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TYPES OF TAXES
This Study Note includes • Basis For Taxation • Direct Taxes and Indirect Taxes
1.1 BASIS FOR TAXATION
India is a socialist, democratic and republic state. Constitution of India is supreme law of land. All other laws, including the Income-tax Act, are subordinate to the Constitution of India. The Constitution provides that ‘no tax shall be levied or collected except by authority of law’. The Constitution includes three lists in the Seventh Schedule providing authority to the Central Government and the state governments to levy and collect taxes on subjects stated in the lists.
Powers of Central or State Government to levy tax Article Empowers For 246(1) Central or State Government Levy of various taxes. 246(1) Central Government Levy taxes in List I of the Severnth Schedule of the constitution. 246(3) State Government Levy taxes in List II of the Seventh Schedule of the Constitution. — Central and State Government List III of Seventh Schedule. List I : Union List Entry No. 82 : Income Tax other than Tax on Agricultural Income Entry No. 83 : Customs duties including export duties Entry No. 84 : Union Excise Duty (other than liquor, opium, etc.) Entry No. 85 : Corporation Tax Entry No. 92A : Taxes on Inter-State Sales (CST) Entry No. 92B : Tax on Inter-State Consignment of Goods (not yet considered by GOI) Entry No. 92C : Taxes on services Entry No. 97 : Any other matter not included in List II or List III [Levy of Service Tax through Finance Act, 1994] List II : State List Entry No. 46 : Agricultural Income Tax Entry No. 51 : State Excise Duty Entry No. 52 : Tax on Entry of Goods into local area for consumption or use or sale (called octroi) Entry No. 54 : Tax on intra State Sales (Local/General Sales Tax)
Applied Direct Taxation
TYPES Of TAXES
List III : State List Entry No. 17A : Forests Entry No. 25 : Education
1.2 DIRECT TAXES AND INDIRECT TAXES
Direct Tax Income Tax Wealth Tax Central Excise Duty Customs Duty Service Tax Indirect Tax Purchase Tax Value Added Tax (VAT)
Basis of difference between Indirect Tax and Direct Tax Basis of difference Indirect Tax Direct Tax 1. Taxable Event Purchase / Sale / Manufacture of goods Taxable Income / Taxable Wealth of the and provision of services Assessees. 2. Levy & Collection Levied & collected from the consumer Levied and collected from the Assessee but paid / deposited to the Exchequer by the Assessee / Dealer 3. Shifting of Burden Tax burden is shifted to the subsequent / Directly borne by the Assessee. ultimate user Hence, cannot be shifted. 4. Collected At the time of sale of purchases or after the income for a year is earned or rendering of services valuation of assets is determined on the valuation date.
Applied Direct Taxation
Circulars / Notifications from CBDT (a) In exercise of the powers u/s 119. Wealth Tax etc. (b) These circulars clarify doubts regarding the scope and meaning of the various provisions of the Act. (b) Part A of the Budget contains proposed policies of the Government in fiscal areas. Applied Direct Taxation 3 .e. Finance Act (a) Finance Minister presents this as Finance Bill in both the Houses of Parliament. Service Tax etc. CBDT is empowered to frame rules from time to time to carry out the purpose and proper administration of the Act. Customs Duty. (e) The circulars issued by the CBDT shall not be in contrary to the provisions of the Act. (e) The rate of tax at which income shall be charged is prescribed in the Schedule I of Finance Act. it becomes the Finance Act. CBDT issues circulars and notifications from time to time.THE SOURCE OF INCOME TAX LAW This Study Note includes • • • • Basic Concepts Rates of Income Tax for A. (d) These circulars are binding on Assessing Officers but not on assesses and Courts.) and Indirect Tax Laws (i. The Income Tax Act. 1962 (a) The administration of Direct Taxes is vested with Central Board of Direct Taxes (CBDT). 2010-11 Definition Heads of Income STUDY NOTE .4. 4. (b) Under Section 295 of IT Act.1962 (c) The Act contains 298 sections and XIV Schedules (d) The Finance Act shall bring amendment to this Act. (e) The Law provides for determination of taxable income. procedures and principles of valuation of perquisites prescribed under the Act are provided in the Rules framed by CBDT. law relating to Central Excise. appeal. The Income Tax Rules.1 BASIC CONCEPTS THE ELEMENTS / SOURCES OF INCOME TAX LAW 1.e. tax liability and procedure for assessment. (d) Once the Finance Bill is approved by the Parliament and gets the assent of the President. (c) All forms.) 3.f. (f) The Finance Act brings amendments to both the Direct Tax Laws (i. (c) These circulars act as guidance for officers and assesses. Income Tax.2 2. penalties and prosecutions.Y.1961 (b) It came into force w. 1961 (a) Income tax in India is governed by the Income Tax Act.e. 2. (c) Part B contains the detailed tax proposals.1.
00.THE SOURCE OF INCOME TAX LAW Subordinate Legislation The Government enacts the law in the Parliament.00.50.000 10% ` 5. within its jurisdiction. 5. and below the age of sixty years at any time during the previous year. [ ] Upto ` 2. Supreme Court and High Court Decisions (a) The Supreme Court and the High Court can give judgment only on the question of law.80.00. In the case of every individual.000 10% ` 5. where is a need for detailed rules and regulations.00.00. the Notifications and Circulars issued by CBDT.90. or every artificial judicial person Upto ` 1 . the enactment is to be done by either CBDT or CBEC.000 30% III.e.g. Cenvat Credit Rules. being a resident in India. (b) The Law laid down by the Supreme Court is the law of the land. DETERMINING THE RATES OF TAX UNDER THE INCOME TAX ACT. Upto ` 1.000 20% Above ` 8.010 to ` 8. 2.010 to ` 5.010 to ` 8. 1961 1.00.000 Nil 10% 20% 30% II.000 Nil ` 2. etc.000 ` 1. being a woman resident in India.80. In the case of every individual.00. Income Tax Act.000 Nil ` 1.000 ` 5.010 to ` 5. Part I Part II Part III The tax rates applicable to income of various types of assessees for the assessment year Rates of TDS for the current Financial year Rates of TDS for salary and advance tax (which becomes Part I of the next assessment year) 2.50.90.00.010 to ` 5.000 20% Above ` 8.00. In the case of every Individual or Hindu undivided family or AOP/BOI (other than a co-operative society) whether incorporated or not. The rules and regulations enacted by CBDT or CBEC i. (c) The decision of High Court will apply in the respective States.00. The First Schedule to the Finance Act provides the following rates of taxation.00. there e. Central Excise Act. Income Tax Rules.000 30% Senior citizen 4 Applied Direct Taxation . CBEC is called Subordinate Legislation.00. Income Tax shall be charged at the rates fixed for the year by the Annual Finance Act.000 Above ` 8. who is of the age of 60 years or more at any time during the previous year.010 to ` 8.2 RATES OF INCOME-TAX FOR ASSESSMENT YEAR 2012-13 Normal Rates of Income Tax I.
