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

Case: Arjun, a resident, transfers assets to a foreign company through which income becomes payable to the non-resident. By virtue of the transfer he acquires rights giving him power to enjoy that income. Which statement is correct under section 174 of the Income-tax Act, 2025?

The income of the non-resident that Arjun has power to enjoy is deemed his income. However, he escapes the section by satisfying the Assessing Officer that tax avoidance was not a purpose, or that the transfer and associated operations were bona fide commercial transactions.

  1. AThe income is deemed his only if the foreign company distributes it as dividend within the year
  2. BThe income is deemed Arjun's income, but section 174 does not apply if he shows to the Assessing Officer's satisfaction that avoidance of tax was not a purpose of the transfer or that it was a bona fide commercial transactionCorrect
  3. CThe section applies regardless of any proof of bona fide commercial purpose
  4. DSection 174 applies only to transfers made after the commencement of the Act

Explanation

Section 174(2) deems income of the non-resident that he has power to enjoy to be his income. Section 174(5) gives relief if he shows no purpose of tax avoidance or that transactions were bona fide commercial. Section 174(1) covers transfers before and after commencement, so the last option is wrong.

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