Income Tax short notes

Power to levy Tax

Case/provision ratio
CIT v Harijan Nigam 226 ITR 696 the Constitution of India is the supreme law
of the land, all other laws, including the
Income-tax Act, are subordinate to the
Constitution and must be read and
interpreted in the light of the constitutional
provisions
India Cements Ltd v State of Tamil Nadu the Constitution is ‘the mechanism under
188 ITR 690, 699 (SC) which the laws are to be made and not
merely an Act which declares what the law
is to be’.
Article 265 Taxes not to be imposed save by authority
of law No tax shall be levied or collected
except by authority of law
Article 246 Union list entry 82 – Income tax
State list entry 46 – agricultural tax
Concurrent list entry 44 – stamp duties
Article 248(2) Residuary powers under entry 97
Section 295 Power to make rules
Article 13 Competency to levy tax

1922 1961
1886
1860 (i) Salaries. (1) Income from Salary;
(1) Salaries, pensions or
(1) Income from landed (ii) Interest on securities. (2) Income from House
gratuities;
property; (iii) Income from Property;
(2) Net profits of
(2) Income from property. (3) Income from Profits
companies;
professions and trades; (iv) Profits and gains of and Gains of Business or
(3) Interests on the Profession;
(3) Income from business, profession or
securities of the
Securities; vocation. (4) Income from Capital
Government of India;
(4) Income from Salaries (v) Income from other Gains;
(4) Other sources of
and pensions. sources. (5) Income from Other
income.
(vi) Capital gains. Sources.
List of relevant provisions
section Particulars
2(9) “assessment year” means the period of
twelve months commencing on the 1st day
of April every year;
2(34) “previous year” means the previous year as
defined in section 3;
3 For the purposes of this Act, “previous
year” means the financial year immediately
preceding the assessment year:

NOTE: usually starts on 1 April but for

business or profession or new source of
income it is from date of starting for the
*year of establishing it*
68 Previous year of Cash Credits
69 undisclosed income Unexplained investments
69A Unexplained money
69B In case of any of Amount of investment not fully disclosed
69C such income where Unexplained expenditure
69D the source cannot be Amount borrowed or repaid in Hundi
traced the previous
year is considered
the year of income
for such unexplained
income
2(7) r/w 2(31) “assesse” means a person by whom 7 [any
tax] or any other sum of money is payable
under this Act, and includes—
(a) every person in respect of whom any
proceeding under this Act has been taken
for the 8 [assessment of his income or
assessment of fringe benefits] or of the
income of any other person in respect of
which he is assessable (eg. S.160 (TDS)
and s. 218 (Advance tax)), or of the loss
sustained by him or by such other person, or
of the amount of refund due to him or to
such other person;
(b) every person who is deemed to be an
assessee under any provision of this Act;
(c) every person who is deemed to be an
assessee in default under any provision of
this Act;
2(31) (31) “person” includes—
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
 (v) an association of persons or a body of
individuals, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not
falling within any of the preceding sub-
clauses.
[Explanation.—For the purposes of this
clause, an association of persons or a body
of individuals or a local authority or an
artificial juridical person shall be deemed to
be a person, whether or not such person or
body or authority or juridical person was
formed or established or incorporated with
the object of deriving income, profits or
gains;]
2(8) Assessment to include reassessment

Reassessment procedure at:

• Section 140A
• Section 143(1)
• Section 143(3)
• Section 144
• Section 144B
• Section 147
• Section 151A
• Section 153A
• Section 153C
• Section 158BA

2(17) Company
(i) any Indian company, or
(ii) any body corporate incorporated by or
under the laws of a country outside India, or
(iii) any institution, association or body
which is or was assessable or was assessed
as a company for any assessment year under
the Indian Income-tax Act, 1922 (11 of
1922) or which is or was assessable or was
assessed under this Act as a company for
any assessment year commencing on or
before the 1st day of April, 1970, or
(iv) any institution, association or body,
whether incorporated or not and whether
Indian or non-Indian, which is declared by
general or special order of the Board to be a
company:
Provided that such institution, association
or body shall be deemed to be a company
only for such assessment year or assessment
years (whether commencing before the 1st
 day of April, 1971 or on or after that date)
as may be specified in the declaration.

2(22A) "domestic company" means an Indian

company, or any other company which, in
respect of its income liable to tax under this
Act, has made the prescribed arrangements
for the declaration and payment, within
India, of the dividends (including dividends
on preference shares) payable out of such
income.

