised DTAA between India and Nepal will replace an earlier agreement signed between India and Nepal in 1987.
• Indian firms are the biggest investors in Nepal. They account for about 47.5 per cent of total approved FDIs (Foreign Direct Investments). • India is the biggest source of foreign investments in Nepal and its largest trading partner. However, Nepal accounts for only 0.44 per cent of India’s total trade. • The bilateral trade between India and Nepal increased from USD 1.98 billion US dollars in 2009-10 to around 2.70 billion US dollars in 2010-11, which is an increase of 37 per cent.
Revised DTAA between India and Nepal
KATHMANDU, NOV 27 – Nepal and India on Sunday signed the Double Taxation Avoidance Agreement (DTAA).
The agreement, which replaces the old agreement signed between the two countries in 1987, is aimed at facilitating exchange of information on banking between the two countries and to help prevent tax evasion.
Finance Minister Barsha Man Pun and his Indian counterpart Pranab Mukharjee signed the agreement in the presence of Prime Minister Baburam Bhattarai at the PM’s official residence in Baluwatar.
“The revised DTAA will provide tax stability to the residents of India and Nepal and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between India and Nepal,” said the Mukherjee in his remarks after signing the pact.
DTAA, which is in line with best trade principles, will enable Indian investors and traders to enjoy tax relaxation in India once they pay taxes in Nepal.
He added the revised DTAA will provide tax stability to the residents of India and Nepal and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between India and Nepal.
“In the area of exchange of information, the revised DTAA provides for internationally accepted standards including sharing of bank information and sharing of information without domestic tax interest,” said Mukherjee.
Indian Foreign Secretary Ranjan Mathai had arrived in Kathmandu on Saturday to make preparations for Mukherjee’s visit to sign the DTAA.
During his stay in Kathmandu, Mukherjee met President Dr. Ram Baran Yadav, Prime Minister Baburam Bhattarai, and Pun.
Sources close to Mukherjee said met top leaders, including UCPN (Maoist) Chairman Pushpa Kamal Dahal, Nepali Congress President Sushil Koirala and CPN-UML Chairman Jhala Nath Khanal.
Nepal and India were supposed to sign the DTAA during Bhattarai’s visit to New Delhi, but the plan was postponed citing need for more preparations.
Political situation in Nepal not to affect DTAA: PM
India on Friday said the fluid political situation in Nepal will not have any fallout on their recently signed Double Taxation Avoidance. Agreement(DTAA), a pact that is another key step to boost their economic ties. The political situation came up for discussions during a meeting with Prime Minister Manmohan Singh and his Nepalese counterpart Baburam Bhattarai on the sidelines of the Rio+20 summit in Rio de Janeiro. “The double taxation pact is in place and so is the case with other bilateral pacts signed so far,” Foreign Secretary Ranjan Mathai told reporters after the meeting. Bhattarai has called new elections for November after the term of the Constituent Assembly expired without political leaders completing the task of writing a new Constitution. The Constituent Assembly was elected to a two-year term in 2008 to draft a new Constitution but has been unable to finish the task. Its tenure has been extended four times, but the Supreme Court rejected any further extensions.
The revised tax treaty was signed during Finance Minister Pranab Mukherjee’s visit to Nepal last year. It will replace the 1987 treaty.
The agreement, among other things, will facilitate exchange of information on banking between the two countries and will exempt Indian investors and traders from paying tax in India once they pay taxes in Nepal.
India is the largest source of foreign investments in Nepal and the bilateral trade between the two countries is estimated to be USD 2.7 billion in 2010-11.
During his talks with Bhattarai, Prime Minister Singh said he was confident that all parties in Nepal would sit together and find a way out to deal with the political situation.
Prime Minister Singh also had a meeting with Sri Lankan President Mahinda Rajapakse.
