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CA Final · Direct Tax Laws & International Taxation · Taxation of Digital Transactions

Arvind, a resident, transferred shares to a Mauritius-incorporated company through which income became payable to that company. Arvind obtained power to enjoy that income in the future. Under the Income-tax Act, 2025 section 174, which statement is correct?

The income can be deemed Arvind's income. Section 174 treats a body corporate incorporated outside India as a non-resident, and where a person gets power to enjoy a non-resident's income through a transfer, it is deemed his income whether or not chargeable under other provisions, unless the exceptions apply.

  1. AThe Mauritius company's income is deemed Arvind's income only if the company is managed from India
  2. BThe income can be deemed Arvind's income, since a body corporate incorporated outside India is treated as a non-residentCorrect
  3. CThe section applies only if the transfer happened after the commencement of the Act
  4. DThe section never applies where the income is not otherwise chargeable to Indian tax

Explanation

Section 174(6)(b) treats any body corporate incorporated outside India as non-resident. Under 174(2), if the person has power to enjoy a non-resident's income that would be chargeable if it were his, it is deemed his income whether or not chargeable under other provisions. Section 174(1) covers transfers before and after commencement. So the other options misstate this.

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