Indian
Co

Domestic Co. as it includes any co which has

arrangement for payments

2(18) “company in which the public are

1. Government Company; substantially interested”—a company is said
2. A company u/s 8 of the Companies to be a company in which the public are
Act, 2013; substantially interested—
3. Mutual benefit finance company; • Govt holds > 40% shares
4. Listed company; • S.8 CO. (COA 2013)
5. Company in which shares are held by
co-operative societies;
6. Company which is prescribed by
CBDT

2(32) “person who has a substantial interest in the

company”, in relation to a company, means
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, carrying not
less than twenty per cent. of the voting
power ;
2(23) “firm” shall have the meaning assigned to it
s.10(2A) gives exemption to partners to in the Indian Partnership Act, 1932 (9 of
avoid double taxation 1932), and shall include a limited liability
partnership as defined in the Limited
Liability Partnership Act, 2008 (6 of 2009);
2(23A) foreign company" means a company which
is not a domestic company
2(26) Indian Co.

10(20) local authority means-

(i) Panchayat as referred to in Article 243(d)
of the Constitution; or
(ii) Municipality as referred to in Article
243P(e) of the Constitution; or
(iii) Municipal Committee and District
Board, legally entitled to, or entrusted by
the Government with, the control or
management of a Municipal or local funds;
or
(iv) Cantonment Board as defined in section
3 of the Cantonments Act, 1924.

2(24) Income
As provided in statute – profit, dividend,
voluntary contribution, perquisite, DA etc

Needs to be periodic
Maybe in cash or in kind
4 (1) Where any Central Act enacts that
income-tax shall be charged for any
assessment year at any rate or rates, income-
tax at that rate or those rates shall be
charged for that year in accordance with,
and 3 [subject to the provisions (including
provisions for the levy of additional
income-tax) of, this Act] in respect of the
total income of the previous year 4 ***of
every person:
Provided that where by virtue of any
provision of this Act income-tax is to be
charged in respect of the income of a period
other than the previous year, income-tax
shall be charged accordingly.
(2) In respect of income chargeable under
sub-section (1), income-tax shall be
deducted at the source or paid in advance,
where it is so deductible or payable under
any provision of this Act
5 5. Scope of total income.—
(1) Subject to the provisions of this Act, the
total income of any previous year of a
person who is a resident includes all income
from whatever source derived which—
(a) is received or is deemed to be received
 in India in such year by or on behalf of such
person; or
(b) accrues or arises or is deemed to accrue
or arise to him in India during such year; or
(c) accrues or arises to him outside India
during such year: Provided that, in the case
of a person not ordinarily resident in India
within the meaning of sub-section (6) of
section 6, the income which accrues or
arises to him outside India shall not be so
included unless it is derived from a business
controlled in or a profession set up in India.

(2) Subject to the provisions of this Act, the

total income of any previous year of a
person who is a non-resident includes all
income from whatever source derived which
— (a) is received or is deemed to be
received in India in such year by or on
behalf of such person; or
(b) accrues or arises or is deemed to accrue
or arise to him in India during such year.
Explanation 1.—Income accruing or arising
outside India shall not be deemed to be
received in India within the meaning of this
section by reason only of the fact that it is
taken into account in a balance sheet
prepared in India.
Explanation 2.—For the removal of doubts,
it is hereby declared that income which has
been included in the total income of a
person on the basis that it has accrued or
arisen or is deemed to have accrued or
arisen to him shall not again be so included
on the basis that it is received or deemed to
be received by him in India
6 Residential status

7 Income deemed to be received in India

8 Dividend Income
Assessment year – falls immediately after previous year
General Rule: Income of a previous year is assessed in the assessment year following the
previous year.
Exceptions: Cases where income of a previous year is assessed in the previous year itself
Section Particulars
172 Shipping Business by non-resident

(2) – 7.5% where goods shipped a t port

of India
174 Person Leaving India
174A AOP formed for particular event or
purpose
175 Person likely to transfer property to
avoid tax
176 Discontinued Business

Residentail Status
S.6

Resident In India Non resident

only Indian Income Tax

Resident and Resident but not

Deemed Resident
Ordinary Resident ordinary resident

Category Condition
ROR- 6(1) 6(1)(a)- >182 days
If not 6(1)(a) then 6(1)(c):
In PY > 60 days and then > 365 in
 preceding 4 years

RNOR- 6(6) 6(6)(a) – Non Resident for 9 of 10

preceding years or <729 days stay in
preceding 7 years
Thus another condition of ROR can be inverse of RNOR i.e.,
Resident for 1< preceding year and > 730 days stay in preceding year
Methodology to determine

1- Under 6(1) if a person is resident

 > 182 days in previous year, or,
 > 60 days in previous year and > 365 days in preceding 4 years
2- if 1 fulfilled then check
 ROR – 6(1) (a or c) + 6(6)(a) both conditions
 RNOR – 6(1) (a orc) – 6(6)(a) any condition

Illustrations
Problem Answer
Section 172: Therefore, INR 56250 (7.5% of 75 lakhs) is
Mr. A is a nonresident who owns a taxable in India during Financial Year 2020-
ship which carries passengers from 21 and tax is to be paid before the departure
India to outside India. of ship.
On 01-05-20, ship leaves Indian port
and Mr. A receives INR 75 lakhs as
carriage.

