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CMA Intermediate · Direct and Indirect Taxation · Basic Concepts, Basis of Charge and Capital and Revenue Receipts

Mr. Karan Iyer, a non-resident, has gross total income of ₹15,00,000 for the tax year, including ₹5,00,000 of interest on bonds covered by section 209(1) (Table: Sl. No. 1). Which statement correctly states how Chapter VIII deductions are treated under section 209(2)?

Chapter VIII deductions are allowed as if gross total income were ₹10,00,000. Because his income is not solely bond interest, section 209(2)(b) reduces gross total income by the bond interest of ₹5,00,000 and computes deductions on the balance.

  1. ANo Chapter VIII deduction is allowed because the bond interest is included
  2. BChapter VIII deductions are allowed as if gross total income were ₹10,00,000Correct
  3. CChapter VIII deductions are allowed as if gross total income were ₹15,00,000
  4. DChapter VIII deductions are allowed only against the ₹5,00,000 interest

Explanation

His gross total income does not consist only of bond interest, so section 209(2)(a) does not bar deductions. Under section 209(2)(b), gross total income is reduced by the Sl. No. 1 to 3 income (15,00,000 - 5,00,000 = ₹10,00,000) and Chapter VIII deductions are allowed as if that reduced figure were the gross total income.

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