CS- EXECUTIVE –INCOME TAX CHAPTER 1 - …siddharthacademy.in/images/Downloads/Company Secretary Free Note… · tenorship) with other male members; Mitakshara – No female member

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CS- EXECUTIVE –INCOME TAX

CHAPTER 1 - INTRODUCTION

Tax is a fee charged by a government on a product, income or activity. If tax is levied directly on

the income or wealth of a person, then it is a direct tax e.g. income-tax. In direct taxes the person

who pays the tax actually bears the burden of the tax liability. If tax is levied on the price of a

good or service, then it is called an indirect tax e.g. excise duty. In the case of indirect taxes, the

person paying the tax passes on the incidence to another person.

Overview of Income-Tax Law in India

The various instruments of law containing the law relating to income-tax are explained below:

Income-tax Act, 1961: The levy of income-tax in India is governed by the Income-tax Act, 1961.

This Act came into force on 1st April, 1962. The Act contains 298 sections and XIV schedules.

These undergo change every year with additions and deletions brought about by the annual

Finance Act passed by Parliament. In pursuance of the power given by the Income-tax Act, 1961

rules have been framed to facilitate proper administration of the Income-tax Act, 1961.

The Finance Act: Every year, the Finance Minister of the Government of India presents the

Budget to the Parliament. After approval received from the members of the parliament it

becomes an Act.

Income-tax Rules: The administration of direct taxes is looked after by the Central Board of

Direct Taxes (CBDT). The CBDT is empowered to make rules for carrying out the purposes of

the Act. For the proper administration of the Income-tax Act, the CBDT frames rules from time

to time. These rules are collectively called Income-tax Rules, 1962.

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Circulars and Notifications : Circulars are issued by the CBDT from time to time to deal with

certain specific problems and to clarify doubts regarding the scope and meaning of the

provisions.

Levy of Income-Tax

Income-tax is a tax levied on the total income of the previous year of every person.

Important Definitions:

Agricultural Income: 2(1A): This definition is very wide and covers the income of not only the

cultivators but also the land holders who might have rented out the lands. Agricultural

income may arise in any one of the following three ways:-

(1) It may be rent or revenue derived from land situated in India and used for agricultural

purposes.

(2) It may be income derived from such land through agriculture or the performance of a

process ordinarily employed by a cultivator or receiver of rent in kind to render the produce

fit to be taken to the market or through the sale of such agricultural produce in the market.

(3) Lastly, agricultural income may be derived from any farm building required for

agricultural operations.

Section 10(1) provides that agricultural income is not to be included in the total income of the

assessee. The reason for totally exempting agricultural income from the scope of central income

tax is that under the Constitution, the Parliament has no power to levy a tax on agricultural

income.

Incidence Agricultural income is not to be included in total income of the assessee. If net

agricultural income (NAI) in addition to non-agricultural income exceeds the maximum

chargeable to tax, this scheme of aggregation is applicable. (i.e. Rs. 2 Lac, 2.5 Lacs or 5 Lacs for

individual and HUF) This is not applicable if NAI is less than 5,000.

Steps in calculation:

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i) Add Non-agricultural Income and Net Agricultural Income and compute tax on total

income.

ii) Add Net Agricultural Income + Basic exemption limit and compute tax on total.

iii) Difference between (i) and (ii) above shall give income tax chargeable.

iv) Then add Education Cess and Secondary and Higher Eucation Cess

Rule 8: Tea leaves manufacturers in India – 40% taxable as business income balance exempt as

NAI.

Rule 7A : Rubber: 65% exempt 35% taxable

Rule 7B : Coffee: 75% exempt 25% taxable (coffee grown and cured by the seller)

: Coffee: 60% exempt 40% taxable (coffee grown, cured, roasted and

grounded by the seller)

Amalgamation 2(1B)– Amalgamating company(ies) merged into Amalgamated company.

