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

Mr. Raghav Kapoor, resident in India, transferred assets to a company incorporated outside India, in association with other operations. The foreign company earns income, and Mr. Kapoor 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. He claims the transfer was a bona fide commercial transaction not designed to avoid tax, but offers no proof to the Assessing Officer. Under section 174 of the Income-tax Act, 2025, what is the position?

The income is deemed to be Mr. Kapoor's. A foreign company is treated as non-resident, his power of appointment gives him power to enjoy its income, and he has not shown the Assessing Officer that the transfer was without tax-avoidance purpose or bona fide commercial. Actual receipt in India is not required.

  1. AThe income is deemed to be Mr. Kapoor's, as he has power to enjoy it and has not shown the required satisfaction to the Assessing OfficerCorrect
  2. BThe income is not deemed his, because a foreign company is a separate person
  3. CThe income is deemed his only if he actually receives it in India
  4. DThe section applies only if the transfer took place after the commencement of the Act

Explanation

Under section 174(2) income of a non-resident to which a person acquires power to enjoy by transfer is deemed his. A body corporate incorporated outside India is treated as non-resident, and a power of appointment gives power to enjoy. The exemption in sub-section (5) needs him to show to the Assessing Officer's satisfaction that there was no tax-avoidance purpose or the transactions were bona fide commercial; a bare claim is not enough. The section covers transfers before and after commencement, and actual receipt is not needed.

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