Section 174: In this case the Assessing Officer will make

two assessments:
Example 1- Arayan Khare wishes to
migrate to USA permanently [as he (a) regular assessment for previous year
recently visited for student exchange income of 2020-21 at the rates applicable for
to Illinois, USA (Global UGRAD assessment year 2021-22.
Scholar)] and plans to leave India on
(b) assessment of income of the period
15.11.2021. He submitted his return
1.4.2021 to 15.11.2021 (either actual or
for assessment year 2021-22 on
estimated basis) and tax should be levied on
31.7.2021 the assessment of which is
such income in the assessment year 2021-22
still pending.
itself but at the rates given under Part III of
First Schedule of the Finance Act, 2021 i.e. at
the same rates which are given for advance
 tax for financial year 2021-22.

Section 174: In this case besides making the assessment

Example 2.- On 15.3.2022, while for assessment year 2021-22, the Assessing
making the assessment of assessment Officer shall make two more assessments as
year 2021-22 of Arayan Dwivedi, a under:
foreign national who was resident in (a) assessment of income of previous year
India for several years, the Assessing 2021-22,
Officer came to know that Arayan (b) assessment of income for the period 1-4-
Dwivedi shall leave India on 2022 to 14-4-2022.
14.4.2022 with no intention of
returning back.
Whether assessee or not
• Income of Govinda is Rs. No as income < 2.5L
2,50,000 for the assessment
year 2022-23. He does not file
his return of income because
his income is not more than
the amount of exempted slab.
Income-tax Department does
not take any action against
him.
• Income of Lenin is Rs.
2,55,000 for the assessment Assess as income > 2.5L
year 2022-23. He does not file
his return of income.
• Income of Abhinav is Rs.
75,000 for the assessment year Assessee as order is passed against him by
2022-23. He files his return of AO
income (even if his taxable
income is less than Rs.
2,50,000).
• Income of Jay for the
assessment year 2022-23 is (-)
Rs. 60,000. He files his return Assess as he filed return
of income.
• Income of Bhuneshwar is less
than Rs. 2,50,000 for the
assessment year 2022-23. He Assessee as he filed return
files his return of income to
claim refund of tax deducted
by X Ltd. On interest paid to
him.
• Income of Chaitya is less than
Rs. 2,50,000 for the
assessment year 2022-23. He Assessee as he had to deduct TDS for
does not file his return of employee even when personal income was
income. less than 2.5L
During 2021-22, he has paid
 salary of Rs. 8,90,000 to an
employee. Though he is
supposed to deduct tax at
source, yet due to ignorance of
law, no tax is deducted by
him.

Case Law for person 2(31)

Question Case and ratio
If not within 7 categories CIT v Dredging Corporation of India
Still person (1988) 174 ITR 682 (AP)
• Any person, though not falling
within the seven categories
aforementioned, may still be an
assessee, being a person.

Who is an individual Udham Singh v CIT (1988) 171 ITR 471

Natural person (Ori)
• An individual means a natural person
ie a human being.

How are trusts assessed CIT v Deepak Family Trust (No. 1) (1994)
As AOP 72 Taxman 406 (Guj)
• Trustees of a discretionary trust and
charitable trust are also being
assessed as individuals and not in
the status of ‘association of persons‘.

Does individual incl. minor or insane person Shridhar Uday Narayan v CIT [1962] 45
Yes ITR 577 (All.)
• “Individual” includes a minor or a
person of unsound mind.

Association of peson
What does the term? CIT v Indira Balkrishna (1960) 39 ITR 546
2+ people (SC)
• “Association of persons” means an
association in which two or more
persons join in a common purpose or
common action with a view to earn
an income.
•
What does AOP in term person include? MM Ipoh v. CIT [1968] 67 ITR 106 (SC)
• The term “person” includes any
company or association or body of
individuals, whether incorporated or
 not. An association of persons may
have companies, firms, joint families
as its member.

What if person does not form partnership, Deccan Wine & General Stores v CIT
can they be assessed? (1977) 106 ITR 111 (AP)
Yes • If two or more persons join hands to
carry on a business but do not
constitute a partnership, they may be
assessed as an Association of
Persons.

