Skip to content

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

Arjun, resident in India, transferred assets to a company incorporated outside India, and income from those assets became payable to that company. Arjun can obtain benefits provided out of that income. Under section 174 of the Income-tax Act, 2025, how is the foreign company treated and what follows?

The foreign company is treated as a non-resident, and the income can be deemed Arjun's income because he has power to enjoy it through benefits provided out of that income. The section applies to transfers before and after commencement, and a capital sum receipt is only an alternative trigger.

  1. AThe company is treated as a non-resident, and the income may be deemed Arjun's income since he has power to enjoy itCorrect
  2. BThe company is treated as a resident, so section 174 cannot apply
  3. CThe income is deemed Arjun's only if he actually receives a capital sum
  4. DThe income is taxed in Arjun's hands only if the transfer was made after the commencement of the Act

Explanation

Section 174(6)(b) treats a body corporate incorporated outside India as a non-resident. Under 174(6)(c)(iii), receiving or being entitled to a benefit out of the income gives power to enjoy, so 174(2) deems the income his. The section covers transfers before and after commencement, and capital sum receipt is a separate trigger in 174(3).

Did you get it right without looking?

One question tells you little. A timed set on Non Resident Taxation shows your real accuracy, how long you take and where you lose marks.

Practise Non Resident TaxationFree diagnostic mock

More Non Resident Taxation questions