02

Section A – Study Material Questions

Residential Status of Individuals
Qn. 1 Mr. Anand is an Indian citizen and a member of the crew of a Singapore bound Indian ship engaged
in carriage of passengers in international traffic departing from Chennai port on 6th June, 2022.
From the following details for the PY 2022-23, determine the residential status of Mr. Anand for
AY 2023-24, assuming that his stay in India in the last 4 PYs (preceding PY 2022-23) is 400 days:
Particulars Date
Date entered into the Continuous Discharge Certificate in respect of joining 6 June, 2022
th

the ship by Mr. Anand

Date entered into the Continuous Discharge Certificate in respect of signing 9th December, 2022
off the ship by Mr. Anand

Ans. In this case, since Mr. Anand is an Indian citizen and leaving India during PY 2022-23 as a member
of the crew of an Indian ship, he would be resident in India, only if he stayed in India for 182 days
or more.
The voyage is undertaken by an Indian ship engaged in the carriage of passengers in international
traffic, originating from a port in India (i.e., the Chennai port) and having its destination at a port
outside India (i.e., the Singapore port). Hence, the voyage is an eligible voyage for the purposes of
sec 6(1).
Therefore, the period beginning from 6th June, 2022 and ending on 9th December, 2022, being the
dates entered into the Continuous Discharge Certificate in respect of joining the ship and signing
off from the ship by Mr. Anand, an Indian citizen who is a member of the crew of the ship, has to be
excluded for computing the period of his stay in India. Accordingly, 187 days
[25+31+31+30+31+30+9] have to be excluded from the period of his stay in India. Consequently,
Mr. Anand’s period of stay in India during the PY 2022-23 would be 178 days [i.e., 365 days – 187
days]. Since his period of stay in India during the PY 2022-23 is less than 182 days, he is a non-
resident for AY 2023-24.

Qn. 2 Mr. B, a Canadian citizen, comes to India for the first time during PY 2018-19. During the FYs 2018-
19 2019-20, 2020-21, 2021-22 and 2022-23, he was in India for 55 days, 60 days, 90 days, 150 days
and 70 days, respectively. Determine his residential status for the AY 2023-24.

Ans. During the PY 2022-23, Mr. B was in India for 70 days and during the 4 years preceding the PY
2022-23, he was in India for 355 days (i.e., 55+ 60+ 90+150 days).
Thus, he does not satisfy sec 6(1). Therefore, he is a non-resident for the PY 2022-23

Qn. 3 Mr. Ram, an Indian citizen, left India on 22.09.2022 for the first time to work as an officer of a
company in Germany. Determine the residential status of Ram for the AY 2023-24.

Ans. U/s 6(1), an individual is said to be resident in India in any PY if he satisfies any one of the following
conditions -
(i) He has been in India during the previous year for a total period of 182 days or more, or
(ii) He has been in India during the 4 years immediately preceding the PY for a total period of 365
days or more and has been in India for at least 60 days in the PY.
In the case of Indian citizens leaving India for employment, the period of stay during the PY must
be 182 days instead of 60 days given in (ii) above.
During the PY 2022-23, Mr. Ram, an Indian citizen, was in India for 175 days only (i.e.,
30+31+30+31+31+22 days). Thereafter, he left India for employment purposes.
Since he does not satisfy the minimum criteria of 182 days stay in India during the relevant PY, he
is a non-resident for the AY 2023-24.
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Qn. 4 Mr. Dey, a non-resident, residing in US since 1990, came back to India on 1.4.2021 for permanent
settlement. What will be his residential status for AY 2023-24?

Ans. Mr. Dey is a resident in AY 2023-24 since he has stayed in India for a period of 365 days (more than
182 days) during the PY 2022-23.
As per sec 6(6), a person will be “Not ordinarily Resident” in India in any PY, if such person, inter
alia:
(a) has been a non-resident in 9 out of 10 PYs preceding the relevant PY; or
(b) has during the 7 PYs immediately preceding the relevant PY been in India for 729 days or less.
If he does not satisfy either of these conditions, he would be a resident and ordinarily resident.
For the PY 2022-23 (AY 2023-24), his status would be “Resident but not ordinarily resident” since
he was non-resident in 9 out of 10 PYs immediately preceding the PY 2022-23. He can be resident
but not ordinarily resident also due to the fact that he has stayed in India only for 365 days (i.e.,
less than 730 days) in 7 PYs immediately preceding the PY 2022-23.

