Bos 25030 CP 2

2
RESIDENCE AND SCOPE OF TOTAL

INCOME
Key Points
Section 6 [Residence in India]

(i) (i)
Individuals [Resident and ordinarily resident / Resident but not ordinarily
resident / non-resident]The residential status of an individual is determined on
the basis of the period of his stay in India.
Basic conditions:
(i)
Must be present in India for a period of 182 days or more during the
previous year
(ii) Must be present in India for a period of 60 days or more during the
previous year and 365 days or more during the 4 years immediately
preceding the previous year.
However, the second condition is not applicable in the following cases:
(1) An Indian citizen who leaves India during the previous year for the purpose of
employment outside India or as a member of the crew of an Indian ship;
(2) An Indian citizen or a person of Indian origin who, being outside India,
comes on a visit to India during the previous year.
Additional conditions:
(i)
He is a resident in at least 2 out of 10 previous years preceding the relevant
previous year;
(ii) His stay in India in the last 7 years preceding the relevant previous year is
730 days or more.
(ii)
Resident and ordinarily

Resident but not
Non-resident
resident
ordinarily resident
Must satisfy at least one Must satisfy at least one Must not satisfy
of the basic conditions of the basic conditions either of the basic
and both the additional and one or none of the conditions.
conditions.
additional conditions.
HUFs [Resident and ordinarily resident / Resident but not
ordinarily resident / non-resident]
(i)
A HUF would be resident in India if the control and management

of its affairs is situated wholly or partly in India.
The Institute of Chartered Accountants of India
Residence and Scope of Total Income
(ii)
(iii)
2.2
If the control and management of the affairs is situated wholly

outside India, it would become a non-resident.
If the HUF is resident, then the status of the Karta would determine
whether the HUF is resident and ordinarily resident or resident but
not ordinarily resident
If the karta is resident and ordinarily resident, then the HUF would be a
resident and ordinarily resident and if the karta is resident but not
ordinarily resident, then the HUF would be a resident but not ordinarily
resident.
(iii) Firms & AOPs [Resident / Non-resident]

(i)
(ii)
(iv)
A firm or AOP would be resident in India if the control and

management of its affairs is situated wholly or partly in India.
If the control and management of the affairs is situated wholly
outside India, it would become a non-resident.
Companies [Resident / Non-resident]

(i)
(ii)
A company would be resident in India in any previous year if it is an

Indian Company or its place of effective management (POEM) in that
year is in India.
If the company is not an Indian Company and its POEM is also not in
India in that year, it would become a non-resident for that year.
Section 5 [Scope of Total Income]

Resident And
Ordinarily Resident
Income
received/
deemed
to
be
received/ accrued or
arisen/ deemed to
accrue or arise in or
outside India
In short, the global
income is taxable.
Resident But Not

Ordinarily Resident
Income which is received/
deemed to be received/
accrued or arisen/ deemed
to accrue or arise in India;
AND
Income which accrues or
arises outside India being
derived from a business
controlled
from
or
profession set up in India.
Non-Resident
Income
received/
deemed to be received/
accrued
or
arisen/deemed to accrue
or arise in India.
Question 1
Mr. Ramesh & Mr. Suresh are brothers and they earned the following incomes during the
financial year 2015-16. Mr. Ramesh settled in Canada in the year 1995 and Mr. Suresh
settled in Delhi. Compute the total income for the assessment year 2016-17.
2.3
Income-tax
Sr.
No.
Particulars
1.
Interest on Canada Development Bonds (only 50% of

interest received in India)
Dividend from British company received in London
2.
Mr. Ramesh
(` )
Mr. Suresh
(` )
35,000
40,000
28,000
20,000
1,00,000
1,40,000
3.
Profit from a business in Nagpur, but managed directly

from London
4.
Short term capital gain on sale of shares of an Indian

company received in India
60,000
90,000
5.
Income from a business in Chennai
80,000
70,000
6.
Fees for technical services rendered in India, but

received in Canada
1,00,000
----
7.
8.
Interest on savings bank deposit in UCO Bank, Delhi

Agricultural income from a land situated in Andhra
Pradesh
7,000
55,000
12,000
45,000
9.
10.
Rent received in respect of house property at Bhopal

Life insurance premium paid
1,00,000
---
60,000
30,000
Answer
Computation of total income of Mr. Ramesh & Mr. Suresh for the A.Y. 2016-17
S. No.
Particulars
1.
Interest on Canada Development Bond (See Note 2)
2.
Dividend from British Company received in London

(See Note 3)
3.
Mr. Ramesh
(NonResident)
(`)
Mr. Suresh
(Resident)
(`)
17,500
40,000
20,000
Profit from a business in Nagpur but managed

directly from London (See Note 2)
1,00,000
1,40,000
4.
Short term capital gain on sale of shares of an

Indian company received in India (See Note 2)
60,000
90,000
5.
Income from a business in Chennai (See Note 2)
80,000
70,000
6.

received in Canada (See Note 2)
Interest on savings bank deposit in UCO Bank, Delhi
(See Note 2)
1,00,000
7,000
12,000
7.

8.
Agricultural income from a land in Andhra Pradesh

(See Note 4)
9.
Income from house property at Bhopal (See Note 5)

Gross Total income
70,000
42,000
4,34,500
4,14,000
30,000
7,000
10,000
4,27,500
3,74,000
Less: Deduction under chapter VIASection 80C-Life insurance premium paid

Section 80TTA (See Note 6)
Total Income
2.4
Notes:
1.
Mr. Ramesh is a non-resident since he has been living in Canada since 1995. Mr.
Suresh, who is settled in Delhi, is a resident.
2.
In case of a resident, his global income is taxable as per section 5(1). However, as per
section 5(2), in case of a non-resident, only the following incomes are chargeable to tax:
(i)
Income received or deemed to be received in India; and
(ii) Income accruing or arising or deemed to accrue or arise in India.