income exceeds ` 1 crore Foreign Companies Total Income x 40%+ EC Surcharge @ 2% if the total Other Income @ 2% + SHEC @ 1% income exceeds `1 crore Royalty received from Indian Government or an Indian concern in pursuance of an agreement made by it with the Indian concern after March 31. being a resident in India. Nil For Co-operative For First ` 10.IV. (c) Every person who is deemed to be an assessee in default under the Act.000 @ 10% Societies For Next ` 10. 1961. or fees for rendering technical services in pursuance of an agreement made by it after February 29. (b) Every person who is deemed to be an assessee under the Act. Domestic Companies Total Income × 30% + EC Surcharge @ 5% if the total @ 2% + SHEC @ 1%. Applied Direct Taxation 2. ‘Education Cess’ @ 2%. 1961. and Assessee includes (a) Every person in respect of whom any proceedings has been taken for the assessment of • His income or Fringe Benefits or of the income of any other person.2.3 DEFINITION 5 . [Very senior citizen] Upto ` 5. • Loss sustained by him or other person. in either case been approved by the Central Government For Local Authorities Total Income × 30% + EC (Surcharge is not applicable) @ 2% + SHEC @ 1%.010 to ` 8.5% of Book Profit + EC Surcharge if Book Profits 2% + SHEC 1% exceed ` 1 crore. but before April 1.00. Assessee means: [Section 2(7)] Any person who is liable to pay any tax or any other sum under the Income Tax Act.00. and ‘Secondary and Higher Education Cess (SHEC)’ @ 1% on income tax shall be chargeable 2.00.00. Nil MAT= Minimum Alternate Tax 18.2 Other Assessees : Assessee Rate of Tax Surcharge For Firms (including limited liability Total Income × 30% + EC Surcharge — NIL partnership) @ 2% + SHEC @ 1%.000 @ 20% For the Balance @ 30% EC @ 2% and Surcharge is not applicable.000 Nil ` 5. 1976. 1964 and where such agreement has. who is of the age of 80 years or more at any time during the previous year.000 30% Note : No surcharge is payable by the above assessees.000 20% Above ` 8. • Refund due to him or such other person. In the case of every individual. SHEC @ 1% are applicable.
15. 10. Profits or gains of business or profession. like Duty Drawback. 2.11 to 31. Note: Previous Year for Newly established business From the date of setting up of the business to the end of the Financial year in which business was set up. The present previous year 2011-12 and its Assessment Year is 2012-13. Amount received under agreement for (a) not carrying out activity in relation to any business. Assessment Year means the period of twelve months commencing on the 1st day of April every year.2007. Voluntary Contribution received by a Charitable / Religious Trust or University / Education Institution or Hospital 4. Discontinued business [Section 176] UNDISCLOSED SOURCES OF INCOME 1. bullion or jewel or valuable article u/s 69A 6 Applied Direct Taxation . 2. Winnings from lotteries. by a Director or a person holding substantial interest or a relative of the Director or such person. Income [Section 2(24)] includes: 1. salary. Previous Year means Financial Year immediately preceding the Assessment Year. AOP or BOI or Artificial Juridical Person formed for a particular event or purpose [Sec.11. 6. crossword puzzles. Sale of licences etc. or (b) not sharing any knowhow. 13. Unexplained Cash Credits u/s 68 2. 174A] 4. Capital Gains chargeable u/s 45. Amount received under Keyman Insurance Policy including bonus thereon. The present Assessment Year is 2012-13 relating to previous year 2010-11.3. copyright etc. then the whole of aggregate of such sums will be taxable. commission or remuneration earned by a partner of a Firm from such Firm. Dividend. 7. Cash Compensatory Support. 3. Interest.e. Value of perquisite or profit in lieu of salary taxable u/s 17 and special allowance or benefit specifically granted either to meet personal expenses or for performance of duties of an office or an employment of profit. Export incentives.000.4. races including horse races. patent. Benefit or perquisite received from a Company. Sums received by an assessee from his employees towards welfare fund contributions such as Provident Fund. Gift as defined u/s 56 (2)(vi) (w. Started business on 1.THE SOURCE OF INCOME TAX LAW Assessment Year [Section 2 (9)] 1. The year for which tax is paid is called Assessment Year. received by an Individual or a HUF from any person during the previous year without consideration on or after 1. 8. Persons likely to transfer property to avoid tax [Section 175] 5. Previous Year [Section 3] 1. Deemed income u/s 41 or 59. Example : X Ltd. 11.Y 2008-2009). 12. Unexplained investments u/s69 3.11. 9. So for X Ltd. Previous year will be considered as 1.11. Shipping business of nonresident [Section 172] 2. A. PREVIOUS YEAR & ASSESSMENT YEAR WILL BE SAME in the following cases: 1. Any sum of money exceeding ` 50.12. 14. Unexplained money. Superannuation Fund etc. card games and other games of any sort or from gambling or betting of any form or nature whatsoever. bonus.f. Profits and gains from the business of banking carried on by a cooperative society with its members. 2. The year in respect of the income of which tax is levied is called Previous Year. 5. Persons leaving India [Section 174] 3.
shall be rounded off to the nearest multiple of ` 10. disc. Amount borrowed or repaid on hundi. Total income constitutes the tax with reference to which income tax is charged. The source is charged with an overriding title. 2(45)] “Total income” means the total amount of income as referred to in sec. and 3. penalty. cash books. Income is applied to discharge an obligation. 2(22AA)] It includes an electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act. shall be rounded off to the nearest Ten Rupees. Therefore the essentials are the following : 1. which has accrued or has arisen or has been received amounts to merely the apportionment of income. There is an overriding charge or title for such diversion. Income accrues to the assessee 2. Income is diverted at source. 5 and computed in the manner laid down in the Act. DOCUMENT [Sec. which diverts the income. ROUNDING OFF TOTAL INCOME AND TAX Rounding Off Income [Section 288A] : The Total Income computed under this Act. and the amount of refund due under the Income Tax Act. 2(12A)] It includes ledgers. Rounding Off Tax [Section 288B] : The amount of Tax including Tax Deducted at Source (TDS) and advance tax.4. Applied Direct Taxation 7 . Undisclosed investments u/s 69B 5. Unexplained expenditure u/s 69C 6. Diversion of Income An obligation to apply the income in a particular way before it is received by the assessee or before it has arisen or accrued to the assessee results in diversion of income. 2. GROSS TOTAL INCOME [Section 80B] Gross Total Income means total income computed in accordance with the provisions of the Income Tax Act before making any deduction under Chapter VIA. Therefore the essentials of the concept of application of income under the provisions of the Income Tax Act are : 1. whether self-imposed or gratuitous. TOTAL INCOME [Sec. 2000 (21 of 2000). whether kept in the written form or as printouts or data stored in a floppy. account-books and other books. other than by way of account payee cheque u/s 69D. tape or any other form of electromagnetic data storage device. interest. The charge / obligation is on the source of income and not on thereceiver. BOOKS OF ACCOUNT [Sec. Application of Income An obligation to apply income. day books. Examples of diversion by overriding title are (a) Right of maintenance of dependants or of coparceners on partition (b) Right under a statutory provision (c) A charge created by a decree of a Court of law. Income reaches the assessee 3. fine or any other sum payable.
