month

2L
ticenis
contribution
of

J
in some
If
money is kept

Interest
whichyields
Income
IncomeSuch reported
should be
thePAN
against

of BOI
Chandni
Gowk
Sweets paint
AFB
shop
Fringe
Pamer as
homenow

got anime of firm will be froma

reported against the PANof
not against the Panof
either ofthe
Partners
 Ch-2 : Residence & Scope of Total Income
² Definition of some terms:-
1) Person [Section 2(31)]:- d
is uniqueefor
INCLUDES a "minor person OR person of unsound mind" but assessment in such cases Taxpayer
Individual is made on "guardian/manager of such person who is entitled to receive his income".
In case of deceased person, assessment is made on his Legal Representative.
d
mm Not defined in IT Act. Defined by Hindu Law(More discussion done in notes given below)
HUF
Even Jain Undivided Family or Sikh Undivided Family is assessed as HUF only in IT Act.

Company Defined u/s 2 separately Post

failedfriability
Same meaning as that give in Indian Partnership Act, 1932. Includes LLP also. Even a
Firm
MINOR admitted as partner is valid for the purposes of Income Tax Act.
Person

of
Association Persons
PERSONS(not just individuals) get together for common purpose or action AND object must
T
AOP
be to produce income. (Eg; Co-heirs. Co-donees etc. joining for common purpose assessable as AOP)

It is not enough that persons receive income jointly (i.e. Profit making should be the objective)
of
Body Individuals
Conglomeration of INDIVIDUALS who carry on some activity with or without the object
BOI of producing income who did NOT get together for a COMMON Purpose or action(hence,
not assessable as AOP)". Eg:- Mutual trade associations, members club, Co-executors etc.

Local MEANS "municipal committee, district board, other authority" which is entrusted to
appointed

Authority by Govt, with management or control of a "municipal or local fund" eetusimian

aus
isaccord
person
Artificial Juridical Includes every artificial person with a juristic personality NOT falling under thewishes
win
anemia
Person other category of persons. Eg:- Idol/ deity, Bar Council, Universities etc. of
person

Note:-
A) Section 2(31) also provides that an “AOP/BOI/Local Authority/AJP” SHALL be treated as a person
IRRESPECTIVE of whether or not they were FORMED with the OBJECT of deriving “income, profits
Cat C or gains”.
B) SOME Concepts of HUF(Portion of Hindu Law which is relevant for Income Tax Act):-
i) The existence of a HUF does NOT arise from a contract BUT arises from status. There need
NOT be more than 1 male member or one female coparcener w.e.f. 6th September, 2005 to
form a HUF. The Income-tax Act, 1961 also does NOT indicate thatisa HUF as an assessable
entity must consist of AT LEAST two male members or two coparceners.

A person just needs to take a PAN in the name of such HUF to make it exist in the eyes of tax
department. HUF is not required to be registered under any act but it is RECOMMENDED to
form a Deed to govern the HUF. Such deed, if made, mentions the name of “HUF, Karta, Co-
parceners, Members”.
ii) Any HUF comprises of the following parties:-
a) Karta:- Eldest member of family(male or female) is known as Karta. Karta manages the assets and
business of HUF. His liability is unlimited.
b) Co-parceners:- Members within FOUR Degrees, including Karta, are called Co-parceners.
These are the members who are entitled to share in ancestral property BY BIRTH. Post
2005, even Daughters(whether married or unmarried) are Co-parceners in THEIR father’s HUF(However,
children of daughter are not co-parceners. In short, you can be co-parcener only if “you were born in a family AND your father was a co-

CA SAHIL JAIN | PAGE 2.1

 É
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Ez partition happens while one was

