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

Mr. Arjun, a resident, transferred assets to a foreign company incorporated outside India. By virtue of that transfer and associated operations, income became payable to the company. Arjun can by exercising a power of appointment obtain for himself the beneficial enjoyment of that income. The income would have been chargeable had it been his. Arjun cannot show that the transfer was a bona fide commercial transaction or that tax avoidance was not a purpose. What is the position under section 174 of the Income-tax Act, 2025?

The income is deemed to be Arjun's income for all purposes of the Act. Section 174 attributes a non-resident's income to a person who has power to enjoy it, for example through a power of appointment. He cannot rely on the exception because he cannot prove bona fide commercial purpose or absence of tax avoidance.

  1. AThe income is taxed only in the company's hands, since a foreign company is a non-resident
  2. BThe income is deemed to be Arjun's income for all purposes of the ActCorrect
  3. COnly the capital sum received by Arjun is taxed, and the income is ignored
  4. DThe section does not apply because the transfer was made before the Act commenced

Explanation

Section 174(2) deems income of a non-resident to be the income of a person who has power to enjoy it through the transfer, where it would have been chargeable if his. A body corporate incorporated outside India is treated as non-resident, and a power of appointment is a power to enjoy. Section 174(1) covers transfers before and after commencement. The exemption in 174(5) fails as he cannot prove it.

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