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CA Final · Direct Tax Laws & International Taxation · Application and Interpretation of Tax Treaties

Rohan, an individual, is a resident of India under the Income-tax Act and also a resident of Country Y under its domestic law. The India–Y treaty has a tie-breaker clause in the standard order. Rohan has a permanent home available in both countries, and his personal and economic relations are closer to Y, where his family and business are located. Which country will be treated as Rohan's residence for treaty purposes?

Country Y will be treated as Rohan's treaty residence. Under the tie-breaker rules, permanent home is tested first, and since it exists in both countries the test moves to centre of vital interests, meaning personal and economic ties. These are closer to Y, so Y prevails, and nationality is never reached.

  1. AIndia, because he is resident under the Income-tax Act
  2. BCountry Y, because his centre of vital interests is thereCorrect
  3. CIndia, because nationality is tested before centre of vital interests
  4. DNeither, since the treaty cannot apply to a dual resident

Explanation

The standard tie-breaker order is permanent home, then centre of vital interests, then habitual abode, then nationality, then mutual agreement. Both countries offer a permanent home, so the test moves to centre of vital interests, which points to Y. Nationality is considered later, so option C is wrong.

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