Therefore, fees for technical services rendered in India would be taxable in the hands of
Mr. Ramesh, even though he is a non-resident.
The income referred to in Sl. No. 3,4,5 and 7 are taxable in the hands of both Mr.
Ramesh and Mr. Suresh since they accrue or arise in India.
Interest on Canada Development Bond would be fully taxable in the hands of Mr. Suresh,
whereas only 50% which is received in India is taxable in the hands of Mr. Ramesh.
3.
Dividend received from British company in London by Mr. Ramesh is not taxable since it
accrues and is received outside India. However, dividend received by Mr. Suresh is
taxable, since he is a resident. Exemption under section 10(34) would not be available in
respect of dividend received from a foreign company.
4.
Agricultural income from a land situated in India is exempt under section 10(1) in the
case of both non-residents and residents.
5.
Income from house propertyMr. Ramesh
Mr. Suresh
(`)
(`)
1,00,000
60,000
Less: Deduction under section 24 @ 30%
30,000
18,000
Net income from house property
70,000
42,000
Rent received
2.5
Income-tax
The net income from house property in India would be taxable in the hands of both Mr.
Ramesh and Mr. Suresh, since the accrual and receipt of the same are in India.
6.
In case of an individual, interest upto ` 10,000 from savings account with, inter alia, a
bank is allowable as deduction under section 80TTA.
Question 2
Mrs. Geetha and Mrs. Leena are sisters and they earned the following income during the
Financial Year 2015-16. Mrs. Geetha is settled in Malaysia since 1986 and visits India for
a month every year. Mrs. Leena is settled in Indore since her marriage in 199 4. Compute
the total income of Mrs. Geetha and Mrs. Leena for the assessment year 201 6-17:
Sl.
No.
Particulars
Mrs. Geetha
Mrs. Leena
(i)
Income from Profession in Malaysia, (set up in

India) received there
15,000
(ii)
Profit from business in Delhi, but managed

directly from Malaysia
40,000
(iii)
Rent (computed) from property in Malaysia

deposited in a Bank at Malaysia, later on
remitted to India through approved banking
channels.
1,20,000
(iv)
Dividend from PQR Ltd., an Indian Company
(v)
5,000
9,000
Dividend from a Malaysian company received in

Malaysia
15,000
8,000
(vi)
Cash gift received form a friend on Mrs. Leenas

50 th birthday
(vii)
Agricultural income from land in Maharashtra
7,500
(viii)
Past foreign untaxed income brought to India
5,000
(ix)
Fees for technical services rendered in India

received in Malaysia
25,000
(x)
Income from a business in Pune (Mrs. Geetha

receives 50% of the income in India)
Interest on debentures in an India company
(Mrs. Geetha received the same in Malaysia)
12,000
15,000
18,500
14,000
(xii)
Short-term capital gain on sale of shares of an

Indian company
15,000
25,500
(xiii)
Interest on savings account with SBI
12,000
8,000
(xiv)
Life insurance premium paid to LIC
(xi)
51,000
4,000
30,000
2.6
Answer
The residential status of Mrs. Geetha and Mrs. Leena has to be determined on the basis
of the number of days of their stay in India. Since Mrs. Geetha is settled in Malaysia since
1986, she would be a non-resident for A.Y.2016-17. Her visit to India for a month every
year would not change her residential status. However, Mrs. Leena would be resident and
ordinarily resident for A.Y.2016-17, since she is settled in India permanently since 1994.
Based on their residential status, the total income of Mrs. Geetha and Mrs. Leena would
be determined as follows:
Computation of total income of Mrs. Geetha & Mrs. Leena for the A.Y. 201 6-17
S.
No.
Particulars
1.
Income from profession in Malaysia (set up in India)

received there (Note 1)
2.
Profit from business in Delhi, but managed directly

from Malaysia (Note 1)
40,000
3.
Rent (computed) from property in Malaysia

deposited in a Bank at Malaysia, later on remitted to
India through approved banking channels (Note 1)
4.
Dividend from PQR Ltd. an Indian Company

[Exempt under section 10(34)]
5.
Dividend from Malaysian Company received in

Malaysia (Note 1)
8,000
6.
Cash gift received from a friend on Mrs. Leenas

50th birthday
Note: As per section 56(2)(vii), cash gifts received
from a non-relative would be taxable, if the amount
exceeds ` 50,000 in aggregate during the previous
year.
51,000
7.
Agricultural income from land in Maharashtra

[Exempt under section 10(1), both in the hands
of non-resident and resident].
8.
Past foreign untaxed income brought to India [Not

taxable, since it does not represent income of
the P.Y.2015-16].
9.

received in Malaysia (Note 1)
25,000
Mrs. Geetha
Mrs. Leena
(Non-Resident) (Resident)
(`)
(`)
2.7
Income-tax
10. Income from a business in Pune (Mrs. Geetha

receives 50% of the income in India) (Note 2)
12,000
15,000
11. Interest on debentures in an Indian company (Mrs.

