Treaty residence and taxability under the India-Germany DTAA turned on the same previous-year period and 183-day rule.

Under the India-Germany DTAA, the same previous-year period was treated as governing both residence and taxability, because Articles II(1)(g) and XII(3) were read together to avoid an anomalous result. On that reading, where the assessee's stay in India in the relevant calendar year did not exceed 183 days and the German previous year was the calendar year, the assessee was treated as resident in Germany for treaty purposes and not taxable in India on that basis. The revision under section 263 of the Income-tax Act, 1961 was described as unsustainable on those facts.

---

---

Issues: Whether, under the Double Taxation Avoidance Agreement between India and the Federal Republic of Germany, the assessee's previous year for Indian tax purposes had to be the same as the calendar year followed in Germany, with the result that the assessee was not taxable in India for the assessment years in question.

Analysis: The Agreement defined residence in both countries by reference to the same span of time, and Article XII(3) used the expression "relevant previous year" while prescribing the 183-day condition. Reading Articles II(1)(g) and XII(3) together, the same period had to govern residence and taxability in both jurisdictions, otherwise the agreement would produce an anomalous and ineffective result. Since the assessee's previous year in Germany was the calendar year and the stay in India in each relevant calendar year did not exceed 183 days, the assessee had to be treated as resident in Germany for the purpose of the Agreement and not taxable in India on that basis.

Conclusion: The revision under section 263 of the Income-tax Act, 1961 was unsustainable, and the assessee succeeded on the merits of the taxability issue.

---