INDIA’S DOUBLE TAX AVOIDANCE AGREEMENT WITH NEPAL- TAX RATES
Effective date in India01.04.89, A.Y.1990-91
Dividend (other than u/s. 115O) (%)10 @ , 15 @ *
Interest (%)10 @ , 15 @ **
Tax rate on Royalties (%)15 @
Technical Service Fees(%)In country of residence as per domestic law Remarks*10% tax on dividends if at least 10% of the capital is owned by Company ; in other cases 15%
**Interest taxable @ 10% if recipient is bank carrying on bonafide banking business, otherwise 15%.
Nepal agrees to ink pact to protect Indian investments:
In a significant breakthrough, Nepal has agreed to a Bilateral Investment Protection and Promotion Agreement (BIPPA), which includes a provision to compensate Indian commercial entities, which have been increasingly targeted in the past couple of years, on par with local firms in case of an insurrection or riot.
While last minute clearances are being processed from the Finance Ministry, the main roadblock to the agreement was crossed after it was approved by the Nepal Cabinet on Wednesday. It is learnt that Nepal Prime Minister Baburam
Bhattarai pushed for clearance to the pact along with the Double Taxation Avoidance agreement despite opposition. In fact, on Tuesday, hardliners within his own party had demanded that no important agreement or treaty should be signed with India.
But on Thursday, Bhattarai was upbeat. “We are optimistic that it (BIPPA) will be signed… we want to create an atmosphere in Nepal where Indian investments will be attracted. We are entering into agreements that will promote trade and investment,” he said.
This agreement has been hanging fire for over a year due to political opposition to the compensation clause. India had argued that the same provision existed in a similar investment agreement between Nepal and UK.
Besides the BIPA and the double taxation avoidance agreements, the focus of Bhattarai’s visit will be on economic issues and promoting bilateral trade and investment. Nepal is keen to attract Indian investments and also wants to correct its massive trade deficit.
“Nepal cannot remain an island of poverty between India and China. We need more economic interaction. We cannot prosper without close interaction with India. Our economic destiny is interlinked,” Bhattarai said, adding that Nepal wants to create an atmosphere that would attract Indian investments.
Nepal is also keen to push through the construction of transmission lines that will enable sharing of electricity between the two nations. Kathmandu hopes to export power to India in the future, tapping its huge hydro electricity potential. “We are power deficient now but in future we can export power to India. We need to develop cross border transmission lines,” he said.
Trade relation between Nepal and India:
Nepal and India have a history of age-old relations in trade and commerce. India is Nepal’s largest trade partner and source of foreign investment. Total bilateral trade has reached US $3.21 billion (NRS 257.10 billion) during Nepalese fiscal year 2009-10. During that year, Nepal’s imports from India amounted US $2.71 billion (NPR 217.11 billion), and exports to India remained about US $0.50 billion (NPR 39.99 billion).
Readymade garments are Nepal’s topmost export items to overseas countries, followed by woollen carpets and pashmina products. Other traditional export items to overseas countries are hides and skin, lentils, metal and wooden handicrafts, agro- and forest-based primary and secondary goods, leather, raw jute, large cardamom, ginger, tea and medicinal herbs. Coffee, honey, terry towels, micro transformers, blankets and buttons are emerging as new export items.
Visualizing the scope of technology enhancement and production potentials, the upcoming export items are mushroom, saffron and floriculture products. Vegetable seeds, orthodox and CTC tea, niger seeds, essential oils from medicinal and aromatic plants, leather goods, woollen goods, silver jewellery and silverware, gold jewellery, etc also offer good export
prospects beside the existing exportable items.
Over the years, Nepalese imports have increased substantially and undergone major structural changes. The major import items include petroleum products, machinery and spare parts, transport equipment, pharmaceuticals, textiles, chemicals, electrical goods, vehicles and spare parts, medicines and medicinal equipment, raw wool, betel nuts, aircraft and spares parts, raw silk, threads, fertilizers, telecommunication equipment, etc.
The bilateral mechanism for trade and transit is provided by the India-Nepal Treaties of Trade, of Transit, and Agreement for Co-operation to Control Unauthorised Trade, 1991. The Trade Treaty valid for seven years was signed on November 27, 2009, and will be automatically renewed for another seven years. Under the Treaty of Trade, India provides, on a non-reciprocal basis, duty free access into the Indian market for all Nepalese-manufactured articles barring a short negative list (cigarettes, alcohol and cosmetics), subject to the conditions, since March 2002, that the exports meet the domestic value addition requirement of 30% and change in HS classification at the four-digit level in the course of manufacture or processing in Nepal. After the March 2002 revision, annual quotas have been prescribed for duty-free exports to India for four sensitive items – vegetable fats (100,000 tonnes) acrylic yarn (10,000 tonnes), copper products(10,000 tonnes) and zinc oxide (2,500 tonnes).
