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

Mr. Rao, a resident, transferred his rights in a crypto-mining arrangement to a company incorporated outside India. Through this transfer, he can control the application of the company's mining income. That income, if it were his, would be chargeable to tax. The Assessing Officer deems the income to be Mr. Rao's income and taxes it. Later, the foreign company pays him the same amount as a benefit. Which statement is correct under section 174 of the Income-tax Act, 2025?

The later receipt is not taxed again. Once a person has been charged on income deemed to be his under section 174, the Act says that income, when subsequently received by him in any form, does not again form part of his income.

  1. AThe amount is deemed his income again when he receives it, since receipt is a separate event
  2. BThe amount is not deemed to form part of his income again, because it was already charged to tax as deemed incomeCorrect
  3. CThe section cannot apply because a foreign company is not treated as a non-resident
  4. DThe section applies even if he proves the transfer was a bona fide commercial transaction not designed to avoid tax

Explanation

Section 174 deems income of a non-resident to be the income of a person who can control its application, and a body corporate incorporated outside India is treated as non-resident. Where the person has been charged on the deemed income and later receives it, it is not again deemed to form part of his income. The section does not apply if he shows to the Assessing Officer's satisfaction that the transfer was bona fide commercial and not designed to avoid tax, so the last option is wrong. The first option reverses the rule against double charge.

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