Geetha received the same in Malaysia) (Note 2)
18,500
14,000
12. Short-term capital gain on sale of shares of an

Indian company (Note 2)
15,000
25,500
13. Interest on savings account with SBI (Note 2)
12,000
8,000
1,22,500
1,21,500
30,000
10,000
8,000
_______
______
1,12,500
83,500
Gross Total income

Less: Deductions under Chapter VIA
- Section 80C [Life insurance premium paid]
[Assuming that premium paid is within the specified
percentage (10% /20%, as the case may be) of
capital sum assured]
- Section 80TTA
(In case of an individual, interest upto
` 10,000 from savings account with, inter alia, a
bank is allowable as deduction under section
80TTA)
Total Income
Notes:
(1) As per section 5(1), global income is taxable, in case of a resident. However, as per
section 5(2), only the following incomes are chargeable to tax, in case of a non -resident:
(i)

Therefore, income from profession in Malaysia, rent from property in Malaysia and
dividend from Malaysian company received in Malaysia by Mrs. Geetha, a non -resident,
would not be taxable in India, since both the accrual and receipt are outside India.
However, profit from business in Delhi would be taxable in India in the hands of Mrs.
Geetha, even though it is managed directly from Malaysia.
Further, by virtue of section 9(1)(vii), fees for technical services rendered in India would
also be taxable in the hands of Mrs. Geetha, since it is deemed to accrue or arise in
India.
(2) The income referred to in S. No. 10, 11, 12 and 13 are taxable in the hands of both Mrs.
Geetha and Mrs.Leena due to their accrual/deemed accrual in India, even though a part
of income from business in Pune and the entire interest on debentures in Indian company
is received by Mrs. Geetha outside India.
2.8
Question 3
Discuss the correctness or otherwise of the statement- Income deemed to accrue or arise in
India to a non-resident by way of interest, royalty and fees for technical services is to be taxed
irrespective of territorial nexus.
Answer
This statement is correct.
As per Explanation to section 9, income by way of interest, royalty or fee for technical services
which is deemed to accrue or arise in India by virtue of clauses (v), (vi) and (vii) of section
9(1), shall be included in the total income of the non-resident, whether or not (i)
non-resident has a residence or place of business or business connection in Indi a; or
(ii) the non-resident has rendered services in India.

In effect, the income by way of fee for technical services, interest or royalty from services
utilised in India would be deemed to accrue or arise in India in case of a non -resident and be
included in his total income, whether or not such services were rendered in India and
irrespective of whether the non-resident has a residence or place of business or business
connection in India.
Question 4
Mr. David, a Government employee serving in the Ministry of External Affairs, left India for the
first time on 31.03.2015 due to his transfer to High Commission of Canada. He did not visit
India any time during the previous year 2015-16. He has received the following income for the
Financial Year 2015-16:
S.No.
Particulars
(i)
(ii)
Salary
Foreign Allowance
5,00,000
4,00,000
(iii)
(iv)
Interest on fixed deposit from bank in India

Income from agriculture in Pakistan
1,00,000
2,00,000
(v)
Income from house property in Pakistan
2,50,000
Compute his gross total income for Assessment Year 2016-17.

Answer
As per section 6(1), Mr. David is a non-resident for the A.Y. 2016-17, since he was not present
in India at any time during the previous year 2015-16.
As per section 5(2), a non-resident is chargeable to tax in India only in respect of following
incomes:
(i)
2.9
Income-tax

In view of the above provisions, income from agriculture in Pakistan and income from house
property in Pakistan would not be chargeable to tax in the hands of David, assuming that the
same were received in Pakistan.
Income from Salaries payable by the Government to a citizen of India for services rende red
outside India is deemed to accrue or arise in India as per section 9(1)(iii). Hence, such income
is taxable in the hands of Mr. David, even though he is a non-resident. It has been assumed
that Mr. David is a citizen of India.
However, allowances or perquisites paid or allowed as such outside India by the Government
to a citizen of India for rendering service outside India is exempt under section 10(7). Hence,
foreign allowance of ` 4,00,000 is exempt under section 10(7).
Gross Total Income of Mr. David for A.Y. 2016-17
Particulars
Salaries
5,00,000
Income from other sources (Interest on fixed deposit in India)

Gross Total Income
1,00,000
6,00,000
Question 5
Brett Lee, an Australian cricket player visits India for 100 days in every financial y ear. This has
been his practice for the past 10 financial years. Find out his residential status for the
assessment year 2016-17.
Answer
Determination of Residential Status of Mr. Brett Lee for the A.Y. 2016-17:Period of stay during previous year 2015-16 = 100 days.
Calculation of period of stay during 4 preceding previous years (100 x 4=400 days)
2014-15
100 days
2013-14
100 days
2012-13
100 days
2011-12
100 days
Total
400 days
Mr. Brett Lee has been in India for a period more than 60 days during previous year 2015-16
and for a period of more than 365 days during the 4 immediately preceding previous years.
Therefore, since he satisfies one of the basic conditions under section 6(1), he is a resident
for the assessment year 2016-17.
Computation of period of stay during 7 preceding previous years = 100 x 7=700 days