Bilateral trade takes place generally in Indian rupees, but Nepal’s central bank maintains a list of items that can be imported from India in dollars. Currently, there are about 100 items on the list. Indian rupee is convertible in all banks and financial institutions in Nepal. The exchange rate has been maintained at NRs. 1.6 per Indian rupee. The new provision of trade treaty allows the facilities to the importers irrespective of the currency (US $ or IC) used for buying the goods from India.
The India-Nepal Treaty of Transit, renewed every seven years, provides for port facilities to Nepal at Kolkata and specifies 15 transit routes between Kolkata and the India-Nepal border. As requested by the Nepalese side, a separate Customs Cell at Haldia has become operational from 16 August 2004. For bilateral trade, 22 entry/exit points are provided along the Indo- Nepal border. The Transit Treaty was last renewed in March 2006. The Agreement for Cooperation between India and Nepal to Control Unauthorised Trade was automatically renewed for five years in March 2007.
The rail service Agreement between the two governments was concluded in 2004 which governs the carrying of bulk cargo by train from Kolkata to Birgunj, and vice versa. Recently, the Government of India has agreed to provide additional transit point at Vishakapattanam which is going to be operational very soon.
Indo-Nepal Trade: A Quantitative Analysis
An attempt has been made to empirically analyze the Indo-Nepal trade position, using market share analysis, dependency ratio, trade intensity, complimentarity and country bias indices, degree of horizontal trade, comparative advantage, similarity index and intra-industry trade. India is loosing Nepal as the target market whereas Nepal has barely maintained its share in India. Owing to the existence of poor complementarity, Nepal’s export composition could not match to that of import composition of India. Among the commodities that Nepal has comparative advantage, India has tended to remain the potential market only for a few commodities. Despite a shift in export composition, there is no possibility of horizontal trade between Nepal and India. The existing intra-industry trade linkages between these two countries are also very poor. In addition, the partial complementarity in export-import structures and the competitive export structure suggests that the prosperous expansion of trade between these countries can be achieved through vertical trade, harmonization of production structures, and change in trade and industrial policies.
Trends in trade and investment:
Bilateral trade was US$ 4.21 billion during Nepalese fiscal year 2010-11 (July 16 – July 15). Nepal’s import from India amounted to US$ 3.62 billion and exports to India aggregated US$ 599.7 million. In the first six months of fiscal year 2011-12, Nepal’s total trade with India was about US$ 1.93 billion; Nepal’s exports to India were about US$ 284.8 million; and imports from India were about US$ 1.64 billion.
Since 1996, Nepal’s exports to India have grown more than eleven times and bilateral trade more than ten times; the bilateral trade that was 29.8% of total external trade of Nepal in year 1995-96 has increased to 66.4% in 2010-11. Since 1995-96, the total external trade of Nepal has increased from NRs. 9433 crores (IRs.5895 crores) to NRs. 45946.1 crores (IRs. 28716.3 crores). 83% of this increase is on account of increase in the bilateral trade between India and Nepal, which grew from NRs. 2808 crores (IRs. 1755 crores) in 1995-96 to NRs. 16319.9 crores (IRs. 10199.9 crores) in first six months of 2011-12. Nepal’s exports also increased from NRs.1988 crores (IRs. 1242 crores) in 1995-96 to NRs. 3591.6 crores (IRs. 2244.7 crores) in first six months of 2011-12. 45% of this increase was on account of increase in Nepal’s exports to India.
