Treaty residence tie-breaker determined salary taxation in Kazakhstan, while London rental income escaped Indian tax.

Treaty residence was determined under the tie-breaker rule because the taxpayer was treated as resident in both States under domestic law; on the facts, closer personal and economic relations and work performance in Kazakhstan established treaty residence there, so salary for the overlapping period was taxable only in Kazakhstan. Rental income from immovable property in London was taxable only in the State where the property was situated and was not taxable in India. Dividend income from the Netherlands was remanded for fresh adjudication with foreign tax credit directions. Interest income was taxable at the beneficial treaty rate of 10% once Kazakhstan treaty residence was ed.

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Issues: (i) Whether the assessee was to be treated as a resident of Kazakhstan for the overlapping period under the treaty tie-breaker rule and, if so, whether salary income for that period was taxable only in Kazakhstan; (ii) Whether rental income from immovable property situated in London was taxable in India; (iii) Whether dividend income arising from shares held in the Netherlands required fresh adjudication with consequential foreign tax credit directions; (iv) Whether interest income had to be taxed at the beneficial treaty rate of 10%.

Issue (i): Whether the assessee was to be treated as a resident of Kazakhstan for the overlapping period under the treaty tie-breaker rule and, if so, whether salary income for that period was taxable only in Kazakhstan.

Analysis: The domestic Act did not provide for split residency for part of a previous year, but the treaty tie-breaker mechanism could determine treaty residence where a person was regarded as resident in both Contracting States under their domestic laws. On the facts, the assessee had moved to Kazakhstan on assignment, had closer personal and economic relations there, and the employment was exercised there during the overlapping period.

Conclusion: The assessee was to be regarded as a resident of Kazakhstan for treaty purposes, and the salary income for the overlapping period was taxable only in Kazakhstan. The deletion of the addition was upheld.

Issue (ii): Whether rental income from immovable property situated in London was taxable in India.

Analysis: Income from immovable property is governed by the treaty article relating to immovable property and is taxable in the Contracting State where the property is situated. The property was located in the United Kingdom, and the relevant allocation rule placed taxing rights in the source State.

Conclusion: The rental income was not taxable in India, and the addition was deleted.

Issue (iii): Whether dividend income arising from shares held in the Netherlands required fresh adjudication with consequential foreign tax credit directions.

Analysis: The dividend income arose from the Netherlands, and the relevant treaty for allocation of taxing rights was the India-Netherlands treaty. Since the material facts necessary for applying that treaty were not before the Tribunal, the issue could not be finally determined on merits and required de novo consideration by the Assessing Officer, with credit to be considered in accordance with the return and Form 67 if tax was again brought to charge.

Conclusion: The dividend issue was remanded for fresh adjudication with consequential foreign tax credit directions.

Issue (iv): Whether interest income had to be taxed at the beneficial treaty rate of 10%.

Analysis: The interest income had been offered under the India-Kazakhstan treaty at the concessional rate, and once treaty residence in Kazakhstan was accepted, the applicable treaty rate governed the computation of tax on that income.

Conclusion: The interest income was to be taxed at the beneficial rate of 10% under the treaty.

Final Conclusion: The assessee obtained substantive relief on residency-based treaty claims and on salary, rental, and interest income, while the dividend issue was sent back for fresh examination with consequential credit directions.

Ratio Decidendi: Where a taxpayer is treated as resident in both States under domestic law, treaty residence must be determined by the tie-breaker article, and the resulting treaty allocation governs the taxation of income under the relevant distributive articles.

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