If individuals receive income out of CIT v Govindbhai Mamaiya (2014) 52

common of transaction is it an AOP? [Link] 270 (SC)
No, common intention necessary • Assessees, three brothers, inherited
agricultural land.
• The said land was acquired by
Government and compensation was
awarded.
• During current year, Compensation
was enhanced along with interest.
• The Assessing Officer assessed
interest income in hands of assessees
in status of AoP.
• It was held that since it was not a
case where any ‘Association of
persons’ was formed by volition of
parties for purpose of generation of
income, these persons were to be
given status of ‘individual’ and
assessed accordingly; and not as
AoP.

AOP can include non-individuals but BOI can only be of individuals

Common intention is not necessary for BOI
Local authority is a separate unit of assessment.
The General Clauses Act, 1897, Section 3 (31): “local authority” shall mean a municipal
committee, district board, body of port commissioners or other authority legally entitled to,
or entrusted by the government with the control or management of a municipal or local
fund;

Union of India v. RC. Jain AIR 1981 SC 951

• The major tests which can be carved out from the above decision and subsequent
decisions, are essentially, that:
• (i) the authorities must have separate legal existence as corporate bodies and
autonomous status;
• (ii) it must function in a defined area and must ordinarily, wholly or partly, directly
or indirectly be elected by the inhabitants of the area;
• (iii) it performs Governmental functions such as running market, providing civic
amenities etc.;
 • (iv) it must have power to raise funds for the furtherance of its activities and the
fulfilment of its projects by levying taxes/fees – this may be in addition to money
provided by the Government and control and management of the fund must vest
with the authority.

Are God or Idols or artificial persons assessee?

YES
Jogendra Nath Naskar v. CIT [1969] 74 ITR 33 (SC)
• The Hindu idol is a juristic entity capable of holding property and of being taxed
through its shebaits who are entrusted with the possession and management of its
property.
Bar Council of Uttar Pradesh v CIT (1983) 143 ITR 584 (All)
• A Bar Council shall an artificial juridical person
Shrimoni Gurdwara Parbhandak Committee, Amritsar v Som Nath Dass (2000) 160 CTR
(SC) 61
• Artificial juridical persons not only cover deities but also all artificial persons with
a juridical personality. Guru Granth Sahib is to be regarded as a juristic person.

Income definition
What is income? CIT v. Shaw Wallace &- Co. 6 ITC 178
(PC), Sir George Lowndes defined
"income" as follows:
• “Income connotes a periodical
monetary return 'coming in' with
some sort of regularity, or expected
regularity from definite sources. The
source is not necessarily one which
is expected to be continuously
productive, but it must be one whose
object is the production of a definite
return, excluding anything in the
nature of a mere windfall.”

Is express mention of exemption necessary? Gopal Saran Nararn Singh v CIT 1935
Yes • Anything which can be properly
described as income is taxable
under the Act, unless expressly
exempted.

Does it have to be of recurring nature? Kamakshya Narain Singh of Ramgarh v.

No CIT 1943
• Income may not necessarily be
recurring in nature, though it is
generally of that character.

How can income be recognized? Commissioner of Corporation and Taxation

Increase in wealth v Filoon
• Though there are different concepts
of ‘income’ for the purpose of
taxation, income is broadly defined
 as a true increase in the amount of
wealth which comes to a person
during stated period of time

Accounting method is relevant for PGBP and IFOS but not for dividend, capital gain or
salary.

Is loss income? CIT v. Karamchand Premchand

Yes, negative income Loss is negative income
TA Qureshi v. CIT
37(1) provides deduction for expenditure for The explanation is for expenditure to illegal
income earned in profession but the same is income and not business loss
not extended to illegal income

How is disputed income treated? Franklin v. IRC

At hands of recepient AO may postpone the assessment or tax it at
hand of recipient
Is illegal income taxed? Mann v. Nash [1932] 1 KB 752
Yes • By bringing the profits of an illegal
business to tax, the State does not
condone it or take part in crime, nor
does It become a part to the
illegality. The assessee might be
prosecuted for the offence and yet be
taxed upon profits arising out of its
commission.

Reimbursement and Relief are not income

Lump sum income has the same treatment
Treatment of permanent or temporary income is not different
Tax free income – lets say a person has salary of X and employer pays TDS Y then the
actual income of the person is X+Y

Incomes and their treatment

Gift Depends on whether person relative or not
If not relative and > 50000 then considered
IFOS
Notional Income Transferring Income from one pocket to
another
Devaluation of Currency CIT v. Mogul Line ltd
Pin Money Money given to run house
Hence is 10k given and 7k used – 3k is not
income

R B N J Naidu v. CIT
But is surplus is invested and returns are
gained, such returns are taxable
Award Falls as gift but few are exempted
 If award received from profession than
income otherwise gift
Contingent income
Deferred income Which is realised in future. Eg an advance
payment for contract. Such income is
realised on fulfilment of contract. Real
income after contract over
Diversion of income Income received by some other person. The
title lies with some other person. Taxable to
final recipient.
Application of Income Income received by titleholder then given to
someone else. Hence not taxable to final
recipient

Fr. Sunny Jose v. Union of India [2015] 60

[Link] 386 (Ker.).
• Salary/pension is accrued to a
member of religious congregations
in his individual capacity.
• Subsequent diversion of such
income to the religious
congregations is only a case of
application of that Income and not
diversion by overriding title.

