CONNOTATION OF RECEIPT OF INCOME AND ACCRUAL OF INCOME

RECEIPT OF INCOME VS REMITTANCE

 The first occasion when the recipient gets the money under control.
 Income after the first receipt merely moves as remittance.
 Any transmission or remittance of the income to another place- not ‘receipt’ at the other place.
 Cannot receive the same income twice- once outside India and again inside India.
 The position of ‘income’ remains the same if it is receive outside India by an agent of eh assesse,
who later remits to India.
REVEIPT vs ACCRUAL
 Income is not the sole test of tax chargeability.
 If income is not charged on receipt basis, it is charged on accrual basis.
 DEEMED INCOME
• Not necessary that an income should be actually received in India in order to attract tax liability.
• An income that is deemed to be received in India in the previous year is also included in the taxable
income of the assesse.
• Few examples of Deemed income are as follows:
• Interest credited to recognized provident fund of an employee in excess of 9.5 percent.
• Excess contribution of employer in the case of recognized provident fund (i.e., the amount contributed in
excess of 12 per cent salsry)
• Transfer balance
• Contribution by the Central Government or any other employer to the account of an employee under a
notified pension scheme referred under 80 CCD.
• Tax deducted at source
• Deemed profit under Sec 41.
 CONNOTATION OF ACCRUAL OF INCOME
• Income accrued in India is taxable in India irrespective of the residential status.
• The words “accrue” and “arise” are used in contradistinction to the word “receive”.
• Income received- when it reaches the assesse ;
• Income is said to accrue or arise – when the right to receive the income becomes vested in the assesse.

CONNOTATION OF INCOME DEEMED TO ACCRUE OR ARISE IN INDIA

In some cases, Income is deemed to accrue or arise in India though it may actually accrue or arise outside India.
The categories of such income are:
income from business connection in India
• The tax payer has business connection in India
• By virtue of business connection in India, income actually arises outside India.

Income through or from any property, asset or source of income in India

 Income through the transfer of capital asset situated in India.

Income under the head” salaries”.

Salary payable abroad by the Government to a citizen of India.
Dividend paid by an Indian Company.
Income by way of Interest
 Received from the Government
 Received from Resident
 Exceptions:(a)interest received from a resident in respect of any debt incurred, or any money borrowed and used by
the payer of interest, for the purpose of business or profession carried on by the payer outside India; and
 (b) interest received from a resident in respect of any debt incurred, or any money borrowed and used by the payer
of interest, for the purpose of a making or earning income from any source outside India.
 Received from a non- resident: interest received from a non-resident shall be deemed to accrue/ arise in
India in the hands of recipient if it is in respect of any debt incurred, or money borrowed and used, for the
purpose of a business or profession carried on by the payer in India.
INCOME BY WAY OF ROYALTY/ FEES FOR TECHNICAL SERVICES
 Received from Government.
 Received from resident: is deemed to accrue or arise in India except where the payment is relatable to a
business or profession carried on by the payer outside India or to any other source of his income outside
India.
 Received from non- resident: is deemed to accrue or arise in India in the hands of the recipient if the
payment is relatable to a business or profession carried on by the payer in India or making or earning any other
source of income in India.

Illustrations:
(i) X is a non resident in India. Only Indian income is taxable in the hands of X in India. During the previous year
2017- 2018, he receives interest, royalty / technical fees on different dates. In all these cases, interest or royalty/
technical fees is received outside India. If in these cases, interest/ royalty / technical fee accrues or arises in India,
then it will be an Indian income and is taxable in India. If these income does not deem to accrue or arise in India, it
will become foreign income and will not be taxable in the hands of non-resident.
• On June 2017, Rs. 40, 000 - received from the government of India
• Deemed to accrue or arise in India because the interest/ royalty or technical fees is received from the Indian government by
a non resident. X is liable to pay tax on the income.

• On July 15 2017, Rs 88,000 is received from A Ltd.(resident in India) and the receipt pertains to a business or
profession carried on by A Ltd. outside India or earning any income by A Ltd. outside India.
• Income by way of interest/ royalty or technical fees is used for business or profession carried on outside India. Hence it
does not deem to accrue or arise in India. Hence the income is not taxable in India in the hands of X.

• On August 30, 2017 Rs.90,000 is received from B Ltd (resident in India) and the receipt pertains to a business or
profession carried on by B Ltd. in India or earning income in India.
• Income by way of interest/ royalty or technical fees is used for business or profession carried on in India . Hence the
income is deemed to accrue or arise in India. It is taxable in the hands of X.

• On September 2017 Rs. 83,000 is received from C Ltd. (non-resident in India) and the receipt pertains to a
business or profession carried on by C Ltd. in India and earning income in India.
• Income used for business or profession carried on in India. X is liable to pay tax in India.

• On February 2018, Rs. 76,000 is received from from D Ltd (non resident in India) and the receipt pertains to a
business or profession carried on by D Ltd. outside India and earning income outside India.- income used outside
India and hence X the income is not taxable in India in the hands of X.
ILLUSTRATION: J is a Karta of H.U.F. J comes to India for 200 days each year. Personal
income of J which is taxable is Rs. 98, 000 in India for the AY 2018- 19 and no other income
is derived by the individual. Find out the income of J (H.U.F) for the AY 2018- 2019
Name of the From where Income Income Income Total Income
Business is the earned in earned and earned and
Business India but received in received
managed and received India outside India
controlled outside India

A Partly from 30, 000 40.000 60,000 1,30,000

India and
partly from
Australia

B Wholly from 15,000 25,000 50,000 90,000

Nigeria
Total 45,000 65,000 1,10,000 2,20,000
 BUSINESS A: Control And Management partly from India and partly from Australia.
• Hence HUF is a resident for Business A.
• Karta J satisfies the additional conditions – (i) resident for 2 out of 10 previous years by
staying for 200 days each year and (ii) 730 days during the 7 years. Hence the HUF is a
resident and ordinarily resident.
• Determine the income as Indian income or Foreign income.
• ROR is liable to pay tax on the Indian income as well as Foreign income.
• Find the total income that is taxable by HUF
 BUSINESS B: Control and Management wholly from outside India.
• Hence HUF is a non resident for Business B.
• Determine the income as Indian income or Foreign income.
• Non resident pays tax on the Indian income but not on the Foreign income.
• Find the total income that is taxable by HUF.