Conditions for valid and effective Amalgamation:

i) All the assets and liabilities transferred

ii) 90% or more shareholding of Amalgamating company should become shareholders of

Amalgamated company. Shares held by the Amalgamated Company are not

considered for this calculation

Assessee [Section 2(7)]: Assessee means a person by whom any tax or any other sum of money

is payable under this Act. It includes;

a) Every person in respect of whom any proceeding has been taken for the assessment of his

income.

b) a person becomes assessable in respect of the income of some other persons. In such a

case also, he may be considered as an assessee.

c) every person who is deemed to be an assessee or an assessee in default under any

provision of this Act.

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Assessment [Section 2(8)]: This is the procedure by which the income of an assessee is

determined by the Assessing Officer. It may be by way of a normal assessment or by way of

reassessment of an income previously assessed.

Person [Section 2(31)]: The definition of person is inclusive i.e. a person includes;

i) Individual – natural person including his legal representative,

ii) HUF – all persons lineally descended from a common ancestor. There are two systems

followed in India, Dayabhaga and Mitakshara. Dayabhaga in Bengal and Mitakshara in

rest of India, Dayabhaga – female could succeed to a member of undivided family and

can take her share on his death and enjoy the same with absolute right in cotenancy (joint

tenorship) with other male members; Mitakshara – No female member gets a right to

demand a partition of the corpus or income of family, just an inchoate right and no

interest in joint property and no right to challenge the alienation of the property.

iii) Association Of Persons/Body Of Individuals – joint enterprise, a common purpose,

common action and the object of the association must be to produce income jointly. Co-

heirs, co-legatees, co-donees were considered as AOP.

iv) BOI – like executors or trustees – receives the income jointly, beneficiaries individually

as their title and interest in the property are indivisible.

v) Firm – different and distinct from its partners, a minor admitted to the benefits of the

partnership is also a partner. Agreed to share the profits and losses - partners, Local

authority – a municipal committee, district board, body of port commissioner, authorised

by Govt. with the control or management of a municipal or local fund. Local authority is

taxable for the business carried on by it

vi) Company – 2(17) an Indian Company and any foreign Company

vii) Artificial juridical person – All other persons not falling in any of the above categories

will fall here. E.g. Deity, idol

Company [Section 2(17)] - For all purposes of the Act the term ‘Company’, has a much wider

connotation than that under the Companies Act. Under the Act, the expression

‘Company’ means:

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(1) any Indian company as defined in section 2(26); or

(2) any body corporate incorporated by or under the laws of a country outside India, i.e., any

foreign company; or

(3) any institution, association or body which is assessable or was assessed as a company for

any assessment year under the Indian Income-tax Act, 1922 or for any assessment year

commencing on or before 1.4.1970 under the present Act; or

(4) any institution, association or body, whether incorporated or not and whether Indian or

non-Indian, which is declared by a general or special order of the CBDT to be a company for

such assessment years as may be specified in the CBDT’s order.

Domestic company [Section 2(22A)] - means an Indian company or any other company which, in

respect of its income liable to income-tax, has made the prescribed arrangements for the

declaration and payment of dividends (including dividends on preference shares) within

India, payable out of such income.

Indian company [Section 2(26)] - Two conditions should be satisfied so that a company can be

regarded as an Indian company -

(a) The company should have been formed and registered under any law relating to

Companies, which was or is in force in any part of India, and

(b) The registered office or the principal office of the Company should be in India.

The expression ‘Indian Company’ also includes:

(i) A corporation established by or under a Central, State or Provincial Act (like Financial

Corporation or a State Road Transport Corporation),

(ii) An institution or association or body which is declared by the Board to be a company

under section 2(17)(iv) provided its registered or principal office is in India.

(iii) in the case of the State of Jammu and Kashmir, a company formed and registered under

any law for the time being in force in that State.

(iv) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Daman and

Diu, and Pondicherry, a company formed and registered under any law for the time being in

force in that Union territory.

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Company in which public are substantially interested [Section 2(18)] - The following companies

are said to be companies in which the public are substantially interested:

(i) A company owned by the Government (either Central or State but not Foreign) or the

Reserve Bank of India (RBI) or in which not less than 40% of the shares are held by the

Government or the RBI or corporation owned by that bank.

(ii) A company which is registered under section 25 of the Companies Act, 1956 (formed for

promoting commerce, arts, science, religion, charity or any other useful object).