means the husband. not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits. the resulting company in consideration of such transfer of undertaking. constituted or formed as a result of demerger. as defined under clause (7A) of section 2 of the Insurance Act. which has been granted a certificate of registration under section 3 of that Act. 7] The following income shall be deemed to be received in the Previous Year : (i) Employers contribution to recognized provident fund in excess of 12% of salary and interest credited to the recognized provident fund in excess of 9.IB or a project for constructing a hospital with at least one hundred beds for patients. means a person who is the beneficial owner of shares. CHARGE OF INCOME TAX [Sec. INFRASTRUCTURAL CAPITAL FUND [Sec. 1908 established to raise monies by the trustees for investment by way of acquiring shares or providing long-term finance to any enterprise or undertaking wholly engaged in the business referred to in subsection (4) of section 80-IA or sub-section (1) of section 80. 1938 (4 of 1938). 2 (32)] Person who has a substantial interest in the company.5% 8 Applied Direct Taxation .2(26A)] “Infrastructure capital company” means such company which makes investments by way of acquiring shares or providing long-term finance to any enterprise or undertaking wholly engaged in the business referred to in subsection (4) of section 80 –IA or sub-section (1) of section 80-IAB or an undertaking developing and building a housing project referred to in sub-section (10) of section 80. issues shares to the shareholders of the demerged company and includes any authority or body or local authority or public sector company or a company established. and (iii) tax is levied on the total income of every assessee RECEIPT OF INCOME . wife. 2(26A)]. (ii) usually.THE SOURCE OF INCOME TAX LAW RELATIVE [Sec. [ Sec 2(26B)]. 2(41)] In relation to an individual. brother or sister or any lineal ascendant or descendant of that individual. 1961 the following basic principles are followed while charging incometax— (i) income-tax is a tax on the annual income of an assessee. In the case of a non-corporate entity.IAB or an undertaking developing and building a housing project referred to in sub-section (10) of section 80-IB or a project for constructing a hotel of not less than three star category as classified by the Central Government or a project for constructing a hospital with at least one hundred beds for patients. carrying not less than twenty per cent of the voting power. 2(41A)] It means one or more companies (including a wholly owned subsidiary thereof) to which the undertaking of the demerged company is transferred in a demerger and. the income of the Previous Year (PY) is charged to the following Assessment Year (AY) at the prescribed rate fixed by the relevant Financial Act. 4 of the Income-tax.[ Sec. a person can be said to have substantial interest if 20% or more share of profit is held.2(26B)] “Infrastructure capital fund” means such fund operating under a trust deed registered under the provisions of the Registration Act. 2(28BB)] It means an insurer being an Indian insurance company.DEEMED INCOME [Sec. RESULTING COMPANY [Sec. INSURER [Sec. SUBSTANTIAL INTEREST [Sec. INFRASTRUCTURAL CAPITAL COMPANY [Sec. in relation to a company. 4] According to sec.
1948. whether such accumulated profits have been capitalised or not . 1946. not being a company in which the public are substantially interested. shall not include capital gains arising before the 1st day of April. whether capitalised or not . (e) any payment by a company. to the extent to which it is so set off. and before the 1st day of April. DIVIDEND INCOME [Sec. 1956 (1 of 1956). (ii) any advance or loan made to a shareholder [or the said concern] by a company in the ordinary course of its business. 8] Dividend include— (a) any distribution by a company of accumulated profits whether capitalised or not. or deposit certificates in any form. debenture-stock. by way of advance or loan to a shareholder. (ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March. to the extent provided in sub rule (4) of rule 11 of part A of fourth schedule. of any sum (whether as representing a part of the assets of the company or otherwise) [made after the 31st day of May. (v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company) Explanation 1. to the extent to which the company in either case possesses accumulated profits. where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets . (b) any distribution to its shareholders by a company of debentures. wherever it occurs in this clause. to the extent to which the company possesses accumulated profits. or after the 31st day of March. 1987. Applied Direct Taxation 9 . being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power. where the lending of money is a substantial part of the business of the company . (iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act. 1933.—The expression “accumulated profits”.(ii) The transfer balance in a recognized provident fund. (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e). (c) any distribution made to the shareholders of a company on its liquidation. and any distribution to its preference shareholders of shares by way of bonus. or for the individual benefit. of any such shareholder. whether capitalised or not . But “dividend” does not include— (i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration. 1956. to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation. (d) any distribution to its shareholders by a company on the reduction of its capital. 1964. whether with or without interest. if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company . or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf. to the extent to which the company possesses accumulated profits85 which arose after the end of the previous year ending next before the 1st day of April.
the assessee will lose the benefit of deduction available to him under that head.4 “HEADS OF INCOME” [Sec 14] Significance of Heads of Income : 1. On the other hand capital expenditure is not deductible while computing taxable income unless the law expressly so provides.—The expression “accumulated profits” in sub-clauses (a).—For the purposes of this clause. It may be observed that : A receipt in substitution of a source of income is a capital receipt while a receipt in substitution of an income is a revenue receipt. (d) and (e). If any income is charged under a wrong head of income. There is no specific provision in the Act to distinguish between a capital receipt and revenue receipt. The distinction between a capital receipt and a revenue receipt should be perceived based on the facts and circumstances of each case. Explanation 3. CAPITAL AND REVENUE RECEIPTS The objective of the Income-tax Act is to tax only income generally revenue receipts unless specifically exempted. 3. However. or a firm or an association of persons or a body of individuals or a company . (iv) Capital expenditure is a nonrecurring expenditure whereas revenue expenditure is normally a recurring one. where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force. from the facts and circumstances of each case and from the judicial decisions the following general principles to be kept in mind : (i) Capital expenditure is incurred in acquiring. other than a company. 2. (b) a person shall be deemed to have a substantial interest in a concern. beneficially entitled to not less than twenty per cent of the income of such concern. (b). The Act has self contained provisions in respect of each head of income. An amount received as a compensation for surrender of certain rights under an agreement is a capital receipt whereas an amount received under an agreement as compensation for loss of future profit is a revenue receipt. The income chargeable under a particular head cannot be charged under any other head.— (a) “concern” means a Hindu undivided family. Neither the capital expenditure nor revenue expenditure has been defined in the Act. 2. at any time during the previous year. (iii) Capital expenditure makes improvement with earning capacity of a business whereas a revenue expenditure maintains the profit making capacity of a business. (ii) Capital expenditure incurred for enduring benefits whereas revenue expenditure is consumed within a Previous Year . extending or improving a fixed asset whereas revenue expenditure is incurred in the normal course of business as a routine expenditure. shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses. 10 Applied Direct Taxation .THE SOURCE OF INCOME TAX LAW Explanation 2. CAPITAL AND REVENUE EXPENDITURE In computing taxable income normally revenue expenditure incurred for the purpose of earning income is deductible from revenue receipt unless the law provides specific rules to disallow such expenditure wholly or partly. include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place]. if he is. On the other hand capital receipts are not chargeable to tax except when specifically provided in the Act.[but shall not. and in sub-clause (c) shall include all profits of the company up to the date of liquidation.
