Treaty residence and foreign immovable property gains determine Sri Lankan taxability and Indian relief under the DTAA.

Capital gains from the sale of immovable property in Sri Lanka were examined under the residence rules in Section 6 of the Income-tax Act and Article 4 of the India-Sri Lanka DTAA. The Tribunal analysed permanent home, centre of vital interests and habitual abode, and on the facts found the assessee's personal and economic ties had shifted to India, so treaty residence remained in India. Applying Article 13, it treated gains from alienation of Sri Lankan immovable property as taxable in Sri Lanka, with relief in India to be granted under the DTAA. Notification No. 91 of 2008 was treated as clarificatory for relief and double taxation.

---

---

Issues: Whether capital gains arising from the sale of immovable property situated in Sri Lanka were taxable in India in the hands of an assessee who was a resident of India under the Act but claimed treaty protection under the India-Sri Lanka DTAA.

Analysis: The assessee was treated as a resident in India under Section 6 of the Income-tax Act, 1961, but the question remained whether, for treaty purposes, her residence was to be determined under Article 4 of the DTAA. The Tribunal examined the place of permanent home, the centre of vital interests, and habitual abode, and concluded on the facts that the assessee's personal and economic ties had shifted to India after marriage, so she remained a resident of India under the treaty as well. The Tribunal then applied Article 13 of the DTAA to gains from alienation of immovable property situated in Sri Lanka and held that such gains were taxable in Sri Lanka. It further considered Notification No. 91 of 2008 issued under Section 90(3) of the Income-tax Act, 1961, and treated the notification as clarificatory in nature for the manner of granting relief and avoiding double taxation.

Conclusion: The capital gains on sale of the Sri Lankan immovable property were held to be taxable in Sri Lanka, with relief to be granted in India in accordance with the DTAA and the notification; the assessee's appeal was allowed.

---