2014-15
100 days
2013-14
2012-13
100 days
100 days
2011-12
100 days
2010-11
100 days
2009-10
100 days
2008-09
100 days
2.10
Total
700 days
Since his period of stay in India during the past 7 previous years is less than 730 days, he is a
not-ordinarily resident during the assessment year 2016-17. (See Note below)
Therefore, Mr. Brett Lee is a resident but not ordinarily resident during the previous year 201516 relevant to the assessment year 2016-17.
Note: A not-ordinarily resident person is one who satisfies any one of the conditions specified
under section 6(6), i.e.,
(i)
If such individual has been non-resident in India in any 9 out of the 10 previous years
preceding the relevant previous year, or
(ii) If such individual has during the 7 previous years preceding the relevant previous year
been in India for a period of 729 days or less.
In this case, since Mr. Brett Lee satisfies condition (ii), he is a not-ordinary resident for the
A.Y. 2016-17.
Question 6
Miss Vivitha paid a sum of 5000 USD to Mr. Kulasekhara, a management consultant practising
in Colombo, specializing in project financing. The payment was made in Colombo. Mr.
Kulasekhara is a non-resident. The consultancy is related to a project in India with possible
Ceylonese collaboration. Is this payment chargeable to tax in India in the hands of Mr.
Kulasekhara, since the services were used in India?
Answer
A non-resident is chargeable to tax in respect of income received outside India only if such
income accrues or arises or is deemed to accrue or arise to him in India.
The income deemed to accrue or arise in India under section 9 comprises, inter alia, income
by way of fees for technical services, which includes any consideration for rendering of any
managerial, technical or consultancy services. Therefore, payment to a management
consultant relating to project financing is covered within the scope of fees for technical
services.
The Explanation below section 9(2) clarifies that income by way of, inter alia, fees for technical
services, from services utilized in India would be deemed to accrue or arise in India in case of
2.11
Income-tax
a non-resident and be included in his total income, whether or not such services were
rendered in India or whether or not the non-resident has a residence or place of business or
business connection in India.
In the instant case, since the services were utilized in India, the payment received by Mr.
Kulasekhara, a non-resident, in Colombo is chargeable to tax in his hands in India, as it is
deemed to accrue or arise in India.
Question 7
Mr. Ram, an Indian citizen, left India on 22.09.2015 for the first time to work as an officer of a
company in Germany.
Determine the residential status of Ram for the assessment year 2016-17 and explain the
conditions to be fulfilled for the same under the Income-tax Act, 1961.
Answer
Under section 6(1), an individual is said to be resident in India in any previous year i f he
satisfies any one of the following conditions (i)
He has been in India during the previous year for a total period of 182 days or more, or
(ii) He has been in India during the 4 years immediately preceding the previous year for a total
period of 365 days or more and has been in India for at least 60 days in the previous year.
In the case of Indian citizens leaving India for employment, the period of stay during the
previous year must be 182 days instead of 60 days given in (ii) above.
During the previous year 2015-16, Mr. Ram, an Indian citizen, was in India for 175 days only
(i.e 30+31+30+31+31+22 days). Thereafter, he left India for employment purposes.
Since he does not satisfy the minimum criteria of 182 days, he is a non-resident for the A.Y.
2016-17.
Question 8
From the following particulars of income furnished by Mr. Anirudh pertaining to the year ended
31.3.2016, compute the total income for the assessment year 2016-17, if he is:
(i)
Resident and ordinary resident;
(ii) Resident but not ordinarily resident;

(iii) Non-resident
Particulars
(a)
Short term capital gain on sale of shares in Indian Company received in

Germany
15,000
(b)
(c)
Dividend from a Japanese Company received in Japan

Rent from property in London deposited in a bank in London, later on
10,000
75,000
2.12
remitted to India through approved banking channels

(d)
Dividend from RP Ltd., an Indian Company
(e)
Agricultural income from lands in Gujarat
6,000
25,000
Answer
Computation of total income of Mr. Anirudh for the A.Y. 2016-17
Particulars
Resident
&
ordinarily
resident
Resident
but not
ordinarily
resident
NonResident
Short term capital gain on sale of shares of

an Indian company, received in Germany
Dividend from a Japanese company,
received in Japan
15,000
15,000
15,000
10,000
3)
Rent from property in London deposited in a

bank in London [See Note (i) below]
52,500
4)
Dividend from RP Ltd., an Indian Company

[See Note (ii) below]
5)
Agricultural income from land in Gujarat [See

Note (iii) below]
77,500
15,000
15,000
1)
2)
Total Income
Notes:
(i)
It has been assumed that the rental income is the gross annual value of the property.
Therefore, deduction @30% under section 24, has been provided and the net income so
computed is taken into account for determining the total income of a resident and
ordinarily resident.
Rent received (assumed as gross annual value)
75,000
Less: Deduction under section 24 (30% of ` 75,000)
22,500
Income from house property
52,500
(ii) Dividend from Indian company is exempt under section 10(34).