Income by Mutual Activity If few people pool money for a common

purpose and surplus is left it is not income.

Dublin Corporation v. M'Adam 2 TC 387

• A person cannot make a taxable
profit out of a transaction with
himself.
CIT v Bankipur Club Ltd. [1981] 6 Taxman
47 (Pat.)
• A body of individuals, raising
contribution to a common fund for
the mutual benefits of members,
cannot be said to have earned an
income when it finds that it has
overcharged members and some
portion of contribution raised may
safely be refunded.
• The fact whether such body of
individuals is incorporated or not, is
wholly irrelevant, so long as there is
a complete identity between the
contributors as a class and the
participants of the benefits and
surplus as a class.
• In other words, all the participators
 in the surplus/ benefits must be
contributors to the common fund.
V.P. State Nagariya Sahkari Bank Ltd. v
ITO [2007] 108 lTD 332 (Luck.)
• that does not mean that each member
should contribute to common fund
or that each member should
participate in surplus or get back
from surplus precisely what he has
paid; what is required is that
members as a class should contribute
to common fund and participators as
a class must be able to participate in
surplus.

Is receipt by Dharmada income? CIT v Manoo Ram Ram Kamn Dass [1979]
no 116 ITR 606 (All); CIT v Bijli Cotton Mills
(P.) Ltd. [1979] 116 ITR 60 (SC); and CIT v
Om Oil & Oil Seeds Exchange Ltd. [1980] 3
Taxman 470 (Delhi)
• Receipt on account of dharmada,
gaushaIa and pathshala is not
income and, therefore, not liable to
tax.

Double Taxation Same income cannot be taxed twice

Can one income be taxed on accrual and Laxmipat Singhania v. CIT [1969] 72 ITR
receipt basis? 291 (SC).
No • It is also not open to the Assessing
Officer, if income has accrued to the
assessee and is liable to be included
in the total income of a particular
year on "accrual" basis, to ignore the
accrual and thereafter to tax it as
income of another year on the basis
of receipt.
CIT v. Rameshwarlal Sanwarmal [1971]
Can same person be taxed twice? 82 ITR 628 (SC).
No • The same person can be taxed both
as individual as well as the Karta of
his family.

State income cannot be taxed by the union

Burden of proof
Of exemption – on assessee
Of tax – tax dept.
 PPT 3
Residential status determines the chargeable income
Characteristics of residential status
1. Different for each previous year
2. Single status for each source of income which implies that if a person is resident for
one source, he is for all sources
3. Citizenship has no impact
4. It is country specific

How to determine residence

Under 6(1) if a person is resident
 > 182 days in previous year, or,
 > 60 days in previous year and > 365 days in preceding 4 years
if 1 fulfilled then check
 ROR – 6(1) (a or c) + 6(6)(a) both conditions
 RNOR – 6(1) (a orc) – 6(6)(a) any condition
(where condition is resident for > 1 year for preceding 10 years and >730 days
in preceding 7 years)
Now there are two explanation
Expl. 1 – merely changes 60 days to 182 days in 6(1)(c) for member of crew or for
employment
– for person of Indian origin same thing but if his total income – foreign income is
greater than 15L then 60 changes to 120
Expl. 2 – the period need not be in continuation
Illustrations
Soaham came to India first time during the
P.Y. 2021-22. During the previous year, he
stayed in India for:
• (i) 50 days; NR
• (ii) 183 days; R
• (iii) 153 days. NR – as he came for first time
Determine his residential status for the A.Y.
2022-23.

Digvijay, a British national, comes to India AY – 2020-21

for the first time during 2015-16. PY – 2019 -20
During the financial years 2015-16, 2016-
17, 2017-18, 2018-19 and 2019-20, he was In PY stayed for 70 days so now check
in India for 55 days, 60 days, 80 days, 160 preceding for years for > 365
days and 70 days respectively. 2015 – 2019 = 55+60+80+160 = 355
Determine his residential status for the
assessment year 2020-21. Hence NR

Satyam, an Indian citizen, for the purposes Went to Uk on 1/4/21

of employment, left India for first time on 1 Came on 11/1/22
April, 2021 and went to London. He came Here PY is 2021-22
to India on 11 January 2022 for only 190 In India he was for 81 days
days. Determine his residential status for
P.Y. 2021-22. He is NR as he did not stay for 182 days.