Income from house property is taxable only on accrual basis. (c) Preliminary Expenses distributed over five years. Interest on loans and advances from banks and financial institutions.e) year of accrual. provision for leave encashment.55A) Chapter IV-F OtherSources (56 . Method of accounting is irrelevant. Exceptions : Certain payments are allowable only on actual payment basis. bonus or commission etc. Taxable on due basis or on receipt basis. Accrual concept does not hold good (a) Employer’s contribution to PF. 1. Fees to Government. whichever is earlier. Cess.17) Chapter IV-C House Property (22 . Duty. 2. 2. (d) Amalgamation / Demerger Expenses distributed over five years. ESI. The method of accounting is not relevant for taxing the income under the head capital gains. (b) Telecommunication Licence Fee is allowable in instalments only from the year of payment. Chapter IV-E Capital Gains (45 . 2. 1. (e) Amount paid in connection with Voluntary Retirement Scheme distributed over five years.27) Chapter IV-D Business Income (28-44DB) Relevance of Method of Accounting 1. Tax. Method of accounting is not relevant. 1. U/s 145 assessee may follow either on Cash or Mercantile system of accounting regularly employed by the assessee. Income from capital gains shall be taxable during the previous year Capital Gains in which the Capital Asset is transferred (i.59) Applied Direct Taxation 11 .Relevance of method of accounting for heads of income : Heads of Income Chapter IV-A Salaries (15 . 2. U/s 145 assessee may follow either Cash or Mercantile system of accounting regularly employed by the assessee.
3.3 Introduction Residential status of Individuals Residential status of Hindu Undivided Family Residential status of a Company Residential status of Firm and Association of Persons Residential status of Every Other Person Status and Incidence of Income-Tax 3.1.6(1)] Residential Status – Classification Resident Resident and Ordinarily Resident (ROR) Resident but not Ordinarily Resident (R NOR) Non-Resident (NR) 1. 2(31) of the Act. for each assessment year under consideration to determine the scope of total income.RESIDENTIAL STATUS AND TAX INCIDENCE RESIDENTIAL STATUS AND TAX INCIDENCE This Study Note includes • • • • • • • STUDY NOTE . 12 Applied Direct Taxation . 3.1 INTRODUCTION 3.1 Residential Status The residential status of a person as refered in Sec.2 RESIDENTIAL STATUS OF INDIVIDUALS [SEC. Basic Conditions: (a) If the Individual stayed in India for a period of 182 DAYS OR MORE during the Relevant Previous Year (RPY) he is Resident of India (OR) (b) If he stayed in India for a period of 60 DAYS OR MORE during Relevant Previous Year (RPY) and 365 DAYS OR MORE during the four preceding previous years he is Resident of India.1. • The onus of responsibility to prove the residential status is on the assessee. • The residential status shall be determined for every person for each previous year independently.2 Importance • Total income of an assessee cannot be determined without knowing his residential status.
Status of an Individual Resident and ordinarily Resident u/s 6(6) Resident but not ordinarily Resident u/s 6(6) Non Resident Basic condition Satisfies Satisfies Fails to satisfy Additional condition/(s) Satisfies both the conditions May or may not satisfy any of the additional condition Not required to check 3. Special Exceptional Situations: For the following persons. Indian Company 2. Physically present in India for at least 730 days during the 7 preceding previous years. Additional Conditions: Sec.If the above two conditions are not satisfied.4 RESIDENTIAL STATUS OF A COMPANY [SECTION 6 (3)] 1. A suitable table is given below : Applied Direct Taxation 13 . 2.5 STATUS AND INCIDENCE OF INCOME-TAX The incidence of tax on a tax-payer depends on his residential status as well as on the place and time of accrual or receipt of income. he shall be deemed to be a resident for all other sources of income also. Indian citizen.6(4)] Control and Management is 1. Resident in India for at least 2 years out of the preceding 10 previous years. 6(6)(a) 1. Indian citizen or person of Indian origin.Control and management is (a) Wholly in India (b) Wholly or partly outside India Resident Resident Non-resident If a person is a resident for one source of income in a previous year. Note: The day on which he enters India as well as the day on which he leaves India shall be taken into account as the stay of the Individual in India. SEC. Wholly or partly in India 2. visiting India.3 RESIDENTIAL STATUS OF HUF/FIRM/AOP/EVERY OTHER PERSON [Sec. or (b) Indian Citizen being a crew member of an Indian ship leaving India. [Section 6(5)] 3. he is NonResident. leaving India for employment outside India. Wholly outside India Residential Status Resident Non-resident 3. condition mentioned in 1(a) above only shall apply to determine their Residential Status (a) Individual. or (c) Individual. Other Companies . 6(2).
covered under exception No. Income earned and received outside India but later on remitted to India. During this period he was in India for 137 days (30+31+30+31+15). Income received and accrued outside India from a business controlled from outside India or profession set up outside India. resident in India. and he has statyed for more than 730 days during the seven years preceding the previous year 2011-12. He is.11. Solution : For the assessment year 2012-13. after about 30 years’ stay in India. Indian citizen and businessman Shri Hari. Resident Resident but not ordinarily resident Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes No No Tax incidence in case of — Nonresident Yes Yes Yes Yes No No No Total a to f a to e a to d PROBLEMS ON RESIDENTIAL STATUS AND TAX INCIDENCE Problem 1. Income accruing or arising in India whether received in India or outside India. d. 2001-2002 to 2010-11). He returns to India in June 2011 to join an American company as its overseas branch manager. resident and ordinarily resident in India for the assessment year 2012-13. g. 14 Applied Direct Taxation .2012. (a) Determine residential status of Shri Hari for the assessment year 2012-13. As he is not in India for 182 days.e. the year 2011-12 is the previous year. went to France for employment purposes on 15. Determine his residential status for the assessment year 2012-13. He is resident in India for 2 years out of 10 years (i. c. Income received and accrued outside India from a business controlled in profession set up in India f.2011 and came back to India on 10. returns to America on January 29. (b) Will your answer be different if he had gone on a leisure trip? Solution : (a) The privious year for the assessment year 2012-13 is 2011-12. X is in India for more than 274 days. therefore.8. therefore. e. he does not satisfy the first condition of category A. 2009. Income deemed to accrue or arise in India. He has never been out of India in the past.. He is. Income received in India whether accrued in India or outside India b. During 2011-12.RESIDENTIAL STATUS AND TAX INCIDENCE Particulars of Income a. who resides in Kolkata. Income deemed to be received in India whether accrued in India or outside India. X. 1 where 60 days will be substituted by 182 days. The second condition of category ‘A’ is also not satisfied because he is a citizen of India and leaves India during the previous year for employment outside India and is therefore.whether received in India or outside India. Problem 2.