If a every
then shore in Huf property
alive everyone's

will be as follows

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shore S will be divided 112th of

of
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3 The chant continues like this

 finally everyone will receive this
Huf
much
share in the property

Value Huf 36 Cr
of Property

m d ly 9W
3W Ya S W O

1W 436 S W
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for a detailed understanding this

of one

can refer the Hindu have but that is

not advisable from exam perspective

 parcener in that HUF”)
. Co-parceners can demand partition of HUF. Their liability is limited. Eg:-
Members of family who are related by blood.
c) OTHER Members:- Any member of HUF other than “Karta or Co-parceners” do NOT have
co-parcenery rights, i.e. they are NOT entitled to share in ancestral HUF property and
cannot demand partition. They are only entitled to maintenance expenses like food, cloth
etc. from the HUF. Eg:- daughter-in-law, son-in-law, daughter’s children. Their liability is
limited.
Note:- New birth and marriages can increase the number of members(co-parceners or others) of an
HUF.
iii) There are 2 schools of Hindu law with regard to SUCCESSION in an HUF:-
Dayabaga School of Hindu Law Mitakshara School of Hindu Law
Prevails in West Bengal and Assam Prevails in REST of India
Nobody acquires the “right/share in
Property” by Birth as long as the “Head of
One acquires the right to family property by
family” is alive.
his BIRTH and NOT by Succession
IRRESPECTIVE of the fact that his Elders are
Thus, children will acquire right/share in
alive.
property ONLY AFTER the death of their
father.
Thus, every child born in family acquires a
right/share in family property.
Hence, father and his brothers would be the
coparceners of HUF.

iv) Just for extra knowledge:-

a) An HUF owns assets on which it earns incomes and also has a separate bank account in its
name. The assets can be acquired by HUF in following ways:-
> After a person dies, his property is transferred in the name of an HUF by his legal heir(s)
instead of transferring it to their individual name(s);
> Members “GIFT or Sell” their individual property to HUF by transferring it in the name of
HUF; OR
> HUF gets the asset from any person OTHER THAN its members by “paying for it OR as
gift”.
b) Since it is a separate person in IT Act, a separate PAN is required to be obtained for an HUF
and consequently, Income of HUF is taxed in the hands of HUF only when HUF files its own
return.
c) “Equal rights of each member”, “Supremacy of Karta because of age” are some of the
disadvantages of forming an HUF.
d) We will discuss the TAXABILITY of income of HUF in the coming chapters.
C) Just for extra knowledge, A person conducting business as “Sole Proprietorship” is NOT required to
take another PAN for the same. Profits from “Sole Proprietorship Business” are MERGED with the
income which proprietor earns as an “Individual” since “Sole Proprietor” and his Business are the
same person in the eyes of law.

RESIDENCE & SCOPE OF TOTAL INCOME | PAGE 2.2

 2) In the definition of “Person”, what is a Company?

A) Definition of Company:-
As per Section 2(17), a “Company” MEANS:-
i) “Indian Company”[Refer Section 2(26) below].
ii) Any "Body Corporate(i.e. Corporate entity having legal existence)" incorporated by or under the laws of a
country OUTSIDE India, i.e. a Foreign Company.
iii) Any institution/association/body which “is assessable OR was assessed” AS a Company for:-
a) ANY AY under the Indian Income-tax Act, 1922; OR
C
at b) AY commencing on or before 1/4/1970 under the Income Tax Act, 1961.
iv) Any "institution/ body/ association", whether incorporated or not, whether Indian or not,
declared by "general/special order of CBDT" to be a “Company” for such AYs as may be
specified in CBDT’s Order.
CatB B) Classes of Companies:-
i) Indian Company:-
a) As per Section 2(26), an “Indian Company” MEANS a company which satisfies BOTH of the
following:-
> Company formed & registered under "Companies Act, 2013"; AND
> The “Registered/Principal Office” of such Co. is IN India.
b) “Indian Company” ALSO INCLUDES the following PROVIDED their “registered/principal
office is IN India”:-
> A corporation established by or under a Central, State or Provincial Act;(Like Financial Corporation
or State Road Transport Corporation)