(iii) Agricultural income is exempt under section 10(1).
Question 9
Discuss the provisions relating to determination of residential status of Hindu undivided family,
partnership firm and company.
2.13
Income-tax
Answer
Residential status of a HUF:
A HUF would be resident in India if the control and management of its affairs is situated wholly
or partly in India during the relevant previous year. If the control and management of its affairs
is situated wholly outside India during the relevant previous year, it would be considered as a
non-resident.
If the HUF is resident, then the status of its Karta determines whether it is resident and
ordinarily resident or resident but not ordinarily resident.
Residential status of a firm:
A firm would be resident in India if the control and management of its affairs is situated wholly
or partly in India during the relevant previous year. Where the control and management of the
affairs is situated wholly outside India during the relevant previous year, the firm would be
considered as a non-resident.
Residential status of a company:
A company is said to be resident in India in any previous year if :
(a) it is an Indian company, or
(b) its place of effective management, in that year, is in India.
Question 10
Mr. Dey, a non-resident, residing in US since 1990, came back to India on 1.4.2014 for
permanent settlement. What will be his residential status for assessment years 2015-16 and
2016-17?
Answer
Mr. Dey is a resident in A.Y.2015-16 and A.Y.2016-17 since he has stayed in India for a period
of 365 days (more than 182 days) during the P.Y.2014-15 and P.Y.2015-16, respectively.
As per section 6(6), a person will be Not ordinarily Resident in India in any previous year, if
such person:
(a) has been a non-resident in 9 out of 10 previous years preceding the relevant previous
year; or
(b) has during the 7 previous years immediately preceding the relevant previous year been
in India for 729 days or less.
If he does not satisfy either of these conditions, he would be a resident and ordinarily resident.
In the instant case, applying the above, the status of Mr. Dey for the previous year 2014-15
(A.Y. 2015-16) will be Resident but not ordinarily resident.
2.14
For the previous year 2015-16 (A.Y. 2016-17) his status would continue to be Resident but not
ordinarily resident since he was non-resident in 9 out of 10 previous years immediately
preceding the previous year and also had stayed for less than 729 days in 7 previous years
immediately preceding the previous year.
Therefore his status for
A.Y. 2015-16 Resident but not ordinarily resident
A.Y. 2016-17 Resident but not ordinarily resident
Question 11
State the activities and operations, income from which is not deemed to accrue or arise in
India.
Answer
Explanation 1 to section 9(1)(i) lists out income which shall not be deemed to accrue or arise
in India. They are given below:
(1) In the case of a business, in respect of which all the operations are not carried out
in India [Explanation 1(a) to section 9(1)(i)]
In the case of a business of which all the operations are not carried out in India, the
income of the business deemed to accrue or arise in India shall be only such part of
income as is reasonably attributable to the operations carried out in India. Therefore, it
follows that such part of income which cannot be reasonably attributed to the operations
in India, is not deemed to accrue or arise in India.
(2) Purchase of goods in India for export [Explanation 1(b) to section 9(1)(i)]
In the case of a non-resident, no income shall be deemed to accrue or arise in India to
him through or from operations which are confined to the purchase of goods in India for
the purpose of export.
(3) Collection of news and views in India for transmission out of India [Explanation
1(c) to section 9(1)(i)]
In the case of a non-resident, being a person engaged in the business of running a news
agency or of publishing newspapers, magazines or journals, no income shall be deemed
to accrue or arise in India to him through or from activities which are confined to the
collection of news and views in India for transmission out of India.
(4) Shooting of cinematograph films in India [Explanation 1(d) to section 9(1)(i)]
In the case of a non-resident, no income shall be deemed to accrue or arise in India
through or from operations which are confined to the shooting of any cinematograph film
in India, if such non-resident is :
(i)
an individual, who is not a citizen of India or
2.15
Income-tax
(ii) a firm which does not have any partner who is a citizen of India or who is resident in
India ; or
(iii) a company which does not have any shareholder who is a citizen of India or who is
resident in India.
Question 12
When is an individual and HUF said to be Resident and ordinarily Resident under the
Income-tax Act, 1961?
Answer
Individual An individual is said to be a resident in India in any previous year if he fulfills any
one of the following two basic conditions:
(i)
He is in India during the previous year for a period or periods amounting in all to 182
days or more.
(ii) He is in India for a period or periods amounting in all to 60 days or more during the
previous year and 365 days or more during 4 years immediately preceding the relevant
previous year.
Exception If an Indian citizen leaves India for the purpose of employment or as a member of
crew of an Indian ship or if an Indian citizen or person of Indian origin who is residing outside
India comes to India on a visit in any previous year, he would be considered as resident in
India in that year only if he has been in India in that year for 182 days or more instead of 60
days referred to in, (ii) above.
Resident and Ordinarily Resident: If an individual satisfies any one of the basic conditions and
none of the following additional conditions, he will be treated as resident and ordinarily resident.
Additional conditions:
(i)
He has been a non-resident in India in 9 out of 10 previous years preceding the relevant
previous year ; or
(ii) He has been in India for a period of 729 days or less during 7 previous years immediately
preceding the relevant previous year.
Thus in brief, an individual fulfilling any one of the basic conditions and none of the additional
conditions will be resident and ordinarily resident.
HUF: If the control and management of the affairs of the HUF is wholly or partly situated in
India and if the manager of the HUF does not satisfy either of the following two additional
conditions, the HUF shall be considered as resident and ordinarily resident
(i)
He has been non resident in India in 9 out of 10 previous years preceding the relevant
previous year;
(ii) He has been in India for a period of 729 days or less during the 7 previous years
preceding the relevant previous year.
2.16
Question 13
State with reasons, whether the following statements are true or false, with regard to the
provisions of the Income-tax Act, 1961:
(a) Only individuals and HUFs can be resident, but not ordinarily resident in India; firms can
be either a resident or non-resident.
(b) Income deemed to accrue or arise in India to a non-resident by way of interest, royalty
and fee for technical services is taxable in India irrespective of territorial nexus.
(c) Mr. X, Karta of HUF, claims that the HUF is non-resident as the business of HUF is
transacted from UK and all the policy decisions are taken there.
Answer
(a) True: A person is said to be not-ordinarily resident in India if he satisfies either of the
conditions given in sub-section (6) of section 6. This sub-section relates to only
individuals and Hindu Undivided Families. Therefore, only individuals and Hindu
Undivided Families can be resident, but not ordinarily resident in India. All other classes
of assessees can be either a resident or non-resident for the purpose of income-tax.
Firms and companies can, therefore, either be a resident or non-resident.
(b) True: Explanation below section 9(2) clarifies that income by way of interest, royalty or
fee for technical services which is deemed to accrue or arise in India by virtue of clauses
(v), (vi) and (vii) of section 9(1), shall be included in the total income of the non -resident,
whether or not :
(i)
non-resident has a residence or place of business or business connection in India; or
(ii) the non-resident has rendered services in India