Qn. 5 Bret Lee, an Australian cricket player visits India for 100 days in every FY. This has been his practice
for the past 10 FYs.
(a) Find out his residential status for the AY 2023-24.
(b) Would your answer change if the above facts relate to Srinath, an Indian citizen who resides in
Australia and represents the Australian cricket team?
(c) What would be your answer if Srinath had visited India for 120 days instead of 100 days every
year, including PY 2022-23?

Ans. (a) Determination of Residential Status of Mr. Bret Lee for the AY 2023-24:
Period of stay during the PY 2022-23 = 100 days
Calculation of period of stay during 4 preceding PYs (100 x 4=400 days)
PY 2021-22 100 days
PY 2020-21 100 days
PY 2019-20 100 days
PY 2018-19 100 days
Total 400 days
Mr. Bret Lee has been in India for a period of more than 60 days during PY 2022-23 and for a
period of more than 365 days during the 4 immediately preceding PYs. Therefore, since he
satisfies one of the basic conditions u/s 6(1), he is a resident for the AY 2023-24.

Computation of period of stay during 7 preceding PYs = 100 x 7 = 700 days

2021-22 100 days
2020-21 100 days
2019-20 100 days
2018-19 100 days
2017-18 100 days
2016-17 100 days
2015-16 100 days
Total 700 days
Since his period of stay in India during the past 7 previous years is less than 730 days, he is a
not-ordinarily resident during the AY 2023-24. (See Note below)
Therefore, Mr. Bret Lee is a resident but not ordinarily resident during the PY 2022-23 relevant
to the AY 2023-24.

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Note: An individual, not being an Indian citizen, would be not-ordinarily resident person if he
satisfies any one of the conditions specified u/s 6(6), i.e.,
(i) If such individual has been non-resident in India in any 9 out of the 10 PY preceding the
relevant PY, or
(ii) If such individual has during the 7 PYs preceding the relevant PY been in India for a period
of 729 days or less.
In this case, since Mr. Bret Lee satisfies condition (ii), he is a not-ordinary resident for the AY
2023-24.

(b) If the above facts relate to Mr. Srinath, an Indian citizen, who residing in Australia, comes on
a visit to India, he would be treated as non-resident in India, irrespective of his total income
(excluding income from foreign sources), since his stay in India in the current FY is, in any case,
less than 120 days.

(c) In this case, if Mr. Srinath’s total income (excluding income from foreign sources) exceeds ₹ 15
lakh, he would be treated as resident but not ordinarily resident in India for PY 2021-22, since
his stay in India is 120 days in the PY 2022-23 and 480 days (i.e., 120 days x 4 years) in the
immediately four preceding PYs.
If his total income (excluding income from foreign sources) does not exceed ₹ 15 lakh, he would
be treated as non-resident in India for the PY 2022-23, since his stay in India is less than 182
days in the PY 2021-22.

Residential Status of HUF

Qn. 6 The business of a HUF is transacted from Australia and all the policy decisions are taken there. Mr.
E, the karta of the HUF, who was born in Kolkata, visits India during the PY 2022-23 after 15 years.
He comes to India on 1.4.2022 and leaves for Australia on 1.12.2022. Determine the residential
status of Mr. E and the HUF for AY 2023-24.

Ans. a) During the PY 2022-23, Mr. E has stayed in India for 245 days (i.e.,
30+31+30+31+31+30+31+30+1 days). Therefore, he is a resident. However, since he has come
to India after 15 years, he does not satisfy any of the conditions for being ordinarily resident.
Therefore, the residential status of Mr. Aryan for the PY 2022-23 is resident but not ordinarily
resident (RNOR).

b) Since the business of the HUF is transacted from Australia and policy decisions are taken there,
it is assumed that the control and management is in Australia i.e., the control and management
is wholly outside India. Therefore, the HUF is a non-resident for the PY 2022-23.