> Any institution, association or body which is declared by the Board to be a “Company”
under Section 2(17) (i.e. Definition of company);
> A company formed and registered under:-
• Any “law relating to companies” which “was or is” in force in “any part of India
OTHER THAN Jammu and Kashmir and the Union territories specified below in this
sub-section”;
• “Any law for the time being in force” in the State of Jammu and Kashmir; OR

ai.co • “Any law for the time being in force” in the Union territories of “Dadra and Nagar
Haveli, Daman and Diu, and Pondicherry” or State of Goa.
ii) Domestic Company:-
As per Section 2(22A), it MEANS the following companies:-
a) Indian Company[as defined u/s 2(26)]; OR
b) Company which, i.r.o. its income liable to income tax, has made PRESCRIBED arrangements
for declaration and payment of dividend(incl. that on Pref. Shares) WITHIN India, out of such
income.
Tin respectof s mitraomanusa

exam mawspmffmaueprsaii.ca
we in
ya for
arrangements
for
arrangements
media media
a payable
a payable t
CA SAHIL JAIN | PAGE 2.3 Domenicobut
w rendianco nor
mainertmaran
somehow
 iii) Foreign Company:-
As per Section 2(23A), “Foreign Co.” MEANS a company which is NOT a Domestic Company.
Indian Company
Domestic

Company
Company
Co. which, i.r.o. its income liable to income tax, has made prescribed
[Section 2(22A)]
arrangements for declaring dividend in India
Foreign
Company i.e. A company which is NOT a domestic co.
[Section 2(23A)]
n a
² DETERMINING RESIDENTIAL STATUS OF VARIOUS ASSESSEES:-
Residential Status is determined for EACH PY separately. An assessee can be NR in 1 PY and Resident in
another PY.
1) Residential Status of an “Individual”:- Rs
Pty
i
II [Section 6(1)]:-
A) General Rule
7s'sIdayes
adj g
Residential Status

Conditions to be checked:-
of Individual

a) Stay IN India > 182 days during THE PY; OR ANY 1 satisfied Resident
months

b) Stay IN India > 60 days during THE PY BOTH conditions

AND Non-Resident
NOT satisfied
w swans Stay IN India > 365 days in PRECEDING 4
anons pagan PYs

Counting 25th Feb 22_k 24thMa 22

25th Feb (i.e.223
Note:-
7 27thMa
12 nautical miles into sea from Indian
22
i) “Stay in India” INCLUDES the stay in “Territorial Waters of India
Coastline)
”. Even if a ship/boat is moored in “territorial waters of India”, it will be counted as stay
in India.
ii) The period of stay is NOT required to be continuous or active NOR is it essential that stay
should be AT the usual place of “residence/business/employment” of the Individual.
iii) For counting the number of days of “stay in India”, BOTH “date of departure AND date of
arrival” are considered to be IN India.
iv) “Citizenship/Place of Birth/Domicile” shall be IRRELEVANT in determining the Residence of a
person.
B) Exceptions to general method of “determination of Residential Status” given above:-
In case of following assessees, we only check the 182 days condition for determining whether
Individual is Resident or not, i.e. the 60+365 days condition is NOT applicable for such assessees:-
i) “Indian Citizen OR Person of Indian Origin(i.e. Individual/Parents/Grandparents were born in UNDIVIDED India)” who
are engaged in “Employment/Profession/Business/Other Vocation” OUTSIDE India AND who
come on a “VISIT to India(For holiday/business/employment etc. of TEMPORARY Nature)” in any PY.
taxable in India
yincome
Exception:- If SUCH “Indian Citizen/POIO” has “total income OTHER THAN the income from
A foreign sources” EXCEEDING Rs.15 Iakhs during the PY, he will be treated as Resident in India
IF:-
a) Stay IN India > 182 days during THE PY; OR

jfiifjridty
gg ay
RESIDENCE & SCOPE OF TOTAL INCOME | PAGE 2.4
 b) Stay IN India for > 120 days during THE PY
AND
Stay IN India > 365 days in PRECEDING 4 PYs
ii) Indian CITIZENS who leave India, DURING the PY:-

i
a) AS a member of CREW of an INDIAN Ship; OR
days
3051306
b) FOR Employment OUTSIDE India.
Note:- Explanation 2 to Section 6(1) provides that in case of “Indian Citizen being a Crew
Member of foreign bound Ship leaving India” the “Period of Stay” shall be determined as per
Prescribed conditions.

