@samartur , Namaste ji.
The point I was trying to make is that for US purposes, the " saving clause" ( i.e. ignoring the articles of the tax treaty in favor of existing/in-force US tax laws) and/or asserting the tax treaty article 19 both achieve the same thing for the US -- tax the pension as US sourced income. The TE from the US side also suggests the same interpretation. The issue here is whether India interprets the article 19 to include US State and local pension as "public sourced" , considering that US States in general are not party to a tax agreement and do not recognize the treaties between US-Fed and a foreign country. Thus US states do not provide Foreign Tax Credit ( except for states like MI and NY that have individual tax agreements with Canada).
I do not have access to India's version of Technical explanation nor any case law in Indian courts. Therefore , my concern and suggestion to be prepared for amending the US return under double taxation clause.
I hope this has clarified the situation.
Namaste ji
pk