Scope of Total Income

Qn. 7 From the following particulars of income furnished by Mr. Anirudh pertaining to the year ended
31.3.2023, compute the total income for the AY 2023-24, if he is:
(i) Resident and ordinary resident;
(ii) Resident but not ordinarily resident;
(iii) Non-resident

Particulars ₹
(a) Short-term capital gains on sale of shares in an Indian Company received in 15,000
Germany
(b) Dividend from a Japanese Company received in Japan 10,000

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(c) Rent from property in London deposited in a bank in London, later on remitted to 75,000
India through approved banking channels
(d) Dividend from RP Ltd., an Indian Company 6,000
(e) Agricultural income from lands in Gujarat 25,000

Ans. Computation of total income of Mr. Anirudh for AY 2023-24

Particulars ROR RNOR NR
(a) Short-term capital gains on sale of shares in an Indian Company 15,000 15,000 15,000
received in Germany
(b) Dividend from a Japanese Company received in Japan 10,000 - -
(c) Rent from property in London deposited in a bank in London 52,500 - -
[Note (i)]
(d) Dividend from RP Ltd., an Indian Company [Taxable] 6,000 6,000 6,000
(e) Agricultural income from lands in Gujarat [Note (ii)] - . - . - .
Total Income 83,500 21,000 21,000

Notes:
(i) It has been assumed that the rental income is the gross annual value of the property. Therefore,
deduction @ 30% u/s 24(a), has been provided and the net income so computed is taken into
account for determining the total income of a resident and ordinarily resident.
Particulars ₹
Rent received (assumed as gross annual value) 90,000
Less: Deduction u/s 24 (30% of ₹ 90,000) (27,000)
Income from House Property 63,000
(ii) Agricultural income is exempt u/s 10(1).

Qn. 8 Compute the total income in the hands of an individual, aged 35 years, being a resident and
ordinarily resident, resident but not ordinarily resident, and non-resident for AY 2023-24:
Particulars Amount (₹)
Interest on UK Development Bonds (50% of interest received in India) 10,000
Income from a business in Chennai (50% is received in India) 20,000
Short term capital gains on sale of shares of an Indian company received in London 20,000
Dividend from British company received in London 5,000
Long term capital gains on sale of plant at Germany, 50% of profits are received in 40,000
India
Income earned from business in Germany which is controlled from Delhi (₹ 40,000 70,000
is received in India)
Profits from a business in Delhi but managed entirely from London 15,000
Income from house property in London deposited in an Indian Bank at London, 50,000
brought to India (Computed)
Interest on debentures in an Indian company received in London 12,000
Fees for technical services rendered in India but received in London 8,000
Profits from a business in Mumbai managed from London 26,000
Income from property situated in Nepal, received there (Computed) 16,000
Past foreign untaxed income brought to India during the PY 5,000
Income from agricultural land in Nepal received there and then brought to India 18,000
Income from profession in Kenya which was set up in India, received there but spent 5,000
in India
Gift received on the occasion of his wedding 20,000
Interest on savings bank deposit in State Bank of India 12,000
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Income from a business in Russia, controlled from Russia 20,000

