Skip to content

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

Arjun, resident in India, transferred assets to a foreign company Zeta Ltd. through which income becomes payable to Zeta Ltd. Arjun has power to control the application of that income and the income would have been chargeable had it been his own. Arjun cannot show that the transfer was a bona fide commercial transaction or lacked a tax avoidance purpose. Under section 174 of the Income-tax Act, 2025, what is the position?

The income of Zeta Ltd. is deemed to be Arjun's income for all purposes of the Act. He has power to enjoy it through control over its application, it would be chargeable in his hands, and he cannot prove the exceptions of no avoidance purpose or bona fide commercial transactions.

  1. AThe income of the non-resident is deemed to be Arjun's income for all purposes of the ActCorrect
  2. BOnly the capital sum received by Arjun is taxed, never the income
  3. CNothing is taxed because a body corporate incorporated outside India is a non-resident
  4. DThe income is taxed in Arjun's hands only if he actually receives it

Explanation

Section 174(2) deems income of a non-resident to be the first mentioned person's income where he acquires rights giving power to enjoy it and it would have been chargeable. Section 174(6)(c)(v) treats ability to control the application of income as power to enjoy. A foreign company is treated as non-resident, which supports applying the section. The exception in 174(5) fails as he cannot show lack of avoidance purpose or bona fide commercial transaction. Actual receipt is not needed.

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