Accordingly, Rule 126 provides that while determining “Period of Stay in India”, i.r.o. Eligible
Voyage, the period COMMENCING from “date entered into the Continuous Discharge
Certificate i.r.o. JOINING the ship by said Individual for the Eligible Voyage” and ENDING on
“date entered into the Continuous Discharge Certificate i.r.o. SIGNING OFF by the said
Individual from the Ship i.r.o. such Voyage” shall be EXCLUDED.
D das
journey
Here, “Eligible Voyage” is a voyage undertaken by a ship ENGAGED IN the carriage of
passengers or freight in INTERNATIONAL traffic where :-
cat
> for the voyage having originated from any port IN India, has as its destination any port
OUTSIDE India; AND
> for the voyage having originated from any port OUTSIDE India, has as its destination any
port IN India.
C) DEEMED Resident [Section 6(1A)]:- not Polo
An individual, being an INDIAN CITIZEN, having “total income OTHER THAN the income from
foreign sources” EXCEEDING Rs.15 lakhs during the PY would be DEEMED to be Resident in India in
THAT PY(irrespective of his Stay in India in that PY), IF he is NOT “liable to tax(Explained below in Note)” in any OTHER
country or territory by reason of his “domicile or residence or any other criteria of similar nature”.

However, THIS provision will NOT apply in case of an individual who IS a resident of India in the PY
as per section 6(1). [Logic:- To ensure that ROR do NOT get converted to RNOR by claiming to fall under Section 6(1A)]

Note:- “Liable to tax”, in relation to a person and with reference to a country, MEANS that there is
an INCOME-tax liability on such person under the law of THAT country for the time being in force.
It also INCLUDES a person who has SUBSEQUENTLY(i.e. After imposition of tax) been EXEMPTED from such
liability under the law of THAT country. which are Not taxed
ie All mines
D) Meaning of “Income from Foreign Sources”:- in the hands ofRnor
As per Explanation to Section 6, “Income from Foreign Sources” MEANS “income which
accrues/arises OUTSIDE India (EXCEPT Income from a business controlled from or profession set up
in India) which is NOT DEEMED to accrue or arise IN India(i.e. Incomes which are NOT taxed in the hands of RNOR)”.

Note:- In other words, the 15 lacs limit is checked on ALL Incomes taxable IN India in the hands of
an RNOR, i.e. “Incomes accruing/arising IN India”, “Incomes received IN India”, “Incomes DEEMED
to accrue/arise IN India”, “Incomes DEEMED to be received IN India” AND “Income from a business
controlled from or profession set up in India”.

CA SAHIL JAIN | PAGE 2.5

 E) How to further classify a Resident Individual into ROR/RNOR?
A Resident Individual becomes a “Resident but not ordinarily resident (RNOR)” in the PY in which
he satisfies ANY 1 of the following:-
i) He has been an NR in India in 9 out of 10 PYs preceding THAT year;
ii) His Stay IN India during the 7 PYs preceding THAT year been of 729 days or less;
iii) All of the following conditions are satisfied:-
a) He is an “Indian Citizen OR a person of Indian origin”;
b) He, being outside India, comes on a VISIT to India during the relevant PY;
c) His “total income OTHER THAN the income from foreign sources” EXCEEDS Rs. 15 Lakhs
during the PY; AND
d) His Stay IN India during the PY is 120 days or more but LESS THAN 182 days. [Logic:- To ensure that
ROR do NOT get converted to RNOR by claiming to fall under this point (iii)]

iv) He is an Indian CITIZEN who is DEEMED to be Resident IN India under clause (1A).
Note:- If NONE of the 4 conditions mentioned above is satisfied, the Resident is called as ROR.
F) Summary:- Check the following in CHRONOLOGICAL Order:-
1) Resident because of EITHER "182 days conditions" or "60 + ROR/RNOR depending on satisfaction
Individual

365 days condition, where applicable" of "9 yrs or 729 days condition"

Resident because of "120 + 365 days condition, where applicable" Always RNOR
Doquestions Resident because of getting covered u/s 6(1A) Always RNOR

ofRS
Individuals
2) Residential Status of OTHER “Persons”:-
no Dan
Paris
Pune
rumba Germany
“Control and Management” is said to be situated at a “Place where the HEAD & BRAIN of business is
situated with some degree of PERMANENCE” and NOT the “Place where routine day-to-day functions
are performed”.
Determining residential status for A PY