Dividend from Reliance Petroleum Limited, an Indian Company 5,000
Agricultural income from a land in Rajasthan 15,000
[May 18(N)]
Ans. Computation of total income for the AY 2023-24
Particulars ROR RNOR NR
Interest on UK Development Bonds, 50% of interest received in 10,000 5,000 5,000
India
Income from a business in Chennai (50% is received in India) 20,000 20,000 20,000
Short term capital gains on sale of shares of an Indian company 20,000 20,000 20,000
received in London
Dividend from British company received in London 5,000 - -
Long term capital gain on sale of plant at Germany, 50% of 40,000 20,000 20,000
profits are received in India
Income earned from business in Germany which is controlled 70,000 70,000 40,000
from Delhi, out of which ₹ 40,000 is received in India
Profits from a business in Delhi but managed entirely from 15,000 15,000 15,000
London
Income from property in London deposited in a Bank at London, 50,000 - -
later on remitted to India
Interest on debentures in an Indian company received in 12,000 12,000 12,000
London
Fees for technical services rendered in India but received in 8,000 8,000 8,000
London
Profits from a business in Mumbai managed from London 26,000 26,000 26,000
Income from property situated in Nepal, received there 16,000 - -
Past foreign untaxed income brought to India during the PY - - -
Income from agricultural land in Nepal received there and then 18,000 - -
brought to India
Income from profession in Kenya which was set up in India, 5,000 5,000 -
received there but spent in India
Gift received on the occasion of his wedding [not taxable] - - -
Interest on savings bank deposit in State Bank of India 12,000 12,000 12,000
Income from a business in Russia, controlled from Russia 20,000 - -
Dividend from Reliance Petroleum Limited, an Indian Company 5,000 5,000 5,000
Agricultural income from a land in Rajasthan [Exempt u/s
10(1)] . . .
Gross Total Income 3,52,000 2,18,000 1,83,000
Less: Deduction u/s 80TTA
[Interest on savings bank account subject to a maximum of (10,000) (10,000) (10,000)
₹ 10,000] . . .
Total Income 3,42,000 2,08,000 1,73,000

Qn. 9 Mr. Ramesh & Mr. Suresh are brothers and they earned the following incomes during the FY 2022-
23. Mr. Ramesh settled in Canada in the year 1996 and Mr. Suresh settled in Delhi. Compute the
total income for the AY 2023-24.
S.No. Particulars Mr. Ramesh (₹) Mr. Suresh (₹)
1. Interest on Canada Development Bonds (only 50% of 35,000 40,000
interest received in India)
2. Dividend from British company received in London 28,000 20,000
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3. Profits from a business in Nagpur, but managed 1,00,000 1,40,000

directly from London
4. Short term capital gain on sale of shares of an Indian 60,000 90,000
company received in India
5. Income from a business in Chennai 80,000 70,000
6. Fees for technical services rendered in India, but 1,00,000 -
received in Canada
7. Interest on savings bank deposit in UCO Bank, Delhi 7,000 12,000
8. Agricultural income from a land situated in Andhra 55,000 45,000
Pradesh
9. Rent received in respect of house property at Bhopal 1,00,000 60,000
10. Life insurance premium paid - 30,000

Ans. Computation of total income of Mr. Ramesh & Mr. Suresh for the AY 2023-24
S.No. Particulars Mr. Ramesh (₹) Mr. Suresh (₹)
1. Interest on Canada Development Bonds (Note 2) 17,500 40,000
2. Dividend from British company received in London - 20,000
(Note 3)
3. Profits from a business in Nagpur, but managed 1,00,000 1,40,000
directly from London (Note 2)
4. Short term capital gain on sale of shares of an Indian 60,000 90,000
company received in India (Note 2)
5. Income from a business in Chennai (Note 2) 80,000 70,000
6. Fees for technical services rendered in India, but 1,00,000 -
received in Canada (Note 2)
7. Interest on savings bank deposit in UCO Bank, Delhi 7,000 12,000
(Note 2)
8. Agricultural income from a land situated in Andhra - -
Pradesh (Note 4)
9. Income from house property at Bhopal (Note 5) 70,000 42,000
Gross Total Income 4,34,500 4,14,000
Less: Deduction under Chapter VI-A
Sec 80C - Life insurance premium - (30,000)
Section 80TTA (See Note 6) (7,000) (10,000)
Total Income 4,27,500 3,74,000

Notes:
1. Mr. Ramesh is a NR since he has been living in Canada since 1996. Mr. Suresh, is settled in Delhi,
and thus, assumed as a ROR.
2. In case of a ROR, his global income is taxable as per sec 5(1). However, as per sec 5(2), in case
of a NR, only the following incomes are chargeable to tax:
(i) Income received or deemed to be received in India; and
(ii) Income accruing or arising or deemed to accrue or arise in India.
Therefore, fees for technical services rendered in India would be taxable in the hands of Mr.
Ramesh, even though he is a NR.
The income referred to in Sl. No. 3,4,5 and 7 are taxable in the hands of both Mr. Ramesh and
Mr. Suresh since they accrue or arise/ deemed to accrue or arise in India.
Interest on Canada Development Bond would be fully taxable in the hands of Mr. Suresh,
whereas only 50%, which is received in India, is taxable in the hands of Mr. Ramesh.