Hitesh is an Indian citizen and a member Departed – 6 June 2023

of the crew of an Australia bound Indian Came back – 9/12/23
ship engaged in carriage of passengers in
international traffic departing from Total stay in India = 179 days
Mumbai port on 6th June, 2023.
From the following details for the P.Y.2023- As it is < 182 days he is NR
24, determine the residential status of
Hitesh for A.Y.2024-25, assuming that his
stay in India in the last 4 previous years
(preceding P.Y.2023- 24) is 400 days

Sarvagya left India for first time on 31 May

2021. Determine his residential status for
the previous year 2021-22 if:
• i) He left India for employment NR
purpose
• ii) He left India on world tour R

Parthiv came India for first time on July 24, He is in India from 24 July 2017 to 5 Dec
2017. 2018
From July 24, 2017 to December 25, 2018 In yr 2017-18 – 116 days in foreign
he was in India. 2021-22 – 114 days in India
Again, he came to India on August 5, 2021
the purposes of employment & left India on He is NR as <365 days in 4 preceding years
November 25, 2021 permanently.
Determine his residential status for the
previous year 2021-22 assuming -
a) He is a foreign citizen
b) He is an Indian citizen

HUF Case laws

Can be either ROR or RNOR Based on controlling and directive powers
Is De facto control necessary? CIT v Nandlal Gandalal (1960) 40 ITR 1
Yes (SC)
• The "control and management"
means de facto control and
management and not merely the
right or power to control and
manage.
Where is the HUF located? San Paulo (Brazilian) Rly Co. Ltd. v Carter
Where head is [1886] AC 31 HL
• Control and management is situated
at a place where the head, the seat
and the directing power are situated.
• The head and brain is situated where
vital decisions concerning the
policies of the business, such as,
raising finance and its appropriation
for specific purposes, appointment
and removal of staff, expansion,
extension, or diversification of
business, etc., are taken

Does absence of karta make an HUF NR? Annamalai Chettiar v ITO [1958] 34 ITR 88
No (Mad)
• The mere fact that the family has a
house in India, where some of its
members reside or the karta is in
India in the previous year, does not
constitute that place as the seat of
control and management of the
affairs of the family, unless the
decisions concerning the affairs of
the family are taken at that place.
• The mere fact of the absence of karta
from India does not make the family
non-resident.

What is presumption of HUF? VVRNM Subbayya Chettiar v CIT (1951)

It is R 19 ITR 168 (SC)
• Following propositions were
established by the Supreme Court:
• (1) Normally a Hindu undivided
family is presumed to be resident in
India unless it is proved by the
assessee that the control and
management of its affairs situated
wholly outside India.
• The control and management
signifies the controlling and
directive power, the “head and
brain”; and "situated" implies the
function of such power at a
particular place with some degree of
permanence.
• The word "affairs", means affairs
which are relevant for the purpose of
the Income-tax Act and which have
some relations with income sought
 to be assessed.
• (3) The seat of management and
control may be divided and if so it
may have more than one residence.
• (4)If the seat of management and
control is situated outside India, the
bare activities in India would not be
enough to support a finding that the
seat of management and control had
shifted or that a second centre for
such management and control had
been started in India.
Narasimha Rao Bahadur v CIT [1950] ITR
181 (Mad)

Illustrations
A Hindu undivided family (X is karta, A, The control and managment are still in
Bond C are other coparceners) carries on Burma
cloth business in Burma. A comes to India
and starts a cloth business at Bombay in
partnership with some other persons.
The capital supplied by A to this firm is
found to have come from the family.
Subsequently, B joins the firm as partner.
Later on another business is started at
Banaras with the same persons and one
outsider as partner.
C joins this firm.
The Assessing Officer wants to treat the
family as resident on the ground that its
coparceners are partners in the firms,
financed out of the family funds, and the
firms are resident in India.
Is the Assessing Officer legally correct?
No

AOP abnd BOI

Can BOI or AOP be ROR or NROR? Erin Estate Galah Ceylon v CIT (1958) 34
No ITR 1 (SC)
• In case of firm or BOI or AOP,
there is no subdivision like
‘Ordinarily resident’ or ‘Not
ordinarily resident’.

Are day to day affairs considered control? Narottam v CIT 23 ITR 454
No • the central control and management
and not to the carrying on of day-to-
day business by servants, employees
or agents.
• The business may be done from
 outside India and yet its control and
management may be wholly within
India.
• Therefore, control and management
of a business is said to be situated at
a place where the head and brain of
the adventure is situated.