Similarly. resident in India.2010 for employment in Denmark. received in India (ix) Land sold in Delhi. (ii) resident but not ordinarily resident. an Indian citizen left India for the first time on 21. although he was here in the four preceding previous years for more than 365 days as he was permanently in India but for the relevant previous year 201011 he should have been here for 182 days instead of 60 days as he is a citizen of India and leaves India in 201011 for employment abroad.00.00. Problem 3. sales being received in India 2.000 2.2011. set up in Germany. As regards the second condition.9. controlled from India. consideration received in Canada. (vi) Interest on USA Development Bonds and one half of which was received in India (vii) Past foreign untaxed income brought to India (viii) Gift of $1000 from father.50. ‘B’. Applied Direct Taxation 15 .2011 for 150 days. half of the profits being received in India.000 75. the period of 60 days will be substituted by 182 days as he is a citizen of India.(b) In this case.000 2. situated in Nairobi and received there (iv) Income from agriculture in Bangladesh and brought to India (v) Dividend-paid by an Indian company but received in London on 15 May 2011.000 22. controlled from India.000 80. Determine the residential status of ‘B’ for assessment years 2011-12 and 2012-13. The exception will not be applicable to him because he did not leave India for the purpose of employment. he will be a Non-Resident in India even for previous year 2011-12. In this case also.000 Determine his taxable income for the previous year 2011-2012 if he is (i) resident and ordinarily resident.8. (iii) non-resident. Subhash discloses following particulars of his receipts during the Previous Year 2011-2012: (i) Salary income earned at Pune but received in Srilanka (ii) Profits earned from a business in Kenya which is controlled in India. Non-Resident in India.50. does note satisfy the first condition.000 4. The status of the assessee for the previous year 2011-12 will in this case be resident and ordinarily resident in India.5. although he does not satisfy the first condition of category A. Solution : During the previous year 2010-11 ‘B’ was in India for 174 days (30+31+30+31+31+21) and therefore.000 2. He niether satisfies the first.000 44. Therefore. He is therefore.10.20.000 68. profits being received outside India (xi) Loss from foreign business. resulting into capital gain (x) Income from structure-designing constancy service. during the previous year 2011-12 he visits India for 150 days. settled in USA. (iii) Income from property. He satisfies both the conditions of category B because he was always been in India before 15.000 (-) 2. nor the second condition and is therefore. he satisfies the second condition as he was in India for more than 60 days in the relevant previous year and was also here for more than 365 days during four preceding previous years. Problem 4. During the previous year 2010-11 he comes to India on 5.
Hence.000 — — — 16 Applied Direct Taxation . any dividend paid. it is not the income of the previous year 2010-2011. controlled in India: (a) One half of profits are taxable on receipt basis (b) Other half profits—from foreign business controlled in India (in case of resident and ordinarily resident.000 2. declared or distributed by a domestic company on or after 1 st April 2005 is exempt from tax under Sec. it is not taxable in case of “not ordinarily resident” and “non-resident”. situated in India.10. Furthermore.10. it is income accruing or arising outside India.000 1.50. Therefore. (viii) Gift from a relative is not taxable.000 22. Hence. 9(1)(ii)]. However.000 1.50.10. 10(34). 10(1).10. such dividend is not taxable. Resident Resident but Nonand ordina. It is not income received in India.000 — — — — — — — 22.RESIDENTIAL STATUS AND TAX INCIDENCE Solution : Particulars of Income (i) Salary earned at Pune but received at Sri Lanka: Salary is deemed to accrue or arise at a place where services are rendered. Hence. It should be noted that it is not agricultural income/as it is not derived from land.000 1. In case of “ordinarily resident”. (vi) Interest on USA Development Bonds: (a) One half is taxable on receipt basis (b) Other half is taxable only in case of “ordinarily resident” as it is foreign income accruing or arising outside India (vii) Past untaxed foreign income brought to India. place of control is of no relevance) (iii) Income from property in Nairobi and received there: Income accruing or arising outside India (iv) Income from agriculture in Bangladesh and brought to India: It is not income received in India as receipt means first receipt.000 1.000 — — 22. it is taxable in all cases (ii) Profits earned from a business in Kenya.50.000 — — — 22.000 — 75. (v) Dividend paid by an Indian company but received in London: Dividend paid by an Indian company is deemed to accrue or arise in India. place of receipt being immaterial [Sec.000 68.not ordinarily resident rily resident resident ` ` ` 2.000 1. and hence not derived from under Sec.000 2. it is taxable. it is not taxable in any case.10. Hence.
control and management applies to business and not to professions.000 (viii) Interest on foreign bank deposit.32.30. 1.00. As sales were received in India. controlled from India-: Income includes loss also. (ii) resident but not ordinarily resident.50.50. 70) Total Income 2.000 collected by him in India for foreign exporters. and (iii) non-resident Applied Direct Taxation 17 . received in India 1.000 (-) 2.000 — 2.000 Bank deposit was made out of funds gifted by grandfather (ix) A German company credited commission to his bank account outside India 1. profits being received outside India: Taxable in case of “ordinarily resident”. set up outside India.000 were received in India Total depredation 2.07. the place of control and management is not relevant. Hence. as income accruing arising outside India and received outside India [Sec. Business loss can be set off against business profits and thereafter against the income of any other head except income from salary and chance winnings (Sec. received by his minor son in India.60. w. Proviso] (xi) Loss from foreign business.000 instruction through Bank of Patiala Determine his taxable income for the previous year 2011-2012 if he is (i) resident and ordinarily resident.50. earns the following incomes during the previous year 2011-2012 : Particulars ` (i) Profits from a business in Mumbai.50.70. it is not taxable [Sec.75.(ix) Capital gain is deemed to accrue or arise in India [Sec.80.000 extended to Oman and managed from Kenya (vi) Profit on sale of machinery in India but received in Italy 1.26.000 — (-) 2. Mr. 1.000 5. 9(1)(i)] (x) Income from consultancy profession. 5(1) (c) r. 5(1)(c)] In case of “not-ordinarily resident”.000 40.70. which was set up in India.000 with the permission of the Reserve Bank of India (iii) Income from property in Kuwait.000 2. as it is not income from profession set up in India. from business Kuwait 50% of profits 2.20.00.000 (vii) Profits.58.42.000 (iv) Profits from business in Nepal and deposited in a bank there 12.000 for sale of goods by him in India (x) Commission earned and received by him outside India on export orders 2. without any authority being given to him by them (xi) Dividends remitted in India by an Egyptian company to him under his 1.000 (-) 2. Indian citizen.000 (ii) Pension for services rendered in Kenya but kept with State Bank in Kenya 1. managed from France 6.00. before allowing depreciation.00.000 (v) Income received in Oman from a profession.000 Problem 5.000 11.000 4.Tajuddin. Profits are imbedded in sales.
