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CA Intermediate · Taxation · Residential Status and Scope of Total Income

Zenith Traders, a partnership firm, has three partners. Two partners live in Chennai and one in Dubai. During tax year 2026-27 the business was decided by the two Chennai partners, but the Dubai partner attended some meetings in Chennai and also took a decision on one contract while in Dubai. Which statement on the firm's residential status is correct?

The firm is resident in India. A firm, LLP or association is non-resident only when control and management of its affairs is situated wholly outside India in the tax year. Since the Chennai partners exercised control from India, the firm cannot be non-resident.

  1. AThe firm is resident because the Chennai partners took most decisions
  2. BThe firm is non-resident because one partner lives abroad
  3. CThe firm is resident only if the control and management is wholly in India
  4. DThe firm is resident in India unless control and management of its affairs is situated wholly outside IndiaCorrect

Explanation

A firm is non-resident only if control and management of its affairs is situated wholly outside India during the year. Here part of the control is in India, so it is resident. Option 2 uses a partner's residence, which is irrelevant, and option 3 reverses the test.

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