Treaty-based source taxation of artiste income barred Indian tax on Canadian performance earnings.

A tax treaty allocating artiste income to the State where the performance is exercised can exclude residence-State taxation where the treaty uses the words "may be taxed" in that source-only context. The Indo-Canada treaty was read as a whole and treated as distinguishing income taxable only in the source State, only in the residence State, or in both States; Article 18 was construed as conferring taxing power on Canada for the Canadian performance income and not preserving concurrent Indian taxing rights. Article 23 was treated as applying only where double taxation is permitted. The treaty therefore overrode the domestic charging provision to the extent of inconsistency, and the Canadian performance income was not taxable in India.

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Issues: Whether the income earned by an India-resident artiste from a performance in Canada was taxable in India in view of Article 18 of the Indo-Canada tax treaty.

Analysis: The treaty was read as a whole and its taxation scheme was treated as dividing income into categories, including items taxable only in the State of residence, items taxable only in the source State, and items taxable in both States. On that construction, the words "may be taxed" in Article 18 were held to confer taxing power only on the State where the personal activities were exercised, and not to preserve concurrent taxing power in the State of residence. Article 23 was treated as operating for cases where the treaty permits taxation in both States and not for income falling under the source-only category. The treaty was therefore held to override the domestic charging provision to the extent of inconsistency.

Conclusion: The income from the Canadian performance was not taxable in India, and the addition was directed to be deleted.

Final Conclusion: The treaty barred Indian taxation of the artiste's Canadian performance income, so the assessee succeeded and the assessment addition failed.

Ratio Decidendi: Where a tax treaty expressly allocates a category of income to taxation in the source State by using the words "may be taxed" in that context, the State of residence is excluded from taxing that income, and the domestic law yields to the treaty.

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