situated in Kuwait but received in India (iv) Profits from business in Nepal and deposited in bank there: Income accruing or arising outside India (v) Income from profession in Oman which was set up in India.000 6.75. managed from France : Income from business accrues at the place where business is done.75.000 2.500 is to be allowed under Sec. 32(2)] (viii) Income of a minor child is included in total income of that parent whose income. Its control and management is not relevant (vi) Profit on sale of machinery in India but received in Italy: Income from asset situated in India is deemed to accrue or arise in India.000 18.104.22.168. 9(1)(i) w.00.000 1.30.500 — 14.70. Hence.f.000 1.000 — — 1.00.68.58.30.000 1. received there.30.000 1.000 2. 9(1)(i)] (x) Commission earned and received outside India on export orders collected in India is deemed to accrue or arise in India [Explanation 2 for Sec.26.26. 10(32)] (ix) Commission from German company received outside India is deemed to accrue or arise in India because of business connection in India [Sec.69.000 1.000 1.20.00.20.000 1.68.000 — 1. 64(1 A).58.80.000 (-) 1.20.000 1. AY (2007-2008) (xi) Dividends from foreign company received outside India Total Income 18 6. Hence.22. however. managed from there: Foreign income accruing or arising outside India from a profession set up in India is taxable in case of ROR and RNOR.22.214.171.1240 1. place of management being of no relevance.000 6.000 — 1.000 — 1.e.50.000 (-) 2.58.RESIDENTIAL STATUS AND TAX INCIDENCE Solution : Particulars of Income Resident and ordinarily resident ` Resident but Non-resident not ordinarily resident ` (i) Profits from a business at Mumbai.500 1. an exemption up to Rs 1.000 17.000 1.500 Applied Direct Taxation .000 2. received there: received there: Pension is deemed to accrue or arise at a place where services were rendered (iii) Rent of house property.000 12.000 1. it is taxable in all cases (ii) Pension for services rendered in Kenya.000 1.500 — 16.26. before including such income is greater [Sec.25. it is taxable in all cases (vii) Profits from foreign business: Depreciation of foreign business It can be set off first from business profits and thereafter against the income of any other head [Sec.500 1.000 (-) 1.
6(6)(a) are not satisfied.2011-12 ding PY 2011-12 151 days Nil 151 days Previous year of house property when it is acquired on 1 October 2011 instead of 2 October 2011.000 1.000 1. Would you change your answer if house property is purchased on 1 October 2011? Solution : (a) Determination of Residential Status for the PY 2011-2012. Applied Direct Taxation 19 .60.50.000 2. He purchased a house property on 2 October 2011. Mr J settled in Japan.e.00.2011-12 ding PY 2011-12 181 days Nil 181 days Condition (a) Condition (b) (i) (ii) Stay in Stay in Stay in India India India during PY during 4 during 2011-12 years. he will be resident but not ordinarily resident. comes back to India on 25 August 2011 to settle down here permanently.000 6. total income for the previous year 2011-2012. PY prece. controlled from India but received there Deposit in public provident fund 2. ` (i) (ii) (iii) (iv) (v) (vi) Income from house property Business profits Loss from speculation business Dividends from Japanese companies received there Profits from Japan business. . Condition Condition (a) (b) (i) (ii) Stay in Stay in Stay in India India India during 4 during during PY 2011. PY prece.Sec. during 2012 precePY ding PY 2011-12 2011-12 182 days Nil 182 days 182 days Not satisfied 365 days 60 days 182 days 365 days Not satisfied 60 days 182 days Satisfied 365days 60 days Notsatisfied Notsatisfied Non-resident Notsatisfied Non-resident Resident As additional two conditions of Sec.25.Problem 6. Particulars Previous year of house property. He disclosed the following incomes/outgoing during the financial year 2011-2012.6(1) Previous year of business or profession.000 Determine the residential status. 2010-2011 to 2007-2008 Minimum stay required in India Comment Conclusion Condition (b) (i) (ii) Stay in Stay in Stay in India India India during PY during 4 during 2011-12 years.years. set up on 1 November 2011 Stay in India during the PY 2011-2012 and during 4 years preceding PY 2011-12 i. purchased on 2 October 2011 Condition (a) Conditions of Part A .000 40.85. He started business on 1 November 2010.
Karim taking following particulars into account: Previous Year Physically present in India (no.2002– 20012005 2004 2003 2002 75 190 150 80 Particulars of total income : (i) Gross dividend received in Russia on 31 December 2011 from a company registered in India but mainly operating in Russia. received in UK (vii) Gross salary for services rendered in Dhaka but received in Mumbai Would you change your answer in the following cases: (i) During the previous year 2011-2012.50.000 — — 8.35.000 (-) 40.000 Problem 7.75. of days) 20112012 60 2010.000 3.000 20 Applied Direct Taxation .00.RESIDENTIAL STATUS AND TAX INCIDENCE (b) Computation of total income for the PY 2011-2012: Particulars of Income (i) Income from house property (ii) Profits and gains from business or profession: (a) Profits from Indian business (b) Profits from Japan business. controlled from India but received there (c) Loss from speculation business cannot be set off (Sec.000 1.20. she stays in India for 59 days instead of 60 days.25. 73).000 1. operating in India.50. controlled from Pakistan. (ii) Pension from former employer in India received in Romania (iii) Income from agriculture in Bhutan and received in India (iv) Profits from a USA business.00.000 6.000 20. she stays in India for 74 days instead of 75 days. (iii) Income from other sources: Dividend from Japanese company received ther Total Income Less: Deduction u/s 80C— Deposit in PPF Total Taxable Income Nonresident ` Resident not ordinaly resident ` 2.000 6. received in Pakistan (vi) Dividends from a UK company.000 (-) 40.000 50.000 10. (ii) During the previous year 2004-2005.00.25.50.75. controlled from India but received there (v) Profits from Delhi business.000 2.000 2. Determine the total income and tax liability of Mr.000 8.2003. It will be carried forward to be set off against speculation business during next 4 assessment years.20092011 2010 182 78 20082009 95 20072008 120 20062007 80 20052006 100 2004.00.000 10. ` 1.000 — — — 2.35.
e. 5. 2011-2012. i. 8. he should be resident in or more or more India at least for 2 years out of 10 years preceding the previous year and he should be in India at least for 730 days in 7 years preceding the PY. failing which he will be NOR.Solution : Particulars Resident Condition of Part A [Sec. 6. 7 years preceding preceding PY PY 2011-2012. 3.6(6)(a)] 182 days Not satisfied Residential Stay in India during status in 10 years.e. i.e. 2010-2011 to 2001-2002. i. 10. i. No. S. 2. Previous Year 2010-2011 2009-2010 2008-2009 2007-2008 2006-2007 2005-2006 2004-2005 2003-2004 2002-2003 2001-2002 Stay in India in PY 182 days 78 days 95 days 120 days 80 days 100 days 75 days 190 days 150 days 80 days Stay in India in 4 years preceding PY Not required 395 375 445 515 495 420 Not required 80 days Nil Comment Resident Resident Resident Resident Resident Resident Resident Resident Non-resident Non-resident Applied Direct Taxation 21 . 4. 1. 9. 365 days 60days To be ROR. 7. 2010-2011 2010-2011 to to 2001-2002 2004-2005 475 60 (i) Resident for 8 730 days years 2001-2011 to 2003-2004 (ii) Non-resident for 2 years 20022003 and 2001-2002. 2010-2011 to 2007-2008 Minimum stay/ Residential status required in India Comment 60 days Resident & ordinarily resident (ROR)/ Not ordinarily resident Conditions of Part B [Sec. 6(1)] Condition (a) Condition (b) Stay in (i) Stay in (ii) Stay India India during in during 4 years India PY preceding during 2010-2011 PY PY Stay in India during the PY 2011-2012 and during 4 years preceding PY. Satisfied Condition of ROR satisfied Workings: Resident status in 10 years preceding PY 2011-2012.e.