Nepal’s main imports from India are petroleum products (28.6%), motor vehicles and spare parts (7.8%), M. S. billet (7%), medicines (3.7%), other machinery and spares (3.4%), coldrolled sheet in coil (3.1%), electrical equipment (2.7%), hotrolled sheet in coil (2%), M. S. wires, roads, coils and bars (1.9%), cement (1.5%), agriculture equipment and parts (1.2%), chemical fertilizer (1.1%), chemicals (1.1%) and thread (1%). Nepal’s export basket to India mainly comprises jute goods (9.2%), zinc sheet (8.9%),textiles (8.6%),threads (7.7%), polyster yarn (6%), juice (5.4%), catechue (4.4%), Cardamom (4.4%), wire (3.7%), tooth paste (2.2%) and M. S. Pipe (2.1%).
Indian firms are the biggest investors in Nepal, accounting for 47.5% of total FDI proposals approved foreign direct investment of IRs 42.53 billion (approx. US $ 448 million) and 23.7% of total 2108 FDI proposals approved ventures with foreign investment.
Indian ventures in Nepal are engaged in manufacturing, services (banking, insurance, dry port, education and telecom), power sector and tourism industries. Some large Indian investors include, ITC, Dabur India, Hindustan Unilever, VSNL, TCIL, MTNL, State Bank of India, Punjab National Bank, Life Insurance Corporation of India, Asian Paints, CONCOR, GMR India, IL&FS , Manipal Group, MIT Group Holdings, Nupur International, Transworld Group, Patel Engineering, Bhilwara Energy, Bhushan Group, Feedback Ventures, R J Corp, KSK Energy, Berger Paints, Essel Infra Projects Limited and Tata Projects, etc. In recent years, Hydropwer sector has emerged as an attractive sector for Indian investments. Government of Nepal has issued 28 survey licenses for hydropower projects in Nepal having generation capacity of 8249 MW to Indian companies/ joint ventures.
These include Satluj Jal Vidyut Nigam Limited (900 MW Arun III); GMR (900MW Upper Karnali and 600 MW Upper Marsyangdi); Everest Power (184 MW Upper Karnali St-1); Bhilwara Energy Limited (120 MW Likhu-4, 50 MW Balephi, 194 MW Mugu Karnali-1 & 274 MW Humla Karnali-1); Patel Engineering Ltd (130 MW Budhi Gandaki ka & 260 MW Budhi Gandaki kha); PES Energy Pvt. Ltd. (210 MW Phulkot Karnali & 216 MW Upper Trishuli-1); LANCO Infratech Limited (303 MW Namlan Project, 200 MW Karnali-7 & 100 MW Kaligandaki Gorge); Jindal Power Limited (454 MW Chainpur – Seti Project); KSK Energy Pvt. Ltd. (400 MW Tila-1, 420 MW Tila-2, 212 MW Bheri-1, 180 MW Bheri-2, 174 MW Bheri-3, 130 MW Manang Marsyangdi & 150 MW Upper Marsyangdi); Avanti Feeds Ltd. (80 MW Seti Nadi-3), Maytas Estates Pvt. Ltd.( 138 MW Dudhkoshi-2); Nanda Devi Agro Farms P. Ltd.(350 MW Dudhkoshi-4); Essel Infraprojects Limited (40 MW Lower Solu); and Tata Power (880 MW Tamakoshi – 3). Several other companies are awaiting decision on their survey license applications or are negotiating with the local license holders.
Nepal’s transit trade is routed through twenty two designated routes from India-Nepal border to the port of Kolkatta/Haldia. In addition, Nepal’s trade with and through Bangladesh also transits through India.
Government of India is providing assistance for development of cross-border trade related infrastructure. It includes upgradation of four major custom checkpoints at Birgunj-Raxaul, Biratnagar-Jogbani, Bhairahawa-Sunauli and Nepalgunj-Rupediya to international standards; upgrading approach highways to the border on the Indian side; upgrading and expanding the road network in the Terai region of Nepal; and, broad gauging and extending rail links to Nepal.
The bilateral framework for trade is provided by the India-Nepal Treaty of Trade and Agreement of Co-operation to Control Unauthorised Trade 2009. A new Trade Treaty, valid for seven years was signed on October 27, 2009 after successful conclusion of bilateral consultations, which began in August 2006.