(c) True: A HUF is considered to be a non-resident where the control and management of its
affairs are situated wholly outside India. In the given case, since all the policy decisions
of HUF are taken from UK, the HUF is a non-resident.
Question 14
Miss Charlie, an American national, got married to Mr. Radhey of India in USA on 2.03. 2015
and came to India for the first time on 16.03.2015. She remained in India up till 19.9.2015 and
left for USA on 20.9.2015. She returned to India again on 27.03.2016. While in India, she had
purchased a show room in Mumbai on 22.04.2015, which was leased out to a company on a
rent of ` 25,000 p.m. from 1.05.2015 She had taken loan from a bank for purchase of this
show room on which bank had charged interest of ` 97,500 upto 31.03.2016. She had
received the following gifts from her relatives and friends during 1.4.2015 to 30.6.2015:
- From parents of husband
51,000
- From married sister of husband
11,000
- From two very close friends of her husband, ` 1,51,000 and ` 21,000
1,72,000
2.17
Income-tax
Determine her residential status and compute the total income chargeable to tax along with
the amount of tax payable on such income for the Assessment Year 2016-17.
Answer
Under section 6(1), an individual is said to be resident in India in any previous year, if he
satisfies any one of the following conditions:
(i)
He has been in India during the previous year for a total period of 182 days or more, or
(ii) He has been in India during the 4 years immediately preceding the previous year for a total
period of 365 days or more and has been in India for at least 60 days in the previous year.
If an individual satisfies any one of the conditions mentioned above, he is a resident. If both
the above conditions are not satisfied, the individual is a non-resident.
Therefore, the residential status of Miss Charlie, an American National, for A.Y. 2016-17 has to
be determined on the basis of her stay in India during the previous year rele vant to A.Y. 201617 i.e. P.Y.2015-16 and in the preceding four assessment years.
Her stay in India during the previous year 2015-16 and in the preceding four years are as
under:
P.Y.2015-16
01.04.2015 to 19.09.2015
172 days
27.03.2016 to 31.03.2016
5 days
Total
177 days
Four preceding previous years

P.Y.2014-15 [1.4.2014 to 31.3.2015]
-16 days
P.Y.2013-14 [1.4.2013 to 31.3.2014]
Nil
P.Y.2012-13 [1.4.2012 to 31.3.2013]
Nil
P.Y.2011-12 [1.4.2011 to 31.3.2012]
Nil
Total
16 days
The total stay of the assessee during the previous year in India was less than 182 days and
during the four years preceding this year was for 16 days. Therefore, due to non-fulfillment of
any of the two conditions for a resident, she would be treated as non-resident for the
Assessment Year 2016-17.
Computation of total income of Miss Charlie for the A.Y. 2016-17
Particulars
Income from house property
Show room located in Mumbai remained on rent from

01.05.2015 to 31.03.2016 @ ` 25,000/- p.m.
Gross Annual Value [25,000 x 11] (See Note 1 below)
2,75,000
Less: Municipal taxes

Net Annual Value (NAV)
Nil
2,75,000
2.18
Less: Deduction under section 24

30% of NAV
82,500
Interest on loan
Income from other sources
97,500
1,80,000
95,000
Gifts received from non-relatives is chargeable to tax as per

section 56(2)(vii) if the aggregate value of such gifts exceeds
` 50,000.
-
` 50,000 received from parents of husband would be

exempt, since parents of husband fall within the definition of
relatives and gifts from a relative are not chargeable to tax.
Nil
` 11,000 received from married sister of husband is exempt,

since sister-in-law falls within the definition of relative and
gifts from a relative are not chargeable to tax.
Nil
Gift received from two friends of husband ` 1,51,000 and

` 21,000 aggregating to ` 1,72,000 is taxable under section
56(2)(vii) since the aggregate of ` 1,72,000 exceeds
` 50,000. (See Note 2 below)
1,72,000
Total income
1,72,000
2,67,000
Computation of tax payable by Miss Charlie for the A.Y. 2016-17

Particulars
Tax on total income of ` 2,67,000
`
1,700
Add: Education cess@2%
34
Add : Secondary and higher education cess @1%
17
Total tax payable
1,751
Notes:
1.
Actual rent received has been taken as the gross annual value in the absence of other
information (i.e. Municipal value, fair rental value and standard rent) in the question.
2.
If the aggregate value of taxable gifts received from non-relatives exceeds ` 50,000 during
the year, the entire amount received (i.e. the aggregate value of taxable gifts received) is
taxable. Therefore, the entire amount of ` 1,72,000 is taxable under section 56(2)(vii).
2.19
3.
Income-tax
Since Miss Charlie is a non-resident for the A.Y. 2016-17, rebate under section 87A would not
be available to her, even though her total income is less than ` 5 lacs.
Question 15
Determine the taxability of income of US based company Heli Ltd., in India on entering into the
following transactions during the financial year 2015-16:
(i)
` 5 lacs received from an Indian domestic company for providing technical knowhow in
India.
(ii) ` 6 lacs from an Indian firm for conducting the feasibility study for the new project in
Finland. The payment for the same was made in Finland.
(iii) ` 4 lacs from a non-resident for use of patent for a business in India.
(iv) ` 8 lacs from a non-resident Indian for use of know how for a business in Singapore.
Such amount was received in U.S.
(v) ` 10 lacs for supply of manuals and designs for the business to be established in
Singapore. No payment for the same was made in India.
Answer
A non-resident is chargeable to tax in India in respect of following incomes:
(i)

In view of the above provisions, taxability of income is determined in following manner:
S. No.
Particulars
(i)
Amount received from an Indian domestic company for providing

technical knowhow in India is deemed to accrue or arise in India and
is, therefore, taxable in India.
Conducting the feasibility study for the new project in Finland for the
Indian firm is not taxable in India as the income accrues outside India
since such study is done for a business outside India.
Income received from a non-resident for use of patent for a business
in India is taxable in India as it is deemed to accrue or arise in India.
Income received from a non-resident Indian for use of knowhow for a
business in Singapore. It is not taxable in India since it does not
accrue or arise in India nor is it deemed to accrue or arise in India,
Income received for supply of manuals and designs for the business
to be established in Singapore is not taxable in India, since it does not
accrue or arise in India nor is it deemed to accrue or arise in India.
Total Income
(ii)
(iii)
(iv)
(v)
` (in
lacs)
5
Nil
4
Nil
Nil
2.20
Question 16
State with reasons whether the following transactions attract income-tax in India in the hands
of recipients:
(i)
Salary paid by Central Government to Mr. John, a citizen of India ` 7,00,000 for the
services rendered outside India.
(ii)
Interest on moneys borrowed from outside India ` 5,00,000 by a non-resident for the
purpose of business within India say, at Mumbai.
(iii) Post office savings bank interest of ` 12,000 received by a resident assessee, Mr. Ram.
(iv) Royalty paid by a resident to a non-resident in respect of a business carried on outside
India.
(v)
Legal charges of ` 5,00,000 paid to a lawyer of United Kingdom who visited India to
represent a case at the Delhi High Court.
Answer
(i)
Taxable /
Not
Taxable
Taxable
Amount
liable to
tax (`)
7,00,000
(ii)
Taxable
5,00,000
(iii)
Partly
Taxable
8,500
(iv)
Not
Taxable
Reason
As per section 9(1)(iii), salaries payable by the Government