000 22 Applied Direct Taxation .000 2.000 3. acquired by Government of India during the financial year 2006-2007 (vii) Profit from business in Japan.00.70.000 60.00.000 — — 20.00.000 8.70.00.000 2.00.00.90.000 2.90. 10(34)] (b) Dividend from a UK company. ` (i) Income from house property in Japan. a Japanese national discloses the following particulars of his income during financial year 2011-2012.000 (-) 3.000 2. Kimono.000 ` 2.000 2.45.20.000 Problem 8. deemed to accrue or arise in India (iii) Income from other sources (a) Dividend received in Germany from a domestic company is exempt [Sec.000 20. received in UK 2.70.000 Non-resident ` RNOR ` ROR ` (ii) Income from business: (a) Agriculture income from Bhutan.000) (vi) Interest received on compensation of land.000 — 1. remitted by tenant to him in India through State Bank of India (ii) Loss from business in India (iii) Profits from speculation business in India (iv) Interest received on bonds of Indian companies outside India (v) Net dividends received from Japanese companies outside India (tax deducted at source Rs 15.35.00.50. controlled and managed from India but being received in Japan Determine his total income for the previous year 2011-2012 in the following cases : (i) He is resident and ordinarily resident during the previous year. (iii) He is non-resident during the previous year.000 2.000 — — Total Income 4.90.70.000 ` 2.00.000 7.00.000 3.000 20.000 1.000 ` 20.00. (ii) He is resident but not ordinarily resident during the previous year.RESIDENTIAL STATUS AND TAX INCIDENCE Computation of total income Particulars (i) Income from salaries (a) Pension deemed to accrue or arise in India (b) Gross salary received in India 1. received in India (b) Profits from USA business/controlled from India but received in USA (c) Profit from Delhi business.000 1. 4.
000 Problem 9. However.00. received outside India 20.000 of tax source (Rs 15.000 firms in India. (Sec.Solution : Computation of Total Income for PY 2011-2012 Particulars (i) Income from house property in Japan received in India (ii) Loss from business in India to be set off against business profits and thereafter against any other income except salary income and winning from lotteries/horse race etc. not accruing or deemed to accrue or arise in India (vii) Interest for land compensation taxable on accrual basis: 60.000 annual profits.00.000 26.000) (iii) Fees received in Qatar for arguing a patent case in Delhi High Court on 2. received in India.000 2.00.000 1.000.20.45.000 ` Resident but Non-resident not ordinarily resident 4.000 (-) 3. He has purchased the dealership rights from Mumbai Law House on 1 January 2012. currently there is no buyer in the market (ii) Pension remitted to him in India by Sri Lankan Government after deduction 1.00.70.000 Determine his total income for the previous year 2011-2012 if his residential status during the previous year is (i) ROR. control and management of foreign business in India is not relevant in the case of non-resident (v) Interest on public sector companies in India deemed to accrue or arise in India though received outside India (vi) Dividends of Rs 1.000 — 10. commission has been paid after setting off Rs 30.00.35.000 (vi) Income from law practice in Mauritius and Qatar.50.000 2.000 — 1. but practice was set up in Delhi 6.000 Dividends were received partly in cash and partly in shares. for referring clients from outside India but commission was received in Mauritius (v) Share of income from his HUF. received in Kolkata 1.00.000 10.)] Total Income Resident and ordinarily resident 4.000 4.000 behalf of a fellow-lawyer friend of Mumbai (iv) Commission credited to his account in India under his instructions by law 1.000 (-) 3. Applied Direct Taxation 23 .000 1.000 ` ` 4.000 20.90.00.00.000 ÷ 6 = [Rama Bai v.000 (-) 3. received there. Rs 20.00.000 — 10.C.45. Face value of shares is Rs 80.20.00. R discloses the following particulars of his income during the previous year 2011-2012 : Particulars ` (i) Dividends from Sri Lankan companies received in India 4.55.00.000 20.000 24. CIT (1991) 181 ITR 400 (S.35.000 received received outside India.00.000 2.000 received from Japanese companies outside India.000 for books purchased by him.45.00.00.00.000 2. 70) (iii) Profits from speculation business in India (iv) Profits from business in Japan.80. (viii) Gift from a foreign client.55. or (ii) NOR or (iii) NR.000 but their market value is Rs 3.000 (vii) 5% commission for the year 2011-2012 from publishers of law books on their 1.
000 — — 1.20. extended outside India: Income being received outside India Commission on account of dealership rights. Particulars ` (i) Interest received in Egypt on monies lent to E Ltd.000 1.000 in Egypt.20.00.00. to a customer in Malaysia.00. Bonds and Debentures were purchased in convertible foreign exchange.00.50.00. 10(2)] Income from profession set up in India. whichever period expires later 24 Applied Direct Taxation .20. 80% Business of E Ltd.00.50.80. if computed in foreign currency will be 60% less than what it is in Indian currency (viii) Under-writing commission for guaranteeing the public issue of a Malaysian 6.000 3.20.50.00. It satisfies all conditions of the Income-tax Act.000 in India through Bank of Ceylon (v) Profit on sale of goods to a new customer in Myanmar.00.000 2.000 8.000 directly dispatched to him (vii) Long-term capital gain received on sale of Bonds and Debentures of Indian 1.80.20.000 companies in Myanmar. cargo documents were 60. a company registered 5.000 — 6.000 State Bank of India as per instructions of the firm (iv) Interest on Development Bonds of Sri Lanka Government remitted to the firm 5.000 sent through Bank of Baroda (vi) Profit on sale of goods FOB.50. CIT (1962) 44 ITR 720 (SC)] Share income received from HUF exempt from tax [Sec.. which utilised the borrowings in its business in India.000 company to be paid and received there subject to the condition that 20% commission will be paid either within 6 months from the end of the financial year Or within 3 months from the end of the month in which the approval of the Company Law Board is obtained.000 3.000 — — 17.70. received outside India [Sec. ABC & Co.000 15.000 1. cargo documents were 1.000 2.30. is a partnership firm.000 1.000 — — 2.RESIDENTIAL STATUS AND TAX INCIDENCE Solution : Computation of total income for PY 2011-2012 / AY 2012-2013 Particulars (i) (a) (b) (ii) (iii) (iv) (v) (vi) (vii) (viii) Dividend received in India Cash dividend Dividend in kind to be valued at market price of shares `3. but received in Ceylone—Income from business connection deemed to accrue or arise in India Commission credited to the account of payee under his instruction in the books of payer is a deemed receipt [Raghava Reddy v.000 80.000 1. is controlled from India (ii) Royalty received in Paris from a cooperative society for using patent rights of the 1.000 80. It discloses the following particulars of income for the previous year 2011-2012.000 Pension received outside India and not deemed to accrue or arise in India [CIT v. 28(iv)] Total Income ROR ` NOR ` NR ` 80.20.000 firm in its usiness in India. remitted to the firm in India through 90.000 20.000 Problem 10.000 3. 30% affairs of the society are controlled from India (iii) Income from house property in Bhutan. received in India @ 5% or the annual profits of the publishers: Commission not to be apportioned between seller and purchaser on time basis Gift from a foreign client. Kalyanakrishnan 195 ITR 534] Fees for arguing patent case in Delhi.000 1.000 — 6.00. Capital gain.00.000 1.00.