(iii) A company having no share capital which is declared by the Board for the specified

assessment years to be a company in which the public are substantially interested.

(iv) A company which is not a private company as defined in the Companies Act, 1956 and

which fulfills any of the following conditions :

- its equity shares should have, as on the last day of the relevant previous year, been listed in

a recognised stock exchange in India; or

- its equity shares carrying at least 50% (40% in case of industrial companies) voting power

should have been unconditionally allotted to or acquired by and should have been

beneficially held throughout the relevant previous year by (a) Government or (b) a Statutory

Corporation or (c) a company in which public are substantially interested or (d) any wholly

owned subsidiary of company mentioned in (c).

(v) A company which carries on its principal business of accepting deposits from its

Members and which is declared by the Central Government under section 620A of the

Companies Act to be Nidhi or a Mutual Benefit Society.

(vi) A company whose equity shares carrying at least 50% of the voting power have been

allotted unconditionally to or acquired unconditionally by and were beneficially held

throughout the relevant previous year by one or more co-operative societies.

Person having substantial interest in the company [Section 2(32)] – is 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 at least 20% of the total voting

power.

Deemed Dividend – 2(22) is inclusive definition

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1. Distribution of accumulated profits, by way of release of assets.

2. Distribution of debentures, deposit certificates and bonus shares to preference

shareholders – to the extent of accumulated profits.

3. Distribution on liquidation - Any distribution made to the shareholders of a company on

its liquidation, to the extent to which the distribution is attributable to the accumulated

profits of the company immediately before its liquidation, whether capitalised or not, is

deemed to be dividend income.

Note: Any distribution made out of the profits of the company after the date of the

liquidation cannot amount to dividend. It is a repayment towards capital.

Accumulated profits include all profits of the company up to the date of liquidation

whether capitalised or not.

4. Distribution on reduction of capital - Any distribution to its shareholders by a company

on the reduction of its capital to the extent to which the company possessed accumulated

profits, whether capitalised or not, shall be deemed to be dividend.

Exception - The same exceptions as given in case (c) above shall also apply in this

case.

5. Advance or loan by a closely held company to its shareholder - Any payment by a

company in which the public are not substantially interested of any sum by way of

advance or loan to any shareholder who is the beneficial owner of 10% or more of the

equity capital of the company will be deemed to be dividend to the extent of the

accumulated profits. If the loan is not covered by the accumulated profits, it is not

deemed to be dividend.

There are two exceptions to this rule:

(i) If the loan is granted in the ordinary course of its business and lending of

money is a substantial part of the company’s business, the loan or advance

to a shareholder is not deemed to be dividend.

(ii) Where a loan had been treated as dividend and subsequently the company

declares and distributes dividend to all its shareholders including the

borrowing shareholder, and the dividend so paid is set off by the company

against the previous borrowing, the adjusted amount will not be again be

treated as a dividend.

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Advance or loan by a closely held company to a specified concern - Any payment

by a company in which the public are not substantially interested to any concern (i.e.

HUF / Firm / AOP / BOI / Company) in which a shareholder, having the beneficial

ownership of atleast 10% of the equity shares is a member or a partner and in which he

has a substantial interest (i.e. atleast 20% share of the income of the concern). The

dividend income shall be taxable in the hands of the concern. Also, any payments by such a

closely held company on behalf of, or for the individual benefit of any such shareholder will

also deemed to be dividend. However, in both cases the ceiling limit of dividend is the

extent of accumulated profits.

Accrual of dividend: Dividend paid by a foreign company outside India will not be deemed to

accrue or arise in India. A Non Resident need not pay tax on dividend received by him from a

Foreign Company outside India.

Assessment year (Section: 2(9)): Period of twelve months commencing from 1st April every year.

Previous year [Section 3] – It means the financial year immediately preceding the assessment

year. The income earned during the previous year is taxed in the assessment year.

Business or profession newly set up during the financial year - In such a case, the previous year

shall be the period beginning on the date of setting up of the business or profession and ending

with 31st March of the said financial year.

If a source of income comes into existence in the said financial year, then the previous year will

commence from the date on which the source of income newly comes into existence and will end

with 31st March of the financial year.