to a citizen of India for service rendered outside India shall
be deemed to accrue or arise in India. Therefore, salary
paid by Central Government to Mr. John for services
rendered outside India would be deemed to accrue or
arise in India since he is a citizen of India.
As per section 9(1)(v)(c), interest payable by a nonresident on moneys borrowed and used for the purposes
of business carried on by such person in India shall be
deemed to accrue or arise in India in the hands of the
recipient.
The interest on Post Office Savings Bank Account, would
be exempt under section 10(15)(i), only to the extent of
` 3,500 in case of an individual account. The remaining
` 8,500, being less than ` 10,000, would be allowed as
deduction under section 80TTA from Gross Total Income.
Royalty paid by a resident to a non-resident in respect of
a business carried outside India would not be taxable in
the hands of the non-resident provided the same is not
received in India. This has been provided as an
exception to deemed accrual mentioned in section
9(1)(vi)(b).
2.21
Income-tax
(v)
Taxable
5,00,000 In case of a non-resident, any income which accrues or

arises in India or which is deemed to accrue or arise in
India or which is received in India or is deemed to be
received in India is taxable in India.
Therefore, legal charges paid in India 1 to a non-resident
lawyer of UK, who visited India to represent a case at the
Delhi High Court would be taxable in India.
Note This question can also be answered on the
rationale that existence of professional connection
tantamounts to existence of business connection, and
hence, legal charges paid to a non-resident lawyer would
be deemed to accrue or arise in India by virtue of section
9(1)(i).
Question 17
(a) (i)
Explain with reasons whether the following transactions attract income -tax in India
in the hands of recipients :
(a) Salary paid to Mr. David, a citizen of India ` 15,00,000 by the Central
Government for the services rendered in Canada.
(b) Legal charges of ` 7,50,000 paid to Mr. Johnson, a lawyer of London, who
visited India to represent a case at the Supreme Court.
(c) Royalty paid to Rajeev, a non-resident by Mr. Mukesh, a resident for a
business carried on in Sri Lanka.
(ii) Ms. Bindu, a non-resident, residing in New York since 1990, came back to India on
19-02-2014 for permanent settlement in India. Explain the residential status of Ms.
Bindu for the Assessment Year 2016-17 in accordance with the various provisions
of Income-tax Act, 1961.
Answer
(i)
Taxability of certain receipts under the Income-tax Act, 1961

Sl.
No.
1
(a)
Taxable/N
ot Taxable
2
Taxable
Amount
liable to
Reason
tax (`)
3
4
15,00,000 Salaries payable by the Government to a citizen
of India for service rendered outside India shall
be deemed to accrue or arise in India as per
section 9(1)(iii). Mr. David is a citizen of India.
Since the payment is in Indian currency, it is logical to assume that the same has been paid in India.
(b)
Taxable
(c)
Not
Taxable
2.22
Therefore, salary paid by the Central Government

to him for services rendered in Canada would be
deemed to accrue or arise in India in his hands.
7,50,000 In case of a non-resident, any income which
accrues or arises in India or which is deemed to
accrue or arise in India or which is received in
India or is deemed to be received in India is
taxable in India.
Therefore, legal charges paid in India 2 to Mr.
Johnson, a non-resident lawyer of London, who
visited India to represent a case at the Supreme
Court would be taxable in India.
Note This question can also be answered on
the rationale that existence of professional
connection tantamounts to existence of business
connection, and hence, legal charges paid to a
non-resident lawyer would be deemed to accrue
or arise in India by virtue of section 9(1)(i).
- Royalty paid by a resident to a non-resident in
respect of a business carried on outside India
would not be taxable in the hands of the nonresident, as the same would not be deemed to
accrue or arise in India as per the exception
mentioned in section 9(1)(vi)(b). Therefore,
royalty paid by Mukesh, a resident, to Rajeev, a
non-resident, for a business carried on in Sri
Lanka would not be deemed to accrue or arise in
India.
Note - It is assumed that the royalty was not
received in India.
(ii) Determination of residential status of Ms. Bindu for the A.Y. 2016-17
Ms. Bindu is a resident since she has stayed in India for 365 days during the
P.Y.2015-16. Therefore she satisfies the condition of stay in India for a period of
182 days or more in the relevant previous year as per the requirement under section
6(1).
As per section 6(6), an individual is said to be not ordinarily resident in India in any
previous year, if he has:
(a) been a non-resident in India in nine out of ten previous years preceding the
relevant previous year; or
2
Since the payment is in Indian currency, it is logical to assume that the same has been paid in India.
2.23
Income-tax
(b) during the seven previous years immediately preceding the relevant previous
year, been in India for a period of, or periods amount in all to, 729 days or less.
Ms. Bindu must, therefore, satisfy either of the conditions to qualify as a n otordinarily resident.
Ms. Bindu was a non-resident in India up to A.Y.2014-15.
She was resident in India only for P.Y. 2014-15 (A.Y.2015-16) out of the ten previous
years preceding P.Y. 2015-16 (A.Y.2016-17). This implies that she has been a nonresident in India in nine out of ten previous years preceding P.Y. 2015-16 (A.Y.
2016-17).
Further, she was in India only for a period of 406 days [i.e., 10 days in February,
2014 + 31 days in March 2014 + 365 days during the P.Y.2014-15] in the seven
previous years preceding P.Y. 2015-16 (A.Y.2016-17).
Therefore, since Ms. Bindu satisfies both the conditions for not-ordinarily resident,
her residential status for A.Y.2016-17 would be Resident but not ordinarily resident
Question 18
An individual, who is an Indian resident, is allowed to hold two different citizenships
simultaneously. Is the citizenship a determining factor for residential status of an individual?
Answer
Citizenship of a country and residential status of that country are separate concepts. A person
may be an Indian national /citizen, but may not be a resident in India. On the other hand, a
person may be a foreign national /citizen, but may be a resident in India. The citizenship of an
individual has no role in determining the residential status of an individual.
The residential status of resident, non-resident, etc. are determined on the basis of number of
days an individual actually stays in India during the previous year.
The provisions of section 6 of the Income-tax Act, 1961 are the determining factor of
residential status of an individual.
Exercise
1.
If Anirudh has stayed in India in the P.Y. 2015-16 for 181 days, and he is non-resident in 9 out of
10 years immediately preceding the current previous year and he has stayed in India for 365 days
in all in the 4 years immediately preceding the current previous year and 420 days in all in the 7
years immediately preceding the current previous year, his residential status for the A.Y.2016-17
would be a)
Resident and ordinarily resident
b)
Resident but not ordinarily resident
c)
Non-resident