Control & If "KARTA of HUF" satisfies "ANY 1 conditions of

Management of its the FIRST 2 conditions checked in case of
Resident
affairs Wholly or Partly Individual also(i.e. 9/10 PYs or 729 days)", the HUF(not Karta)
IN India becomes RNOR, otherwise, it becomes ROR
HUF

Control & Management of its

Non-Resident
affairs Wholly OUTSIDE India
[Section 6]

Firm/AOP/BOI/ Local Control & Management of its affairs Wholly or Partly IN India Resident
Authority/ Artificial
Juridical Person Control & Management of its affairs Wholly OUTSIDE India Non-Resident

Indian Company
(not DOMESTIC company) Resident
Company
POEM in India Resident
Other Companies
POEM not in India Non-Resident

RESIDENCE & SCOPE OF TOTAL INCOME | PAGE 2.6

 Mod Incomeearned

SJ Consultancy
Unity Iii in France
invested in
Delhi office vs a fixed deposit
in Franceitself

o
Sini assessed is RNOR a profession
o o
is setup IN India his income
from
consultancy including that from
US will be taxable
France
in India

However the Interest earned on

will not be
FDs in France
taxable in India since it

does not trigger section 5

hoan7E10Lacs 12t.p.a
with Interest due
in every bmonters

tie
has
Intpagyfen
period

Accrual of
Interest

US Employer

Indian Bank us Japs y

Remittance
 Note:-
A) Place of Effective Management (POEM) means the place where KEY management and commercial
decisions that are necessary for the conduct of the business of an entity as a whole are, in
SUBSTANCE made. Just like residential status, POEM also needs to be determined on a year-to-
year basis.
B) Logic:- There’s no concept of ROR/RNOR in cases where more than 1 persons manage the business
of assessee since we cannot check the “stay in India” of anyone in those cases.

² DETERMINING SCOPE OF TOTAL INCOME:-

1) Scope of Total Income (Section 5):-
In general sense, An income is said to be received at the place where it is FIRST received. An income is
Su said to accrue/arise when the RIGHT TO RECEIVE such income accrues/arises, i.e. day to day basis.
notes Similarly, a payment becomes DUE when the Right to Enforce Payment arises.
Residential
Status of Income subjected to Income Tax in India
Assessee
1) Income “received OR deemed to be received” IN India DURING the PY.

Resident
and
Ordinarily
Tsim
2) Income which “accrues/arises OR is DEEMED to accrue/arise” IN India DURING the PY

3) Income which accruse/arises OUTSIDE India EVEN IF it is NOT brought into India
Resident during the PY
(ROR) deferred
Note:- Some persons are “either Resident or NR(not ROR/RNOR/NR)”. If such a person is
Resident, he gets the same treatment as ROR in this table and NOT the same as RNOR.
1) Income “received OR deemed to be received” IN India DURING the PY.

Resident 2) Income which “accrues/arises OR is DEEMED to accrue/arise” IN India DURING the PY

but NOT
Ordinarily 3) Income which accruse/arises OUTSIDE India EVEN IF it is NOT brought into India
Resident during the PY themine
France also
(RNOR) in
as
3) Income which is derived from a “business controlled from OR profession set up” IN
India EVEN IF such income accrues/arises OUTSIDE India
1) Income “received OR deemed to be received” IN India DURING the PY.
Non-
2) Income which “accrues/arises OR is DEEMED to accrue/arise” IN India DURING the PY
Resident
(NR)
3) Income which accruse/arises OUTSIDE India EVEN IF it is NOT brought into India
during the PY

External Bank All

Note:- Non Resident
A) Circular No. 13/2017 & 17/2017 clarified that Income by way of SALARY, received by Non-Resident
Seafarers(i.e. Sailor), for services rendered OUTSIDE India on a FOREIGN Going Ship (with Indian or
Foreign Flag) AND received in “NRE Bank A/C maintained with an Indian Bank” shall NOT be
included in Total Income.