Residential status illustrations

Prajwal, a foreign citizen, resides in India PY – 2021-22
during the previous year 2021-22 for 83
days. ROR as
Determine his residential status for previous R as >60 days in PY and >365 days in 4
year 2021-22 assuming his stay in India years
during the last few previous years are as OR as > 182 days in 15-16 and 16-17
follows – And, >730 days in preceding 7 years
2006-7 – 220 14-15 - 137
7-8 – 15 15-16 - 265
8-9- 257 16-17 – 310
9-10 – 110 17-18 - 121
10-11 – 36 18-19 - 175
11-12 – 115 19 – 20 - 15
 12-13 – 123 20-21 - 67
13-14 – 65 21-22 - 83
Shoaib Akhter, a foreign cricketer visits RNOR as he is does not fulfil criteria of 700
India for 100 days in every financial year. days
This has been his practice for the past 10 He would be ROR if he stayed for 110 days
financial years. each year
Find out his residential status for the
assessment year 2021-22.

How to determine if HUF is ROR or RNOR?

Same as person applicable on Karta
2 years of 10 years if he is resident and has stayed over 730 days in preceding 7 years than
the HUF is resident
Hence residential status if karta for PY not important bit for preceding 10 ears is important.

Illustration answer
Soaham, an individual, is resident but not RNOR as karta is RNOR
ordinarily resident in India for the
assessment year 2022-23 (previous year
2021-22).
During the previous year 2021-22, the
affairs of 2020 Batch (HUF) a Hindu
undivided family, whose Karta is Soaham
since 1995, are partly managed from Delhi
and partly from Nepal.
Determine the residential status of 2020
Batch (HUF) for the assessment year 2022-
23.

The head office of 2020 Batch (a Hindu A – Non resident

undivided family), is situated in Hong B - ROR
Kong. The family is managed by Soaham
(Since 1995) who is resident in India in 3
out of 10 years immediately preceding the
previous year 2021-22 and who is present in
India for more than 729 days during last 7
years. Determine the residential status of the
family for the assessment year 2022-23 if
affairs of the family business are:
(a) wholly controlled from Hong
Kong
(b) partly controlled from India.
If a person is of Indian Origin/citizenship and has an income of > 15Lacs then he is
considered a deemed resident if he stays for 120<x<182 days

Illustration Answer
Avi, a foreign citizen, comes to India for the Employment from – 15/9/21
first time on 1 September 2021. On 15 Trading business from – 9/10/21
September 2021, he joins a company on
monthly salary of Rs. 60,000, as a part-time For the salary income he is resident as he
production consultant (duty hours 6.30 pm stayed for >182 days (195 days) while for
to 9.30 pm). He does not have any source of trading income he is non resident as it is less
income up to September 14, 2021. than 182 days and he has been India for first
On 9 October 2021, he starts a trading time.
business in computer hardware after
obtaining the approval of his employer. For But 6(5) says that if a person is resident for
the previous year ending March 31, 2022, more than one income than he is resident for
he has the following income — all income therefore Avi is resident.
Salary from the part-time employment: Rs.
3,90,000; income earned in India from the He is RNOR as he came first time.
business of trading or computer hardware:
Rs. 7,86,000; and foreign income from the
same business: $40,000. Find out the
residential status of Avi for the assessment
year 2022-23.

Rishubh is an Indian citizen, Currently, he is PY – 2021-22

in employment with an overseas company Deemed resident as not taxed anywhere else
located in Dubai. During different years, he
is in India as follows:
2021-22: 55; 2020-21: 190; 2019-20: 200;
2018-19: 170; 2017-18: 200; 2016-17: 250;
2015-16: 70; 2014-15: 71; 2013-14: 72
For the previous year 2021-22, Rishubh is
not taxable in Dubai or in any other
country/territory by reason of his domicile
or residence. Income of Rishubh (other than
the income from foreign sources) for the
previous year 2021-22 is Rs 16,00,000.
Determine the residential status for AY
2022-23

Lenin is an Indian citizen, currently he is in Non Resident as employment is > 182 days
employment with a multinational company Therefore only Indian income – 21Lacs and
and posted in Singapore. During the Interest of FD 11L and 2.6L LIC premium
previous year 2021-22, he comes to India
for a visit of 145 days.
In earlier 4 years, he is in India for more
than 900 days.
Lenin wants to know his residential status
 for the AY 2022-23.
His Annual income for PY 2021-22 is as
follows:
• Income from salary, rent,
consultancy and interest earned and
received in Singapore: Rs 29,00,000
• Income from business (accrued and
received outside India, controlled
from Singapore): 21,00,000
• Income from another business
(accrued and received outside India,
controlled from India): 8,00,000
• Interest on bank fixed deposits in
India: 11,00,000
• Any other Income: Nil
• LIC Premium Paid in India:
2,60,000