Previous year for undisclosed sources of income:

i) Cash credit: S.68 – sum found credited to assessee and no explanation given about the

nature and source – charged as income in the year when such entry was found.

New proviso added to the sec 68; Unexplained share capital, share premium etc.

credited in the books of account of a closely held company to be treated as income of

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such company if the explanation offered by the Assessee Company is not satisfactory

for the Assessing officer. (w.e.f A.Y. 2013-14)

ii) Unexplained investments: S69 – as S.68.

iii) Unexplained money, bullion, jewellery, other valuables (S. 69A) -not recorded in the

books and remain unexplained –in the year when it is found. Assessee should be the

owner and not merely in possession of the same.S69A

iv) Amount of investment etc not fully disclosed in the books –S.69B.

v) Unexplained expenditure S.69C – such expenditure which is deemed to be the income

of the assessee shall not be allowed as a deduction under any head of the income.

vi) Amount borrowed or repaid on hundi-S.69D – Where any amount is borrowed on a

hundi or any amount due thereon is repaid other than through an account payee

cheque, amount so borrowed or repaid shall be deemed to be income. He then will not

be liable to be assessed for repayment thereof and vice a versa.

In order to control laundering of unaccounted money by availing the benefit of basic

exemption limit, the unexplained money, investment, expenditure, etc. deemed as income

under section 68 or section 69 or section 69A or section 69B or section 69C or section

69D would now be taxed at the maximum marginal rate of 30% (plus surcharge and cess)

with effect from A.Y.2013-14. No basic exemption or allowance or expenditure shall be

allowed to the assessee under any provision of the Income-tax Act, 1961 in computing

such deemed income.

Exceptions to the rule of assessment for previous year:

The income of an assessee for a previous year is charged to income-tax in the assessment year

following the previous year. However, in a few cases, this rule does not apply and the income

is taxed in the previous year in which it is earned. These exceptions have been made to protect

the interests of revenue. The exceptions are as follows:

i) Shipping business of non resident S 172 such ship carries passengers etc shipped at a

port in India, the ship is allowed to leave only which the tax is paid or satisfactory

arrangement is made.71/2 % of freight paid to owner or charterer in India is deemed to

be his income.

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ii) Persons leaving India [S174]: During current assessment year if individual plans to

leave India and appears unintentional of returning to India-assessing officer may

charge him up to the date of his departure.

iii) Persons likely to transfer property to avoid tax S175

iv) AOP / BOI / Artificial Juridical Person formed for a particular event or purpose [S

174A]

v) Discontinued business S176- from the expiry of previous year up to the date of

discontinuation.

BASIC CONCEPTS:

Income: 2(24) inclusive definition.

- Profits and gains

- Dividend

- Voluntary contribution received by trust etc., for charitable purposes

- Perquisite, Allowance etc. over and above perquisites

- Personal allowance

- Benefit convertible into money or not by director etc.

- Benefit convertible into money or not by representative assessee

- Section 41 or 59 – any sum chargeable to income tax

- Sec. 28 – any sum or benefit chargeable to income tax

- Capital gains u/s 45

- Insurance co. profits u/s 44

- Winning from lotteries etc.

- Employee’s contribution towards welfare funds

- Keyman insurance policy including bonus – LIP on employee’s life

- Any sum exceeding 50,000 in aggregate during the year received on or after 1.4.2006

without consideration by individual or HUF. However, this clause shall not apply to sum

received a) from relative b) on occasion of marriage c) under will or by inheritance d) in

contemplation of death of payer. “Relative” – Spouse, brother, sister, brother or sister of

Parents, spouse, lineal ascendant or descendant of individual / spouse

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- Voluntary contribution received by approved non-profit university or other educational

institution referred to in section 10(23C)(vi) (the annual receipts of which exceed Rs. 1

crore) or by non-profit hospital or other institution referred to in section 10 (23C)(via) (the

annual receipts of which exceed Rs. 1crore) shall be deemed to be income of such

institutions. [W.r.e.f. assessment year 1999-2000]

- Further, w.e.f. assessment year 2007-08, voluntary contribution received by non-profit

university or other educational institution referred to in section 10(23C)(iiiad)(the annual

receipts of which do not exceed Rs. 1 crore) or by any non-profit hospital or other

institution referred to in section 1O(23C)(iiiae) (the annual receipts of which do not exceed

Rs. 1crore) shall also be deemed to be income of such institutions. The above amendment

has been made consequent to the introduction of new section viz. section 115BBC relating

to taxation of certain anonymous donations.