The main features of the previous Trade Treaty retained in the 2009 Treaty are as follows: Duty free access to each other’s primary products as per agreed list, which has been expanded in 2009 Treaty. Nepalese manufactured products are allowed non-reciprocal access to the Indian market, free of basic customs duty, on the basis of Certificate of Origin issued by a GoN designated authority – FNCCI, if the goods are manufactured in Nepal with Nepalese and/or Indian inputs; or, with at least 30% local value addition, if third country inputs are used; and, involves substantial manufacturing process leading to change in HS classification at four-digit level; Annual quotas for duty free access in respect of four items – vegetable fats (100,000 tonnes) acrylic yarn (10,000 tonnes), copper products (10,000 tonnes) and zinc oxide (2,500 tonnes); MFN list of three items – cigarettes, alcohol (excluding beer) and cosmetics with non-Nepalese and non-Indian brands; Nepalese goods attract Countervailing Duty (CVD) equal to excise duty on similar products in India; Goods manufactured by small scale units in Nepal enjoy the same benefits as SSIs in India with regard to tax exemption;
The exports and imports of goods not subject to prohibitions or duties are also allowed to move through the traditional routes on common border. (Nepal has established customs stations called Chhoti Bhansars on some of these traditional routes.) The main changes introduced in the 2009 Trade Treaty are as under: The validity of the Treaty has been increased from five to seven years, along with the provision of automatic extension for further periods of seven years at a time. This will provide more stable framework for bilateral trade and promote investments in Nepal based on preferential access provided by the Treaty to Nepalese products. No discrimination will be made in respect of tax, including central excise, rebate and other benefits to exports merely on the basis of payment modality and currency of payment of trade. This will bring the bilateral trade conducted in Indian Rupees at par with trade in convertible currency and has ended the existing mechanism of duty refund procedure which was procedurally cumbersome. It has provide Nepal a direct control on the customs duty revenues on import of manufactured goods from India.
It also allows Indian exports to avail benefit of export promotion schemes prevailing in India, making these products more competitive in Nepal either for sale or for further value addition. [This change has came into effect from 1st March 2012] The time limit for temporary import of machinery and equipment for repair and maintenance has been raised from 3 to 10 years. •Several new items of export interest to Nepal have been added to the list of primary products giving these items duty free access to India without any quantitative restrictions. These include floriculture products, atta, bran, husk, bristles, herbs, stone aggregates, boulders, sand and gravel. Criterion for calculating value addition for gaining preferential access to India has been changed from ex-factory basis to FOB basis. India has agreed to consider waiver, on request from GON, of any additional duty that may be levied over and above CVD. Both sides have agreed to exempt exports of goods, which are already covered under forward contract, from imposition of restrictions on exports.
Both sides will grant recognition to the sanitary and phyto-sanitary certificates issued by the competent authority of the exporting country based on assessment of their capabilities. Articles manufactured in Nepal, which do not fulfill the criteria for preferential access will be provided MFN access to the Indian market. The certificate of origin in case of such exports has been prescribed. The provisions regarding safeguard measures in case of serious injury to the domestic industry have been streamlined. A joint mechanism, comprising local authorities has been established to resolve problems arising in clearance of perishable goods. An Inter-Governmental Sub-Committee (IGSC) at the joint secretary-level has been established. Existing Inter-Governmental Committee (IGC) at the Secretary level will meet once in six months and the IGSC will meet at the interval of the two IGC meetings.
Four additional Land Customs Stations (LCSs) will be established to facilitate bilateral trade: Maheshpur/Thutibari (Nawalparasi); Sikta-Bhiswabazar; Laukha-Thadi; and Guleria/Murtia, bringing the total number of Stations to 26. For the first time, bilateral trade will be allowed by air through international airports connected by direct flights between Nepal and India (Kathmandu/Delhi, Mumbai, Kolkata and Chennai). The Indian side has agreed to review and simplify the existing administrative arrangements for operationalisation of fixed quota for acrylic yarn, copper products and zinc oxide. India has agreed to consider several additional products as wholly produced or manufactured in Nepal for the purpose of gaining preferential access to the Indian market. It includes articles collected in Nepal fit only for recovery of raw materials and waste and scrap resulting from manufacturing operations in Nepal.
