Tax treaty relief for foreign salary prevails over residence-based taxation where Article 16 and section 90 are satisfied.

Section 90 permits a resident assessee to invoke a tax treaty where its provisions are more beneficial than the Income-tax Act, even though domestic law would otherwise tax on the basis of residence. On the facts discussed, salary earned in the United States was claimed to fall under Article 16 of the India-US DTAA, and the relevant stay condition in the other contracting state was said to be satisfied. The lower authorities' reliance on residence under the Act was rejected in principle because treaty relief was not excluded by Indian residence. As the period of stay was not rebutted, the treaty rule for dependent personal services governed the taxability of the foreign salary, and the addition was deleted.

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Issues: Whether salary earned in the United States by a resident assessee was taxable in India in view of section 5, section 6 and section 90 of the Income-tax Act, 1961, read with Article 16 of the Double Taxation Avoidance Agreement between India and the United States of America.

Analysis: The assessee claimed that the salary received from foreign employment was covered by Article 16 of the treaty and that, as the stay in the other contracting state did not exceed the relevant threshold, the remuneration was taxable only in that state. The lower authorities relied on residence under the Act and held that the treaty did not apply. The provisions of section 90 permit application of the treaty where it is more beneficial to the assessee, and do not exclude treaty relief merely because the assessee is resident in India. The claim regarding the period of stay was not rebutted, and the treaty provision governing dependent personal services was applicable on the facts.

Conclusion: The addition relating to salary income earned in the United States was not sustainable and was deleted in favour of the assessee.

Ratio Decidendi: Where a treaty provision is more beneficial to the assessee, section 90 of the Income-tax Act, 1961 permits its application notwithstanding domestic residence-based taxation, and the treaty allocation rule for employment income governs the taxability of such foreign salary.

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