Three stages in imposition of tax:

1. Declaration of Income and tax liability

2. Assessment

3. Process of collection and recovery of tax

Rates of income-tax for assessment year 2013-14

1.1(A) For an individual (man or woman), resident in India who is of the age of 60 year or more

at any time during the previous year-

Income Slabs Tax Rates

Upto Rs. 3,00,000 Nil

Rs. 3,00,001 to Rs. 5,00,000 10%

Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

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1.1(B) In case of ‘Very Senior Citizen’ who is a resident and 80 years and above.

Income Slabs Tax Rates

Upto Rs. 2,50,000 Nil

Rs. 2,50,001 to Rs. 5,00,000 Nil

Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

1.1(C) Individuals, [other than those mentioned in para 1.1(A), (B) and (C) above] HUF, AOP,

BOI (other than co-operative societies).

Income Slabs Tax Rates

Upto Rs. 2,50,000 Nil

Rs. 2,50,001 to Rs. 5,00,000 10%

Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

Education Cess at the rate of 2% on income-tax and surcharge, if any

Secondary and Higher Education Cess (SHEC): @1% of income-tax and surcharge (not

including the “Education Cess on income tax”) shall be levied.

1.2 Artificial juridical persons: The rates of tax are same as given above in the case of

individuals.

(E.C: 2%, SHEC: 1%)

1.3 Firms: In the case of firms, the rate of tax remains at 30%.

1.4 Companies:

(a) Domestic companies: In Case of domestic companies, the rate of tax remains at 30%.

(b) Foreign companies: Tax Rate 40%.

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Surcharge on income-tax: The amount of income-tax computed in accordance with the above

rates, or in section 111A or section 112, shall, in the case of every company, having total income

exceeding Rs. 1 crore, be increased by a surcharge calculated,

in the case of every domestic company at the rate of 5% (w.e.f. 1.4.2011) of such income-tax;

in the case of every company other than a domestic company at the rate of 2% (w.e.f. 1.4.2011)

Education Cess and SHEC: As above

Marginal Relief: The concept of marginal relief is applicable only in the case of companies w.e.f.

A.Y.2010-11. Marginal relief is available in case of companies having a total income exceeding

Rs. 1 crore i.e. the additional amount of income-tax payable (together with surcharge) on the

excess of income over Rs. 1 crore should not be more than the amount of income exceeding Rs.

1 crore

Minimum Alternative Tax [MAT] – For Companies

18.5% of book profits + surcharge 5% (w.e.f. 1.4.2011)

Alternative Minimum Tax [AMT] – for LLP

Limited Liability Partnership (LLP) will have to pay Alternate Minimum Tax (AMT) @ 18.5%

on its gross total income as computed u/s 115JC (w.e.f. 1.4.2011). No surcharge applicable but

education cess is payable @3%.

1.5 Co-operative Societies

Income Slabs Tax Rates

Upto Rs. 10,000 10%

Rs. 10,001 to Rs. 20,000 20%

Above Rs. 20,000 30%

Surcharge: There will be no surcharge in case of co-operative societies.

Education Cess and SHEC: As above

1.6 Local authorities: Tax rate: 30%.

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Surcharge: There will be no surcharge in case of local authorities also.