2.
3.
4.
2.24
Raman was employed in Hindustan Lever Ltd. He received a salary at ` 40,000 p.m. from
1.4.2015 to 27.9.2015. He resigned and left for Dubai for the first time on 1.10.2015 and got
salary of rupee equivalent of ` 80,000 p.m. from 1.10.2015 to 31.3.2016. His salary for October to
December 2015 was credited in his Dubai bank account and the salary for January to March 2016
was credited in his Bombay account directly. He is liable to tax in respect of a)
Income received in India from Hindustan Lever Ltd;
b)
Income received in India and in Dubai;
c)
Income received in India from Hindustan Lever Ltd. and income directly credited in India;
A company, other than an Indian company, would be a resident in India for the P.Y.2015-16 if,
during that year,
a)
its POEM is in India.
b)
its control and management is wholly or partly in India.
c)
majority of its directors are resident in India.
Income accruing in London and received there is taxable in India in the case of a)
resident and ordinarily resident only
b)
both resident and ordinarily resident and resident but not ordinarily resident
c)
both resident and non-resident
5.
When is an individual said to be Resident and ordinarily resident under the Income-tax Act,
1961?
6.
Define royalty as per section 9 of the Income-tax Act, 1961?
7.
Write short notes on a)
Business connection
b)
Income deemed to accrue or arise in India.
8.
Discuss the provisions relating to determination of residential status of individuals.
9.
When are the following income deemed to accrue or arise in India?

a)
Interest
b)
Fees for technical services.
10. Discuss the correctness or otherwise of the statement Income deemed to accrue or arise in
India to a non-resident by way of interest, royalty and fees for technical services is to be taxed
irrespective of territorial nexus.
11. Explain the term Business Connection under section 9(1).
Answers
1. b; 2. b; 3. a; 4. a.

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2

RESIDENCE AND SCOPE OF TOTAL

Section 6 [Residence in India]

Resident and ordinarily

A HUF would be resident in India if the control and management

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

If the control and management of the affairs is situated wholly

(iii) Firms & AOPs [Resident / Non-resident]

A firm or AOP would be resident in India if the control and

Companies [Resident / Non-resident]

A company would be resident in India in any previous year if it is an

Section 5 [Scope of Total Income]

Resident But Not

The Institute of Chartered Accountants of India

Interest on Canada Development Bonds (only 50% of

Profit from a business in Nagpur, but managed directly

Short term capital gain on sale of shares of an Indian

Income from a business in Chennai

Fees for technical services rendered in India, but

Interest on savings bank deposit in UCO Bank, Delhi

Rent received in respect of house property at Bhopal

Interest on Canada Development Bond (See Note 2)

Dividend from British Company received in London

Profit from a business in Nagpur but managed

Short term capital gain on sale of shares of an

Income from a business in Chennai (See Note 2)

Fees for technical services rendered in India, but

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

Agricultural income from a land in Andhra Pradesh

Income from house property at Bhopal (See Note 5)

Less: Deduction under chapter VIASection 80C-Life insurance premium paid

Income received or deemed to be received in India; and

(ii) Income accruing or arising or deemed to accrue or arise in India.

Income from house propertyMr. Ramesh

Less: Deduction under section 24 @ 30%

Net income from house property

The Institute of Chartered Accountants of India

Income from Profession in Malaysia, (set up in

Profit from business in Delhi, but managed

Rent (computed) from property in Malaysia

Dividend from PQR Ltd., an Indian Company

Dividend from a Malaysian company received in

Cash gift received form a friend on Mrs. Leenas

Agricultural income from land in Maharashtra

Past foreign untaxed income brought to India

Fees for technical services rendered in India

Income from a business in Pune (Mrs. Geetha

Short-term capital gain on sale of shares of an

Interest on savings account with SBI

Life insurance premium paid to LIC

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

Income from profession in Malaysia (set up in India)

Profit from business in Delhi, but managed directly

Rent (computed) from property in Malaysia

Dividend from PQR Ltd. an Indian Company

Dividend from Malaysian Company received in

Cash gift received from a friend on Mrs. Leenas

Agricultural income from land in Maharashtra

Past foreign untaxed income brought to India [Not