CA SAHIL JAIN | PAGE 2.7

 B) Explanation 1 to Section 5 provides that an Income accruing/arising OUTSIDE India shall NOT be
deemed to be RECEIVED IN India MERELY because it is taken into account in a “BALANCE SHEET
prepared IN India”.
C) Explanation 2 to Section 5 provides that an income INCLUDED in Assessee’s Total Income and
subjected to tax on the ground of its ACCRUAL/DEEMED ACCRUAL shall NOT be included in such
person’s Total Income AGAIN in the same or subsequent year on the ground of RECEIPT/DEEMED
RECEIPT.
D) Just for extra Knowledge:-
i) Place WHERE income is said to accrue/arise is a very contentious topic. There are numerous
case laws, however from exam perspective, students are not required to know those. For
illustration purposes, some rough examples have been given below but they do not form an
exhaustive test by any means and exact answer to this for a case can be found only after
examining facts of the case:-
Place where income
Type of Income
accrues/arises
Income i.r.o. provision of
Where service is RENDERED
Services
Where TRANSFER OF TITLE of
Income i.r.o. sale of Goods goods takes place(i.e. Risks are passed on
to buyer)

ii) Income is said to accrue/arise WHEN the payee acquires a VESTED RIGHT to RECEIVE(NOT Right to
Enforce Payment)
coupled with the corresponding DEBT by payer(i.e. day to day basis).
not to Enforce
2) Incomes DEEMED to be received IN India (Section 7):- Payment

Incomes DEEMED to be received IN India

"Contribution to Recognised Provident Amount transferred FROM

Fund in EXCESS OF 12% of Salary"
OR
"Interest credited on RPF balance in
EXCESS OF 9.5% p.a."
Contribution BY Central Govt.
Unrecognised Provident Fund TO
or any Other Employer TO a
Recognised Prov. Fund (being
"pension scheme referred to
employer's contribution and
u/s 80CCD"
interest thereon)

RESIDENCE & SCOPE OF TOTAL INCOME | PAGE 2.8

 3) Incomes DEEMED to accrue/arise IN India (Section 9):-
Any Income from:-

a) Business connection IN India

Clause (i)
OVERVIEW of all incomes DEEMED to

b) Transfer of Capital Asset situated IN India

c) Property/ Asset/ Source of Income IN India

accrue/arise in India u/s 9

Clause (ii) Salary for services rendered in India

Clause (iii) Salary BY govt TO citizen of India for services rendered outside India

Clause (iv) Dividend paid outside India by Indian Company

Clause (v) Interest payable by certain people

Clause (vi) Royalty payable by certain people

Clause (vii) Fees for Technical Services payable by certain people

Clause (viii) Money gifted BY a Resident TO a "non-corporate non-resident OR foreign company"

A) FIRST TYPE of income DEEMED u/s 9(1)(i):-

Any income accruing or arising, to an assessee, in any place OUTSIDE India, whether directly/
indirectly THROUGH/FROM any business connection IN India, would be DEEMED to accrue/arise IN
India.
i) What constitutes a Business Connection?
a) Business Connection has not been given an exhaustive meaning in the Act. It can include a
wide variety of cases. Eg:- NR carrying on business in India through a Permanent
Establishment.
b) As per Explanation 2, “Business Connection” INCLUDES a BUSINESS ACTIVITY carried out
THROUGH a “person acting on behalf of Non-resident” where SUCH person[i.e. Agency PE with no
fixed place of business in India]
:-
> Satisfies BOTH of the following(In summary, agent acts LIKE an Employee of such NR and NOT like an Independent
Businessman)
:-
• The CONTRACTS so concluded are:-
' in the NAME of the non-resident;
' FOR the “transfer of the ownership of OR granting of the right to use in”, a
PROPERTY which is “either owned by that non-resident OR w.r.t which the non-
resident has the right to use”; OR
' FOR the provision of services BY the non-resident; AND
• Has AND Habitually exercises, IN India, an “AUTHORITY to conclude contracts on
Behalf of the non-resident”;

Habitually CONCLUDES contracts IN India on behalf of non-resident ;

Habitually plays the PRINCIPAL ROLE IN India leading to conclusion of contracts BY

that non-resident;

CA SAHIL JAIN | PAGE 2.9