Treaty eligibility for fiscally transparent LLPs depends on residence-state taxation of income, not direct tax assessment of the entity.

A UK-based fiscally transparent LLP was treated as eligible for India-UK DTAA benefits where the relevant Indian-engagement income was taxed in the UK in the hands of its partners. The Tribunal applied the principle that treaty entitlement depends on whether the income is subject to tax in the residence State, not on whether the partnership entity itself is directly assessed there. Following earlier coordinate bench rulings and noting no contrary authority, it held that treaty protection could not be denied merely because the LLP was transparent. The disallowance of DTAA relief was therefore unsustainable.

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Issues: Whether a UK-based fiscally transparent LLP was entitled to the benefit of the India-UK DTAA in respect of income from Indian engagements when the income was taxed in the hands of its UK-resident partners.

Analysis: The dispute turned on the meaning of "resident of a contracting state" and whether treaty eligibility depended on the entity itself being directly liable to tax in the UK. The Tribunal followed earlier coordinate bench decisions holding that, for treaty purposes, the relevant consideration is whether the entire income in question is subject to tax in the residence State, even if the tax is collected through the partners rather than the partnership entity. It also noted that no contrary decision was produced and that judicial discipline required consistent application of the existing Tribunal view on identical facts. On that basis, the assessee's income from Indian engagements, to the extent taxed in the UK in the hands of its partners, could not be denied treaty protection merely because the LLP was fiscally transparent.

Conclusion: The assessee was entitled to India-UK DTAA benefits on the relevant income, and the disallowance of treaty protection was held to be unsustainable.

Ratio Decidendi: For treaty entitlement, what is material is the taxability of the relevant income in the residence State, and not whether the partnership entity itself is directly assessed to tax there.

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