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3. Dividend received from British company in London by Mr Ramesh, a NR, is not taxable since it
accrued and is received outside India.
However, such dividend received by Mr. Suresh is taxable, since he is a ROR.
4. Agricultural income from a land situated in India is exempt u/s 10(1) in the case of both non-
residents and residents.
5.
Income from house property- Mr. Ramesh Mr. Suresh
Rent received 1,00,000 60,000
Less: Deduction u/s 24(a) @ 30% (30,000) (18,000)
Net income from house property 70,000 42,000
The net income from house property in India would be taxable in the hands of both Mr. Ramesh
and Mr. Suresh, since the accrual and receipt of the same are in India.
6. In case of an individual, interest upto ₹ 10,000 from savings account with, inter alia, a bank is
allowable as deduction u/s 80TTA.

Income deemed to accrue or arise in India – Sec 9

Qn. 10 Mr. David, a citizen of India, aged 40 years, a Govt. employee serving in the Ministry of External
Affairs, left India for the first time on 31.03.2022 due to his transfer to High Commission of
Canada. He did not visit India any time during the PY 2022-23. He has received the following income
for the FY 2022-23:
S.No. Particulars ₹
(i) Salary (Computed) 5,00,000
(ii) Foreign Allowance 4,00,000
(iii) Interest on fixed deposit from bank in India 1,00,000
(iv) Income from agriculture in Nepal 2,00,000
(v) Income from house property in Nepal 2,50,000
Compute his gross total income for AY 2022-23.
[Nov 16(O)]
Ans. As per sec 6(1), Mr. David is a non-resident for the AY 2023-24, since he was not present in India at
any time during the PY 2022-23.
As per sec 5(2), a non-resident is chargeable to tax in India only in respect of following incomes:
(i) Income received or deemed to be received in India; and
(ii) Income accruing or arising or deemed to accrue or arise in India.
In view of the above provisions, income from agriculture in Nepal and income from house property
in Nepal would not be chargeable to tax in the hands of David, assuming that the same were received
in Nepal. Income from ‘Salaries’ payable by the Government to a citizen of India for services
rendered outside India is deemed to accrue or arise in India as per sec 9(1)(iii). Hence, such income
is taxable in the hands of Mr. David, even though he is a non-resident.
However, allowances or perquisites paid or allowed as such outside India by the Government to a
citizen of India for rendering service outside India is exempt u/s 10(7). Hence, foreign allowance of
₹ 4,00,000 is exempt u/s 10(7) in the hands of Mr. David.

Gross Total Income of Mr. David for AY 2023-24

Particulars ₹
Salaries 5,00,000
Income from other sources (Interest on fixed deposit in India) 1,00,000
Gross Total Income 6,00,000

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Qn. 11 Miss Vivitha paid a sum of 5,000 USD to Mr. Kulasekhara, a management consultant practising in
Colombo, specializing in project financing. The payment was made in Colombo. Mr. Kulasekhara is
a non-resident. The consultancy is related to a project in India with possible Ceylonese
collaboration. Is this payment chargeable to tax in India in the hands of Mr. Kulasekhara, since the
services were used in India?

Ans. A non-resident is chargeable to tax in respect of income received outside India only if such income
accrues or arises or is deemed to accrue or arise to him in India.
The income deemed to accrue or arise in India u/s 9 comprises, inter alia, income by way of fees for
technical services, which includes any consideration for rendering of any managerial, technical or
consultancy services. Therefore, payment to a management consultant relating to project
financing is covered within the scope of “fees for technical services”.
The Explanation below sec 9(2) clarifies that income by way of, inter alia, fees for technical services,
from services utilized in India would be deemed to accrue or arise in India in case of a non-resident
and be included in his total income, whether or not such services were rendered in India or whether
or not the non-resident has a residence or place of business or business connection in India.
In the instant case, since the services were utilized in India, the payment received by Mr.
Kulasekhara, a non-resident, in Colombo is chargeable to tax in his hands in India, as it is deemed
to accrue or arise in India.