It also includes products taken from seabed/ ocean floor/ sub-soil for which Nepal has exclusive rights under UNCLOS. India has agreed to assist Nepal to increase its capacity to trade through improvement in technical standards, quarantine and testing facilities and related human resource capacities. Bilateral trade takes place either in Indian rupees or convertible currency. Nepal’s central bank (Nepal Rashtra Bank) maintains a list of items that can be imported from India in convertible currency. Currently, 135 items are in the list. Since 1993, the Nepal Rastra Bank maintains a fixed exchange rate with Indian Rupee (1 INR = 1.6 NPR). India and Nepal have a treaty of transit, which confers transit rights through each other’s territory through mutually agreed routes and modalities. The treaty was last renewed for seven years in March 2006. The key features are:
India offers 22 transit routes from Kolkata/Haldia to Nepal for its third country trade. Goods can move by road or rail. The creation of ICD in Birgunj and extension of railway line from Raxaul to Birgunj has facilitated direct movement of goods in transit by rail to Nepal. A simple customs procedure has been put in place for Nepal’s third country traffic. Since 1993, India also allows movement of goods from one part of Nepal to another through a simple process of customs undertaking. Nepal has agreed to extend similar facility to India in the course of renewal of the transit treaty in March 2006. India has extended Nepal direct transit routes to Bangladesh for bilateral and third country traffic. One road route and one rail route have been notified. The road route is through Kakarbitta-Panitanki-Phulbari-Banglabandha corridor. The rail route is through Radhikapur-Birol interchange point on India – Bangladesh border. The Agreement of Cooperation between India and Nepal to Control Unauthorised Trade was signed on 27 October, 2009.
A revised Agreement of Cooperation to Control Unauthorised Trade between India and Nepal was signed on 27 October 2009. The new Agreement removes restriction imposed in the previous Agreements on export of goods imported by one party from the other to the third countries, without involving any manufacturing activity.
Bilateral Investment Protection and Promotion Agreement (BIPPA) was signed on 21st October 2011 during the visit of Hon’ble Baburam Bhattarai, Prime Minister of Nepal to India.
India and Nepal signed a Double Taxation Avoidance Agreement (DTAA) on 27th November 2011 in Kathmandu during the visit of Finance Minister Shri Pranab Mukherjee of India to Kathmandu.
India and Nepal signed a Rail Services Agreement (RSA) in May 2004, to extend cargo train service to the Inland Container Depot (ICD) at Birgunj in Nepal. A Container Corporation of India-led joint venture is operating the ICD. The RSA was modified in December 2008 to allow oil/ liquid traffic in tank wagons and bilateral break-bulk cargo in flat wagons. Bilateral Rail Services Agreement (RSA) meeting between India and Nepal was held on 1-2 March, 2012 in Kathmandu.
A Motor Vehicles Agreement (MVA) for passenger vehicles, initialled in February 2004 is awaiting formal signature. The agreement envisages bus services between India and Nepal and will facilitate individuals travelling to either country in their personal vehicles.
A revised bilateral Air Services Agreement was signed on 16 February, 2010.
An Inter-Governmental Committee on Trade, headed by Commerce Secretaries meets regularly to consider policy, regulatory and infrastructure issues in India-Nepal trade.
Line of credit from Exim Bank of India to Government of Nepal GOI agreed to provide a USD 100 million Line of Credit (LoC) to Nepal in June 2006 for execution of infrastructure development projects as prioritized by GON. As a special gesture, GOI agreed to dilute the norms of Indian content and eligibility criterion for accessing the LoC. Exim Bank of India and GON signed an agreement in September 2007, following which, LoC was operationalised in January 2008. The projects identified for implementation under the LoC include eleven road development projects, rehabilitation of 15 MW Devighat Hydro Power Project (HEP), development of 27 MW Rahughat HEP, Nepal portion of the Muzaffarpur- Dhalkebar cross-border transmission line and rural electrification projects. Thirteen contracts of value USD 73.98 million have been approved so far under the LoC. An amount of USD 25,757,833.75 was disbursed till mid-November, 2010.
In response to further request from Government of Nepal, the Government of India has agreed to extend another line of credit of US$ 250 million from EXIM Bank of India to GoN at similar terms and conditions as the existing LoC. The cotract agreement between Government of Nepal and Exim Bank was signed on 21st October 2011 in New Delhi during the visit Hon’ble Prime Minister of Nepal Dr. Baburam Bhattarai.