Income received in India

Receipt Remittance
Which is received for the first time Application of income
Cash Kind
Receipt Accrual
Actual receiving Right to receive
Deemed receipt Constructive receipt
The income which is not calculated but not Wen payment is made but assessee has not
received in reality for example TDS of received for example when sent through
salary is not received by assessee but post
considered his income for calculation of tax

Time and place of receipt

Time matters for determining if it was if PY and place for taxability whether Indian income
or foreign income
Deemed income
Income from unexplained sources which is considered income for computation of tax
Deemed profit
Profit chargeable to tax is deemed profit
 Tax incidence in the case of

Nature of Income
Resident & Resident but not
Non-resident
ordinarily resident ordinarily resident

Income accrued or deemed to be ✓ ✓ ✓

accrued and received or deemed to
be received in India
Income accrued outside India but ✓ ✓ ✓
received or deemed to be
received in India
Income accrued or deemed to be ✓ ✓ ✓
accrued in India but received
outside India
Income accrued and received ✓ ✓
outside India from a business
controlled in or profession set-up
in India
×
Income accrued and received ✓
outside India from a business
controlled or profession set-up
outside India
× ×
✓
Income accrued and received
outside India in the previous year
(it makes no difference if the
same is later remitted to India)
× ×
Income accrued and received
outside India in any year
preceding the previous year and
later on remitted to India in × × ×
current financial year

Indian Income if – received, accrued or both in India

ROR RNOR NR
Indian Income ✓ ✓ ✓

Foreign Income ✓ × ×
Unless income
derived from biz
setup in India
 Indian Income numerical
1. Rental income of Rs. 36.000 is II
received in India on May 10, 2021
(it may accrue outside India or in
India) II
2. Interest income of Rs. 46,000
accrues in India on March 31, 2022
(it may be received in India or II
outside India)
3. Income of Rs. 56,000 is deemed to
be received in India on April 20, II
2021 (it may accrue outside India or
in India)
4. Income of Rs. 66,000 is deemed to
accrue or arise in India during the II
previous year 2021-22 (it may be
received in India or outside India)
5. Business income / professional
income of Rs. 76,000 is received and
accrued outside India during the
previous year 2021-22. Business is II
controlled from outside India or
profession is set up outside India FI
6. suppose business is controlled from
India or profession is set up in India
7. Rental income or salary income or
interest income of Rs. 86,000 is
received outside India in the FI
previous year 2021-22 and at the
same time it accrues or arises outside
India
8. Gift of Rs. 2 lakh received outside II
India by an individual on November
6, 2021 from a friend FI
9. Gift of Rs. 1 lakh received in Delhi
by an individual on November 30,
2021 from a friend
10. Income of Rs. 96,000 earned and
received outside India in 2016-17
but later on remitted to India in 2021
-22

Rohan Illustration
Rohan provides following details of income, calculate the income which is liable to be taxed
in India for the A.Y. 2022-23 assuming that –
Particulars Amount

•
Salary received in India from a former employer of USA 1,40,000 •
•
•
Income from tea business in Nepal being controlled from India 10,000 •
•
•
Interest on company deposit in Canada (1/3rd received in India) 30,000 •
•
•
•
Profit from a business in Mumbai controlled from UK 1,00,000
•
•
•
Profit for the year 2002-03 from a business in Tokyo remitted to 2,00,000
•
India
•
•
Income from a property in India but received in USA 45,000 •
•
•
Income from a property in London but received in Delhi 1,50,000 •
•
•
Income from a property in London but received in Canada 2,50,000 •
•
•
Income from a business in Jambia but controlled from Turkey 10,000 •
•
•
a) He is an ordinarily resident
• b) He is not an ordinarily resident
• c) He is a non-resident
Answer
ROR NROR NR
Salary received in 1,40,000 1,40,000 1,40,000
India from a former
employer of USA
Income from tea 10,000 10,000
business in Nepal
being controlled
from India
Interest on company 30,000 10,000 10,000
deposit in Canada
(1/3rd received in
India)
Profit from a 1,00,000 1,00,000 1,00,000
business in Mumbai
controlled from UK
Profit for the year
2002-03 from a
business in Tokyo
remitted to India
Income from a 45,000 45,000 45,000
property in India but
received in USA
Income from a 1,50,000 1,50,000 1,50,000
property in London
but received in Delhi
Income from a 2,50,000
property in London
but received in
Canada
Income from a 10,000
business in Jambia
but controlled from
Turkey
7,35,000 4,55,000 4,45,000