Resident of both US and India: DTAA to claim relief from Indian tax filings?

[k_r]

Hello,

I have read through the ?sticky? threads and could not find an answer to my question, so I am starting a new thread. The situation I describe later is somewhat unique, but the broader question (what happens when one can be considered a resident in both USA and India) may be relevant to others.

The US-India DTAA, article 4 states as follows:

1. For the purposes of this Convention, the ?resident of a Contracting State? means any person
who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, citizenship,
place of management, place of incorporation, or any other criterion of a similar nature, ?

2. Where by reason of the provisions of paragraph 1, an individual is a resident of both Contracting States, then his status shall be determined as follows:
(a) he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests);
(b) if the State in which he has his centre of vital interests cannot be determined, or if he does not have a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;
(c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national;
(d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

Here are the specifics:

X is a Professor at a State University (this part is important, as noted later) in the USA.
She and her husband are both US citizens.
She has worked in the USA for 30 years, and has not worked in India in this time; she has filed taxes in the USA for 30 years, no Indian tax filing during these years; she has had a home in the USA for 25 years, but does not own a home in India; her current work and professional interests are in the USA, and almost none in India; her primary bank accounts and other financial interests are in the USA, with a very minor proportion in NRE accounts in India; her main ?possessions? are in the USA, not India; her driving license is in the USA, and none in India.
(The reason I am enumerating these facts is because they have been considered in legal cases involving residency; I know of at least two such cases involving residence in US vs. Canada.)

Over the next 2-3 years, she can arrange her teaching schedule so that she spends around 200 days in India, given the failing health of her mother and mother-in-law. She would not work in India, and would not earn income in India. Her husband would spend time in India, but it will always be less than 182 days, so he would continue to be a US resident.

Under US law, she is a US citizen who is working in the US and using the residency test clearly meets the requirements (> 30 days a year, > 183 when considering this year, one-third of the days last year, and one-sixth of the days two years ago).

Because she spends more than 182 days, she would be an Indian resident.

So she is both a US resident and an Indian resident for tax purposes.

But, her income in the USA is not taxable in India given Article 19 of the DTAA because she is an employee of a state government in the USA (?1(a) Remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.?).

So the only issue would be taxation of other income, including income in IRAs (but, not anything in the state government pension related accounts in light of Article 19(2) of the DTAA), and declaration of foreign accounts in the Indian tax forms. (Even this would be only when she becomes ROR, after two years of RNOR.)

However, can she argue that based on the clauses of the DTAA (?Where by reason of the provisions of paragraph 1, an individual is a resident of both Contracting States, then his status shall be determined as follows?) her status should be that she is a resident of the USA because
(a) permanent home is only in the USA, and
(b) vital economic interests (work, profession, primary financial accounts) are only in the USA?

Therefore, she is only a resident of the USA and not India under the DTAA, and hence not subject to Indian tax filing, especially since there is no Indian source income?

More generally, can anyone who is in a position to be deemed a resident of both countries argue that under the DTAA (s)he is only a resident of one country (and, hence not subject to tax filing in the other country, if there is no income sourced to the second country)?
This would not work with respect to US tax filings for a US citizen who also is a resident of India because of the worldwide taxation of US citizens; but, can it work for a US citizen with respect to Indian tax filings or for an Indian (or, any other foreign) citizen with respect to US tax filings? (The latter is non-trivial: as an example, consider Indian parents visiting children in USA in consecutive years, who could easily meet the US ?substantial presence? test.)