Treaty residence and salary taxation under the India-US DTAA: Article 16(1) governs unless the exception is fully met.

Residence and treaty allocation under the India-US tax treaty determine whether salary is taxable in India or only in the State where the employment is exercised. The text states that the assessee's residential status was examined under section 6 of the Income-tax Act and Article 4 of the treaty, and that stronger personal and economic ties were in India while the employment was exercised in the United States. On that basis, Article 16(1) was treated as the default rule, and Article 16(2) applied only if all its cumulative conditions were satisfied. Because the exception was not met in full, the salary was treated as taxable in the United States, with relief available under the treaty.

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Issues: Whether the assessee's salary received in India for services rendered in the United States was taxable in India under the Income-tax Act, 1961 and the Indo-US Double Taxation Avoidance Agreement.

Analysis: The assessee's residential status had to be examined under section 6 of the Income-tax Act, 1961 and Article 4 of the Indo-US Double Taxation Avoidance Agreement. On the facts, the assessee had a permanent home and stronger personal and economic links in India, and the employment was exercised in the United States. Under Article 16(1), salary derived by a resident in respect of employment exercised in the other Contracting State is taxable in that other State. Article 16(2) operates only when all its conditions apply cumulatively. Since the remuneration did not satisfy the exception in Article 16(2) in toto, the default rule under Article 16(1) governed.

Conclusion: The salary income was taxable in the United States and not in India, and the addition made in India was deleted.

Final Conclusion: The assessee was entitled to treaty relief and the assessment could not sustain taxation of the impugned salary in India.

Ratio Decidendi: Where remuneration is derived by a resident in respect of employment exercised in the other Contracting State, Article 16(1) applies unless all the cumulative conditions of the exception clause are satisfied; in that event, the income is taxable only in the State where the employment is exercised.

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