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

Kiran, resident in India, transferred assets to a non-resident trust. Income of the trust was Rs 8,00,000 and was deemed Kiran's income under section 174 of the Income-tax Act, 2025 and taxed. In a later year Kiran received Rs 8,00,000 from the trust as a distribution. Separately, Kiran received a loan of Rs 3,00,000 from the trust connected with the transfer. Which statement is correct?

The Rs 8,00,000 is not deemed his income again when received, because section 174(4) prevents double inclusion. The Rs 3,00,000 loan is a capital sum, since loans are expressly included, and it can attract section 174(3) whether received before or after the transfer.

  1. AThe Rs 8,00,000 when subsequently received is not again deemed to form part of his income, and the loan counts as a capital sum that can attract section 174(3)Correct
  2. BThe Rs 8,00,000 is taxed again on receipt as it is a distribution
  3. CThe loan is not a capital sum because loans are excluded
  4. DSection 174(3) applies only if the loan was received before the transfer

Explanation

Section 174(4) provides that income already charged as deemed income and later received, in any form, is not again deemed part of his income. Section 174(7)(d)(i) includes a sum paid by way of loan within capital sum, and 174(3) applies whether the capital sum is received before or after the transfer. So the double-taxation and loan-exclusion options are wrong.

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