Qn. 12 Examine the correctness or otherwise of the statement - “Income deemed to accrue or arise in India
to a non-resident by way of interest, royalty and fees for technical services is to be taxed
irrespective of territorial nexus”.
[Jan 21(N)]
Ans. This statement is correct.
As per Explanation to sec 9, income by way of interest, royalty or fees for technical services which
is deemed to accrue or arise in India by virtue of clauses (v), (vi) and (vii) of sec 9(1), shall be included
in the total income of the non-resident, whether or not –
(i) non-resident has a residence or place of business or business connection in India; or
(ii) the non-resident has rendered services in India.
In effect, the income by way of fees for technical services, interest or royalty from services utilised
in India would be deemed to accrue or arise in India in case of a non-resident and be included in his
total income, whether or not such services were rendered in India and irrespective of whether the
non-resident has a residence or place of business or business connection in India.

Qn. 13 Examine with reasons whether the following transactions attract income-tax in India in the hands
of recipients:
(i) Salary payable by Central Government to Mr. John, a citizen of India ₹ 7,00,000 for the
services rendered outside India.
(ii) Interest on moneys borrowed from outside India ₹ 5,00,000 by a non-resident for the purpose
of business within India say, at Mumbai.
(iii) Post office savings bank interest of ₹ 19,000 received by a resident assessee, Mr. Ram, aged 46
years.
(iv) Royalty paid by a resident to a non-resident in respect of a business carried on outside India.
(v) Legal charges of ₹ 5,00,000 paid in Delhi to a lawyer of United Kingdom who visited India to
represent a case at the Delhi High Court.

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Ans.
Taxable / Amount liable Reason
Not Taxable to tax (₹)
(i) Taxable 6,50,000 As per sec 9(1)(iii), salaries payable by the Government to a
citizen of India for service rendered outside India shall be
deemed to accrue or arise in India. Therefore, salary paid by
Central Government to Mr. John for services rendered
outside India would be deemed to accrue or arise in India
since he is a citizen of India. He would be entitled to standard
deduction of ₹ 50,000 u/s 16(ia).
(ii) Taxable 5,00,000 As per sec 9(1)(v)(c), interest payable by a non-resident on
moneys borrowed and used for the purposes of business
carried on by such person in India shall be deemed to accrue
or arise in India in the hands of the recipient.
(iii) Partly 5,500 The interest on Post Office Savings Bank a/c, would be
Taxable exempt u/s 10(15)(i), only to the extent of ₹ 3,500 in case of
an individual a/c. Further, interest upto ₹ 10,000, would be
allowed as deduction u/s 80TTA from Gross Total Income.
Balance ₹ 5,500 i.e., ₹ 19,000 - ₹ 3,500 - ₹ 10,000
would be taxable in the hands of Mr. Ram, a resident.
(iv) Not Taxable - Royalty paid by a resident to a non-resident in respect of a
business carried outside India would not be taxable in the
hands of the non-resident provided the same is not received
in India. This has been provided as an exception to deemed
accrual mentioned in sec 9(1)(vi)(b).
(v) Taxable 5,00,000 In case of a non-resident, any income which accrues or arises
in India or which is deemed to accrue or arise in India or
which is received in India or is deemed to be received in India
is taxable in India. Therefore, legal charges paid in India to a
non-resident lawyer of UK, who visited India to represent a
case at the Delhi High Court would be taxable in India.

Section B – Blast from the Past

Qn. 1 An individual, who is an Indian resident, is allowed to hold two different citizenships
simultaneously. Is the citizenship a determining factor for residential status of an individual?
[ICAI – Old PM]
Ans. Citizenship of a country and residential status of that country are separate concepts. A person may
be an Indian national /citizen, but may not be a resident in India. On the other hand, a person may
be a foreign national /citizen, but may be a resident in India. The citizenship of an individual has no
role in determining the residential status of an individual.
The residential status of resident, non-resident, etc. are determined on the basis of number of days
an individual actually stays in India during the PY.
The provisions of sec 6 of the Income-tax Act, 1961 are the determining factor of residential status
of an individual.