000 7.000 60. Particulars (a) Salary accrued and received in India (b) Profit from hotel business in Japan (c) Dividends declared in Japan received in India (d) Gain from transfer of capital asset in India (e) Interest on Debentures of a company in New York received in India (f) Royalty received in Germany from a resident in India for technical services provided for a business in Germany Applied Direct Taxation ` 25. The firm is non-resident in India.00. Royalty is deemed to accrue or arise in India (iii) Income from house property in Bhutan. for using using patent rights of the firm in its business in India. Accordingly.000 1. He controls the affairs of the firm from Malaysia.000 ` Problem 11.000 — 50.00. Jaikishan for the previous year 31-3-2012.000 Total Income 5.000 50.000 50. Compute Income for Mr. received by SBI in Bhutan as the agent of firm (iv) Interest on Development Bonds of Sri Lanka Government remitted to the firm in India— Bank of Ceylon being agent of its Government (v) Profit on sale of goods to a customer in Myanmar.000 25.10. K has been directed to keep J fully informed while he is in India. Solution : (a) Determination of residential status of the firm during PY 2011-2012: Control and management of the firm is wholly situated outside India.20. Situation (iii): Control and management is partly situated in India and partly outside India.000 15.00. (iii) J comes to India for 150 days. title deeds sent to Bank of Baroda (vi) Profits on sale of goods to a customer in Malaysia.000 90.000 10.000 25 . He has appointed K as his attorney to manage the affairs of firm in his absence in consultation with him. made outside India. interest is deemed to accrue or arise in India (ii) Royalty received in Paris from a cooperative society.00.00.Determine the total income of the firm in the following case: (i) J is the managing partner of the firm. He has appointed K as his agent in Malaysia to take all decisions in his absence regarding affairs of firm.00.80.00. (ii) J comes to India for 182 days during the previous year. Computation of Total Income Particulars When firm is When firm is nonresident in resident in India India (i) Interest on loan-advances.000 20.20. received outside India but loan was utilised for business in India.000 — 8.000 ` 5. However.000 40.000 1.000 — 1.000 4. Physical presence of managing partner for 182 days in India during the previous year 2011-2012 is of no consequence. The firm is “resident” in India during the previous year.000 1.000 1. cargo documents directly dispatched to the buyer— profit arises at seller’s place (vii) Capital gain on sale of bonds and debentures of Indian companies in Myanmar: It is deemed to accrue or arise in India (viii) Under-writing commission 80% of Rs 6.
000 is used in Bahrain for the educational expenses of his son in Bahrain. 60% of which is received outside India. a non-resident.000 Problem 12.000.000 — 6. but later on remitted to India.50. if Mr. Mr X furnishes the following particulars of his income earned during previous year 2011-12 : (i) Income from agriculture in Bangladesh.000 25. (iv) Arrears of salary ` 1. (vi) Income from business in Iran which is controlled from India (` 1. directly deposited in his book account in India Total Income 25. (v) Income from property received outside India ` 3. (iii) Gift of ` 70. carrying on business in UK for technical services rendered in London. (c) non-resident. one-sixth of which received in India.000 — 10.000 1.000 25.000.000 20.000.000 98.000 98.000 50.000 25. (b) resident but not ordinarily resident.80.000 25. ` 60.000 25.00. 6.000 — 6. directly deposited in his bank account in India. on loan provided to him for business in India (h) Fees from an Indian company carrying on business in the UK for technical services rendered in London.000 later on remitted to India).000.000 25. X is (a) resident and ordinarily resident. (ix) Profit (computed) on sale of building in India received in Pakistan ` 21.000 Solution : Computation of Total Income of Mr. (viii) Untaxed profit of the FY 2007-2008 brought to India in July 2010.00.06.68. a non-resident.50.000 (` 1. Find out gross total income of Mr. (x) Profit from business in Kolkata managed from outside India ` 90.50.00. ` 2. on loan provided on loan provided to him for business in India Fees from an Indian company.000 7.000 25.RESIDENTIAL STATUS AND TAX INCIDENCE (g) Interest received in UK from Mr.000 being received in India) ` 2. Jaikishan for the assessment year 2012-2013 Particulars ROR RNORs ` ` Nonresident ` (a) (b) (c) (d) (e) (f) (g) (h) Salary accrued and received in India Profit from hotel business in Japan Dividends declared in Japan received in India Gains from transfer of a capital asset in India deemed to accrue or arise in India Interest on debentures of a company in New York but received in India Royalty received in Germany from a resident in India for technical services provided for a business in Germany Interest received in UK from Mr Robert. (ii) Interest on Pakistani Development Bonds.000 received in foreign currency from a relative in India. Jaikishan for the relevant assessment year. 26 Applied Direct Taxation . (iii) Non-resident.000 25. Compute the total Mr. (vii) Dividends received on 30.000. and ` 2.00. X for AY 2012-2013.000 6.000 10.2011 outside India from an Indian company. ` 2.00. Robert.000 25.000 25.000 received in Pakistan from a former employer in India.000.000 7. (ii) Not-ordinarily resident.000 7.000 — 10. received there `3.00.000. if he is (i) Ordinarily resident.
000 — 1.000 10.000 — 10.000 — — 21.000 1.000 1.000 — 1.00.000 Applied Direct Taxation 27 .000 90.000 3.000 — — — 21. outside India.000 — — 1.00.80.000 being received in India (iii) Gift received from a relative in India: Exempt [Sec.000 90.00.000 — — 21. received there but later on remitted to India (ii) Interest on Pakistan Development Bonds: 1/6th of ` 60.000 — — 1.80.Solution : Computation of Gross Total Income for AY 2012-2013 Particulars (i) Income from agriculture in Bangladesh.000 — 10.50.000 90.50.00.000 — 1. received outside India deemed to accrue or arise in India (x) Profit from Kolkata business.000 32.000 25.00.000 1.00.50.00. deemed to accrue or arise in India but exempt under Sec.000 received in India 5/6thof ` 60. 10(34) (viii) Untaxed foreign profit of PY 2007-2008 brought to India (ix) Profit on sale of building in India.50.50.00.000 50. managed from outside India: 60% received outside India Gross Total Income ROR ` RNORs ` Nonresident ` 3.00. 57(v)] (iv) Salary arrears received in Pakistan from a former employer in India (v) Income from property received outside India but later on remitted to India (vi) Profit from Iran business controlled from India: (a) Profits received in India (b) Profits received outside India (vii) Dividends received from an Indian company.000 24.