Education Cess and SHEC: As above

Points of distinction between revenue and capital receipts:

i) Basis of its measurement – receipt referable to fixed capital is capital receipt,

circulating capital – revenue receipt.

ii) Quantum and periodicity – capital assets – income charged as capital gains, sale of

trading assets – income from business sec. 28

iii) Name given to receipt by the parties – regular business and incidental items thereto –

revenue

iv) Form in which the sum is received – sale of shares etc. the intention of the parties is

important

v) Nature of the transaction giving rise to receipts – repetition not required for

amounting it to be revenue.

vi) Resale of the assets – whether capital or revenue depends upon the conduct of

assessee, operations involved etc.

vii) Asset yielding income – annuities (purchase of income) revenue income

viii) Actual receipt, source and application of amount – restraint of trade, compensation

received – capital receipt as it is replacing the source of income

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CHAPTER 2 - RESIDENTIAL STATUS [Section 6]

Individual [Section 6(1)]:

1) If he is in Indian in that previous year for 182 days or more OR

2) He has been in India during 4 years immediately preceding previous year for a period of

365 days or more and for a period of 60 days or more in previous year.

If the individual satisfies any one of the conditions mentioned above, he is a resident. If both

the above conditions are not satisfied, the individual is a non-resident.

Explanation: (only for b)

The following categories of individuals will be treated as residents only if the period of their

stay during the relevant previous year amounts to 182 days.

i) Individual, being a citizen of India, leaves India in any previous year as a member of

crew of an Indian ship or for employment outside India the period in all shall be 182

days or more.

ii) Individual being a citizen of India or a person of Indian origin, who being outside

India, comes on a visit to India in any previous year the period in all shall be 182 days

or more.

Person not ordinarily resident:

If he satisfies any one of the following two conditions

1. He is non- resident in India in nine out of Ten previous year preceding that year,

2. He has been in India for a period of 729 days or less in 7 preceding previous years preceding

the previous year.

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Individual

Non- resident Resident

Resident and Resident but not

ordinarily resident ordinarily resident

HUF, firm or AOP is said to be in India in any previous year except where during that year the

control and management of affairs is situated wholly outside India.

For HUF, it shall become R&OR if Karta satisfies conditions as laid down for individual for

becoming R& OR.

A Company said to be resident in previous year if:

It is an Indian company OR

During that year, the control and management of affairs is situated wholly in India. S.2(26)

Person resident in any previous year relevant to an assessment year in respect of any source of

income shall be deemed to be resident for each of his other source of income. Section 6(5)

Problem 1: Mr. India, an Australian cricketer has been coming to India for 100 days every year

since 2000-01. Determine his residential status for the A.Y 2015-16?

What will be the answer if he has been coming to India for 110 days instead of 100 days?

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Problem 2 X came to India from America for the first time on 10-10-2014. He returns to his

home country after staying in India upto 5-7-2014.

Will he be a resident in India for the A.Y. 2015-16?

Income deemed to be received: (Section 7)

• Income deemed to be received in the previous year

• Annual accretion is the previous year to the balance at the credit of an employee

participating in a recognised provident fund.to the extent of contribution made by an

employer un excess of 12% of salary and interest in excess of 9.5%

• The transferred balance in a recognised provident fund.

• Contribution by Central Government or other employer towards pension scheme referred

to under 80CCD

Dividend Income: (Section 8)

Any dividend declared by a company or distributed or paid within the meaning of section 2 (22)

(a) to (e).Any interim dividend which is unconditionally made available by the company to the

member who is entitled to it.

Income deemed to accrue or arise in India: (Section 9)

1) All income accruing or arising directly or indirectly through or from any business

connection in India or from any property or any asset or through transfer of capital

asset situated in India.

2) India under the head salaries if it is earned in India. Income under the head salaries

payable by government to a citizens of India for services outside India.

3) Dividend paid by an Indian company outside India.

4) Income by way of interest payable by:

i) The government or

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ii) A person resident, except interest on debentures incurred and used for business

carried on outside India or

iii) A person non-resident, where interest on any debentures or moneys borrowed

used for business carried or in India.

5) Income by way of fees for technical services payable by;

i) The government or

ii) A person resident, except fees payable in respect of services utilised in

business carried outside India or

iii) A person non-resident, where fees payable in respect of services utilised in

business carried on in India.

Explanation 1 to section 9(1)(i) lists out income which shall not be deemed to accrue or arise in

India.

They are given below:

1. In the case of a business, in respect of which all the operations are not carried out in

India: In the case of a business of which all the operations are not carried out in India, the

income of the business deemed to accrue or arise in India shall be only such part of income as is

reasonably attributable to the operations carried out in India. Therefore, it follows that such part

of income which cannot be reasonably attributed to the operations in India, is not deemed to

accrue or arise in India.