Qn. 2 Determine residential status of Sundaram (HUF) which carries out its transactions in Malaysia. Its
affairs are partly controlled from India. The Karta of HUF, Mr. Sundaram who is from Chennai visits
India on 01.06.2022 and leaves to Malaysia on 10.02.2023. He has not visited India for the past 11
years.
[Nov 20(O)]
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Ans. A HUF is said to be resident, if control and management of its affairs is situated wholly or partly in
India. Since in the present case, the affairs of the HUF are partly controlled from India, it is said to
be resident in India.
A HUF is said to be RNOR, if its Karta is RNOR. In the present case, Mr. Sundaram, being a karta of
the HUF has not visited India for the past 11 years and hence he satisfies the condition for being a
RNOR i.e., he is non-resident in India in 9 out 10 PYs immediately preceding the relevant PY or has
been in India for 729 days or less in 7 PYs immediately preceding the relevant PY. Thus, Sundaram
HUF is said to be RNOR for the PY 2022-23.

Qn. 3 DAISY Ltd. a foreign company incorporated in USA and engaged in the manufacturing and
distribution of diamonds set up a branch office in India in June 2022. The branch office was
required to purchase uncut and unassorted diamonds from the dealers of Mumbai and export them
to USA. During the PY 2022-23, profit from such export amounted to ₹ 75 lakhs.
Out of 20 shareholders of DAISY Ltd., 12 shareholders are non-resident in India. All the major
decisions were taken through Board Meetings held at USA.
(i) Determine the residential status of DAISY Ltd. for the AY 2023-24.
(ii) Discuss the tax treatment of profit from export business
[Nov 17(O)]
Ans. (i) As per sec 6(3), a foreign company would be resident in India in the PY 2022-23, if its place of
effective management (POEM), in that year, is in India.
“Place of Effective Management” means the place where key management and commercial
decisions that are necessary for the conduct of business of an entity as a whole are, in
substance, made.
In this case, since all major decisions were taken through Board Meetings held at the USA, the
place of effective management of Daisy Ltd., a foreign company incorporated in the USA, is
outside India.
Hence, Daisy Ltd. is a non-resident for the PY 2022-23 (AY 2023-24)

(ii) As per sec 5(2), in case of a non-resident, income which, inter alia, is deemed to accrue or arise
to him in India is taxable in India.
As per Explanation 1(b) to sec 9(1)(i), in case of a non-resident, no income shall be deemed to
accrue or arise in India to him through or from operations which are confined to the purchase
of goods in India for the purpose of export.
Accordingly, profit of ₹ 75 lakhs from export of uncut and unassorted diamonds purchased
from dealers of Mumbai by the branch office of Daisy Ltd. in India would not be deemed to
accrue or arise in India in the hands of Daisy Ltd, being a non-resident. Hence, the same would
not be taxable in India in the hands of Daisy Ltd.

Qn. 4 Mr. Kavin, a non-resident, entered into the following transactions during the FY 2022-23:
(a) Received ₹ 20 lakhs from a non-resident for use of patent for a business in India.
(b) Received foreign currency equivalent to ₹ 15 lakhs from a non-resident Indian for use of know-
how for a business in Sri Lanka and this amount was received in Korea.
(c) Received ₹ 7 lakhs from RR Ltd., an Indian company as fees for providing technical services in
India.
(d) Received ₹ 5 lakhs from R & Co., Mumbai, resident in India, for conducting the feasibility study
for a new project in Nepal and the payment was made in Nepal.
Examine briefly whether the above receipts are chargeable to tax in India.
[May 17(O), RTP – May 18]

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 Residential Status & Scope of Total Income 02

