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CA Final · Direct Tax Laws & International Taxation · Non Resident Taxation

Anita Rao, a resident in India, transferred assets to a company incorporated outside India. By virtue of the transfer, she has power to control the application of the company's income, which would have been chargeable to tax in India had it been hers. She cannot show that the transfer lacked a tax-avoidance purpose or was a bona fide commercial transaction. The company earned Rs 12,00,000 of such income, and Anita later receives Rs 4,00,000 of it as a dividend. Under section 174 of the Income-tax Act, 2025, what is the position?

The whole Rs 12,00,000 is deemed to be Anita's income because she can control its application and cannot prove the section 174(5) exceptions. The Rs 4,00,000 she later receives is not taxed again, as section 174(4) prevents double inclusion.

  1. ARs 12,00,000 is deemed her income, and the Rs 4,00,000 later received is not taxed againCorrect
  2. BRs 12,00,000 is deemed her income and the Rs 4,00,000 is taxed again when received
  3. COnly Rs 4,00,000 is deemed her income, as that is what she received
  4. DNothing is deemed her income because the company is a foreign body corporate

Explanation

Section 174(6)(b) treats a body corporate incorporated outside India as non-resident. Under 174(6)(c)(v), ability to control application of the income means she has power to enjoy it, so under 174(2) the Rs 12,00,000 is deemed her income. The exception in 174(5) fails as she cannot prove it. Under 174(4), income already charged and later received is not taxed again, so the Rs 4,00,000 is not added again.

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