2. Purchase of goods in India for export [Explanation 1(b) to section 9(1)(i)]: In the 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.

3. Collection of news and views in India for transmission out of India Explanation 1(c) to

section 9(1)(i)]: In the case of a non-resident, being a person engaged in the business of running

a news agency or of publishing newspapers, magazines or journals, no income shall be deemed

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to accrue or arise in India to him through or from activities which are confined to the collection

of news and views in India for transmission out of India.

4. Shooting of cinematograph films in India [Explanation 1(d) to section 9(1)(i)]: In the case

of a non-resident, no income shall be deemed to accrue or arise in India through or from

operations which are confined to the shooting of any cinematograph film in India, if such

nonresident is :

(i) an individual, who is not a citizen of India or

(ii) a firm which does not have any partner who is a citizen of India or who is resident in India ;

or

(iii) a company which does not have any shareholder who is a citizen of India or who is resident

in India.

Rounding off of Income Section 288A : to the nearest Rs.10.

Rounding off of Tax Section 288B : to the nearest Rs. 10.

Incidence of Tax:

1) Any income which is either received in India or deemed to be received in India is taxable

in India, irrespective of the residential status.

2) Any Income which is either earned in India or is deemed to be earned in India is taxable in

India, irrespective of the residential status.

3) For a resident in India (for individual & HUF, resident and ordinarily resident in India) All

global Income, wherever earned/received is taxable in India.

4) For a Non – Resident, an income is taxable only if it is either earned in India or it is

received in India.

5) For not Ordinarily resident, income earned and received outside India will be taxable, only

when it is from a business or profession controlled or set up in India.

Q.1 Determine the taxability of the following incomes in the hands of a resident and ordinarily

resident, resident but not ordinarily resident, and non-resident for the A.Y. 2015-16 -

Interest on UK Development Bonds, 50% of interest received in India 10,000

SIDDHARTH ACADEMY

Income from a business in Dubai (50% is received in India) 20,000

Profits on sale of shares of an Indian company received in London 20,000

Dividend from British company received in London 5,000

Profits on sale of plant at Germany 50% of profits are received in India 40,000

Income earned from business in Germany which is controlled from Delhi 70,000

(Rs. 40,000 is received in India)

Profits from a business in Delhi but managed entirely from London 15,000

Rent from property in London deposited in a Indian Bank at London, 50,000

brought to India

Interest for debentures in an Indian company received in London. 12,000

Dividend from Reliance Petroleum Limited, an Indian Company 5,000

Agricultural income from a land in Rajasthan 15,000

Q.2 Determine the taxability of the following incomes in the hands of a resident and ordinarily

resident, resident but not ordinarily resident, and non-resident for the A.Y. 2015-16 -

Fees for technical services rendered in India but received in London 8,000

Profits from a business in Bombay managed from London 26,000

Pension for services rendered in India but received in Burma 4,000

Income from property situated in Pakistan received there 16,000

Past foreign untaxed income brought to India during the previous year 5,000

Income from agricultural land in Nepal received there and then brought to 18,000

India

Income from profession in Kenya which was set up in India, received there 5,000

but spent in India

Gift received on the occasion of his wedding 20,000

Interest on savings bank deposit in State Bank of India 10,000

Income from a business in Russia, controlled from Russia 20,000

Home Work

Determine the taxability of income of US based company Heli Ltd., in India on entering

following transactions during the financial year 2015-16:

SIDDHARTH ACADEMY

(i) Rs.5 lacs received from an Indian domestic company for providing technical know how in

India.

(ii) Rs.6 lacs from an Indian firm for conducting the feasibility study for the new project in

Finland

(iii) Rs.4 lacs from a non-resident for use of patent for a business in India.

(iv) Rs.8 lacs from a non-resident Indian for use of know how for a business in Singapore.

(v) Rs.10 lacs for supply of manuals and designs for the business to be established in

Singapore.

Explain the rate of tax applicable on taxable income for US based company, Heli Ltd., in India.