Nepal’s trade deficit
According to Nepal Rastra Bank (NRB), the country’s trade deficit increased by 17.6 percent to Rs 212.36 billion in the first seven months of the current fiscal year. NRB’s economic report shows that exports increased by 13.4 percent to Rs 42.59 billion while imports went up by 16.9 percent to Rs 254.95 billion. Imports from India increased by 11.6 percent while imports from third countries increased by 28.1 percent.
Most of Nepal exports to India were zinc sheets, textiles, polyester yam, GI pipe and copper wire rod while it exported Nepali woolen carpets, readymade garments, pashmina and paper products to other countries. Although trade deficit has increased, the overall balance of payment (BoP) recorded its highest surplus of Rs 75.09 billion during the same period. NRB attributes the BoP surplus to greater inflow of remittance and tourism income.
Remittance inflow increased by 35.5 percent to Rs 188.19 billion, an increase of 11.7 percent from the same period last year. Tourism income also increased by 28 percent in the first seven months of the current fiscal year. NRB has also reported the consumer prices increased by 7 percent in mid-February 2012 and food costs also increased due to hike in transport fares. Prices of milk products and eggs went up by 17.6 percent and fruit prices increased by 14.1 percent. Transport fares increased by 18.5 percent this year.
A. Income-Tax Officer vs Branch Manager, Central Bank Of … on 7 November, 2001 Equivalent citations: 2002 256 ITR 26 Pat
Bench: R Yadav, K Gupta
K.K. Gupta, Accountant Member
1. The Department is in appeal against the order of the learned Commissioner of Income-tax (Appeals) who held that unexplained deposits in the name of Nepali citizens in the Indian banks cannot be taxed under Section 69 of the Income-tax Act, 1961. The main reason asserted by the Department is that it is not proved that the source of such deposit in the bank is actually in Nepal and not in India.
2. The learned Departmental Representative submitted that on the basis of the enquiry conducted at the bank information was gathered under Section 133(6) of the Income-tax Act for violation of Section 195 of the Income-tax Act relating to a Nepali/non-resident. Notice under Section 142(1) was issued but no return was filed.
3. Instead a copy of the ledger account of the depositor’s account in the bank was filed. The learned Assessing Officer considered the deposit as income by the non-resident in India and, therefore, taxed it as unexplained investment under Section 69 together with interest earned during the year thereon relevant to the assessment year 1993-94.
4. The learned departmental representative submitted that the learned Commissioner of Income-tax (Appeals) erred in considering the fact that the taxability of deemed income under Section 69 does not come into vogue on the basis of the double taxation avoidance agreement with Nepal.
5. Learned counsel for the assessee submitted that the learned Commissioner of Income-tax (Appeals) had considered the facts and circumstances under the provisions of the law inasmuch as he has relied on Articles 6 to 21 which form part of Chapter III under the head “Taxation of income”. This provides for not taxing in India the deemed income of residents of Nepal. Therefore, it was not a case that of dealing with charging of income instead it was dealing with a situation in which the same income becomes taxable in both the countries.
6. We have considered the rival submissions and we have perused the orders of the lower authorities. We have observed that the learned Commissioner of Income-tax (Appeals) had rightly held that the provisions of Article 22, on which the learned Assessing Officer relied to tax the amount of unexplained investment under Section 69 of the Income-tax Act does not apply inasmuch as the applicability of Article 22 arises at a later stage after the taxability of a particular income which has been decided as per the provisions of Articles 6 to 21 of the double taxation avoidance agreement with Nepal. There is no other finding of fact that the money actually belongs to the residents of India and there is no presumption that it does not belong to the Nepali residents in whose names the deposits stand. Furthermore, there was no violation of Nepali law which, if it may be in the fitness of things, be brought to the notice of the Nepal Rashtriya Bank directly or through the Nepali Embassy or Consulate. In view of these facts and circumstances, we have no hesitation in agreeing with the order of the learned Commissioner of Income-tax (Appeals) and dismiss the appeal filed by the department.