Ans. Taxability of certain receipts in the hands of Mr. Kavin, a non-resident, for AY 2023-24
Taxability Reason
(a) Taxable Amount of ₹ 20 lakhs received from a non-resident is deemed to accrue or arise
in India by virtue of sec 9(1)(vi)(c), since the patent was used for a business in
India. Therefore, the amount is chargeable to tax in India.
(b) Not Foreign currency equivalent to ₹ 15 lakhs received in Korea from a non-resident
Taxable for use of know-how for a business in Sri Lanka is not deemed to accrue or arise
in India as per sec 9(1)(vi)(c), since it is in respect of a business carried on
outside India. Also, the amount was received outside India. Therefore, the same
is not chargeable to tax in India.
(c) Taxable Amount of ₹ 7 lakhs received from RR Ltd., an Indian Company, is deemed to
accrue or arise in India by virtue of sec 9(1)(vii)(b), since it is for providing
technical services in India. Therefore, the same is chargeable to tax in India.
(d) Not Amount of ₹ 5 lakhs received in Nepal from R & Co., a resident, for conducting
Taxable feasibility study for the new project in Nepal is not deemed to accrue or arise
in India as per sec 9(1)(vii)(b), since such study was done for a project outside
India. The amount was also received outside India. Therefore, the same is not
chargeable to tax in India.

Qn. 5 Mr. Thomas, a non-resident and citizen of Japan entered into following transactions during the PY
ended 31.03.2023. Examine the tax implications in the hands of Mr. Thomas for the AY 2023-24 as
per Income-tax Act, 1961. (Give brief reasoning)
(1) Interest received from Mr. Marshal, a non-resident outside India (The borrowed fund is used
by Mr. Marshal for investing in Indian company's debt fund for earning interest).
(2) Received ₹ 10 lakhs in Japan from a business enterprise in India for granting license for
computer software (not hardware specific).
(3) He is also engaged in the business of running news agency and earned income of ₹ 10 lakhs
from collection of news and views in India for transmission outside India.
(4) He entered into an agreement with SKK & Co., a partnership firm for transfer of technical
documents and design and for providing services relating thereto, to set up a Denim Jeans
manufacturing plant, in Surat (India). He charged ₹ 10 lakhs for these services from SKK & Co.
[Nov 20(N)]
Ans. (1) Not taxable, since interest payable by a non-resident to another non-resident would be deemed
to accrue or arise in India only if the borrowed fund is used for the purposes of business or
profession carried on by him in India. In this case, it is used for investing in Indian company’s
debt fund for earning interest and not for the purposes of business or profession. Hence, it is
not taxable in India.

(2) Royalty includes, inter alia, consideration for grant of license for computer software. Hence,
the amount of ₹ 10 lakhs payable by a resident (business enterprise in India) for grant of license
for computer software would be royalty which is deemed to accrue or arise in India in the hands
of Mr. Thomas, a non-resident, since it is for the purpose of business in India. Hence, the royalty
is taxable in India.

(3) No income shall be deemed to accrue or arise to Mr. Thomas through or from activities which
are confined to the collection of news and views in India for transmission outside India. Hence,
₹ 10 lakhs is not taxable in India in the hands of Mr. Thomas.

(4) ₹ 10 lakhs is deemed to accrue or arise in India to Mr. Thomas, a non-resident, since it
represents royalty/fees for technical services paid for services utilized in India, in this case, for
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 02 Residential Status & Scope of Total Income

setting up a Denim Jeans manufacturing plant in Surat. Hence, the same would be taxable in
India in the hands of Mr. Thomas.

Qn. 6 Mr. Pratham, a non-resident in India, received a sum of ₹ 1,14,000 from Mr. Rakesh, a resident and
ordinarily resident in India. The amount was paid to Pratham on account of transfer of right to use
the manufacturing process developed by Pratham. The manufacturing process was developed by
Mr. Pratham in Singapore and Mr. Rakesh uses such process for his business carried on by him in
Dubai
[Jan 21(N)]
Ans. Consideration for transfer of right to use the manufacturing process falls within the definition of
royalty. Income by way royalty payable by Mr. Rakesh, a resident and ordinarily resident, is not
deemed to accrue or arise in India in the hands of Mr. Pratham as per sec 9(1)(vi)(b), since royalty
is payable in respect of right used for the purposes of a business carried on by Mr. Rakesh outside
India i.e., in Dubai.

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