Treaty residence tie-breaker upheld Indian taxing rights over overseas salary, while foreign tax credit was remitted for verification.

A resident and ordinarily resident assessee on an internal transfer to the United States remained taxable in India on salary earned there, because the treaty tie-breaker tests for permanent home, centre of vital interests, habitual abode, and nationality did not displace Indian residence. The United States election did not establish foreign residence for the relevant period so as to exclude India's right to tax global income. On foreign tax credit, the claim was not rejected on merits; the matter was remitted to the Assessing Officer for examination in accordance with law.

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Issues: (i) Whether the salary earned in the United States was taxable in India in view of the residency tie-breaker under the India-USA Double Taxation Avoidance Agreement. (ii) Whether the assessee was entitled to foreign tax credit for taxes paid in the United States.

Issue (i): Whether the salary earned in the United States was taxable in India in view of the residency tie-breaker under the India-USA Double Taxation Avoidance Agreement.

Analysis: The assessee was a resident and ordinarily resident in India for the relevant assessment year. The transfer to the United States was found to be an internal transfer with continuity of employment and no clear indication of permanent relocation. Applying the treaty tie-breaker tests, the decisive factors of permanent home, centre of vital interests, habitual abode, and nationality did not displace Indian residence. The election under the United States tax rules did not establish residence there for the relevant period in a manner that excluded Indian taxing rights over global income.

Conclusion: The salary earned in the United States remained taxable in India and the treaty residence claim did not succeed.

Issue (ii): Whether the assessee was entitled to foreign tax credit for taxes paid in the United States.

Analysis: The request for foreign tax credit was not rejected on merits; instead, the matter was directed to be examined by the Assessing Officer in accordance with law.

Conclusion: The assessee obtained a limited relief for consideration of foreign tax credit in accordance with law.

Final Conclusion: The main challenge to taxation in India failed, but limited relief was granted on the foreign tax credit aspect, leaving the assessee partly successful overall.

Ratio Decidendi: Under the treaty tie-breaker framework, a temporary overseas transfer without displacement of permanent home, vital interests, or habitual abode from India does not prevent India from taxing the global income of a resident and ordinarily resident assessee.

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