Basic Concept of Income Tax

(iii)Harish, a citizen of India and the Karta of an HUF is employed in M/s PWD Pvt. Ltd. He is drawing monthly salary of ₹ 40,000 in India. On August 31st, 2024 he was transferred to the branch office of M/s PWD Pvt. Ltd. in U.S.A. and he left India on September 1st, 2024. The overseas branch paid him a salary of $ 2,000 per month in USA. He managed business of HUF from USA when he was not in India.

He had also gone out of India for 99 days and 201 days in previous years 2023-24 and 2022- 23, respectively. He had never gone out of India prior to that.

He visited India from January 1, 2025 to January 15, 2025 for training on a project and received 15 days salary in India as per his Indian monthly salary before being transferred.

Determine the residential status of Harish and his HUF for the Assessment Year 2025-26.

Income earned and received outside India but later on remitted to India (whether tax incidence arises at the time of remittance) is taxable in case of :

(A)ROR

(B)RNOR

(C)NR

(D)None of the above

Mr. S, an Indian citizen, currently resides in Dubai. He came to India on a visit and his total stay in India during the F.Y. 2023-24 was 135 days. He is not liable to pay any tax in Dubai. Following are his details of stay in India in the preceding previous years :

What shall be his residential status for the P.Y. 2023-24 if his total income (other than income from foreign sources) is ₹ 10 lakhs ?

(A)Resident but not ordinary resident

(B)Resident and ordinary resident

(C)Non-resident

(D)Deemed resident but not ordinarily resident

(b)Jackson, a US national came to India for the first time on 11th July, 2023 for business in India, before this he never travelled in India. He declared following incomes during the previous year ending 31st March, 2024 :

You are required to compute Jackson’s Taxable Income in India for the assessment year 2024-25.

Which of the following persons can be ordinary resident or not ordinary resident ?

(A)Individual & HUF Only

(B)Individual & Firm Only

(C)Individual & Company Only

(D)Firm & Company Only

(iii)Mrs. Tina is an Indian citizen and holder of Indian passport. For the past 7 years, she has been living in Dubai, where there is no personal income-tax. During the previous year 2023-24, she migrated back to India on 1st Jan., 2024. In immediate four earlier years, she has stayed in India for 56 days.

During the previous year 2023-24, she has earned gross salary income of ₹ 9,00,000 in Dubai. After she returned to India her friends gave her a grand reception and presented her cash gifts of ₹ 21,00,000.

You are required to determine the residential status of Mrs. Tina and her total income for the AY 2024-25.

Amar, a resident but not ordinarily resident in India, earned the following incomes during the previous year 2022-23 :

(i)Capital gain of 5,00,000 on sale of a building located in Agra but received in Australia.

(ii)Interest of 4,00,000 from Canada Development Bonds, 25% of which is received in India.

The amount of income chargeable to tax in India for the Assessment year 2023- 24 is :

(A)9,00,000

(B)6,00,000

(C)5,00,000

(D)4,00,000

An Individual to be an Ordinary Resident must satisfy the conditions in Section 6(6) of the Income Tax Act, 1961. What are they ?

(A)Only the First Condition in Section 6(6)

(B)Only the Second Condition in Section 6(6)

(C)Either the First or the Second Condition in Section 6(6)

(D)Both the Conditions as mentioned in Section 6(6)

(a)Determine residential status of Vijay for the assessment year 2023-24, along with detailed workings.

Deva being a person of Indian origin came to India on 5th June, 2022 and remained in India till 31st March, 2023. His income in India from business up to 31st March, 2023 is ₹ 17 lakh and his income in Australia for the same period is ₹ 20 lakh. He visi ted India every year for 100 days stay for the last 10 years. What is his residential status for the assessment year 2023-24?

(A)Resident and Ordinarily Resident

(B)Non-Resident

(C)Deemed Resident

(D)Resident but Not Ordinarily Resident

What is the monetary limit of turnover or gross receipt for the purpose of applying Principles for Determination of Place of Effective Management (POEM) provisions?

(A)₹ 10 crore

(B)₹ 25 crore

(C)₹ 50 crore

(D)₹ 100 crore

Divya earned dividend income from a company in UK ₹ 5, 00,000. She also earned agriculture income from a land in Karnataka ₹ 2, 40,000 and short - term capital gain on sale of shares ₹ 80,000. Her residential status for the assessment year 2023-24 is resident and not ordinarily resident. How much is her total income?

(A)₹ 8, 20,000

(B)₹ 7, 40,000

(C)₹ 5, 80,000

(D)₹ 80,000

Which of the following criteria would make a foreign company to have its active business outside India?

(i)Passive income is not more than 50% of its total income

(ii)Less than 50% of its total assets are situated in India

(iii)Less than 50% of the total employees are resident in India and

(iv)Less than 50% payroll expenses incurred on employees situated in India

(A)(i) and (ii)

(B)(i) and (iii)

(C)(i), (iii) and (iv)

(D)All the above

Hitarth who is resident and not ordinarily resident in India, earns the following income during the previous year ended 31st March, 2022 : Interest on U.K. development Bonds (1/4th being received in India) : ₹ 4,00,000 profits on sale of a building in India but received in Holland : ₹ 4,00,000. What is the income liable to tax for the assessment year 2022-23 ?

(A)₹ 5,00,000

(B)₹ 8,00,000

(C)₹ 4,00,000

(D)₹ 1,00,000

Nayak, a non-resident, residing in US since 1990, came back to India on 1st April, 2020 for permanent settlement. What will be his residential status for assessment year 2022-23 ?

(A)Resident and Ordinary Resident (ROR)

(B)Not Ordinary Resident (NOR)

(C)Non Resident (NR)

(D)ROR, NOR and NR all

Sarad is a Karta of HUF doing business at Delhi. Sarad is residing in USA for past 6 years and he visited India for 30 days every year for filing income tax return of HUF. His 3 sons and wife take care of the affairs of business in India. What will be the residential status of HUF?

(A)RNOR

(B)NR

(C)ROR

(D)RNOR and NR both

Following are the income of Sudha for the Previous Year 2021-22 :

(i)Dividend from foreign company received in Tokyo ₹ 96,000

(ii)Profit earned from business in Indonesia which is controlled in India, ₹ 6 lakhs, 3/4th of the profit is received in India

(iii)Fees from technical services received in India for technical services provided to run a business outside India of ₹ 9 lakhs

(iv)Profit not taxed previously brought into India ₹ 2 lakhs

What is the gross total income of Sudha, if she is an ordinary resident and not ordinary Resident for the Assessment Year 2022-23 ?

OR NOR

(A)15,96,000 15,96,000

(B)17,96,000 15,00,000

(C)15,96,000 15,00,000

(D)15,96,000 13,50,000

Every year, the residential status of an assessee :

(A)Will not change

(B)Will certainly change

(C)May change

(D)None of the above

Pankaj Kumar, a citizen of India having salaried employment received amount of dividend of ₹ 42,725 from a Canadian Company credited in his bank account in Canada in March 2020. The amount of dividend of ₹ 42,725 was remitted to India during the month of February, 2021. The amount of dividend so received shall be taxable in A.Y. 2021-22 when the residential status of Pankaj Kumar is:

(A)Resident and Ordinarily Resident

(B)Resident but Not-Ordinarily Resident

(C)Non-Resident

(D)Not included in any case

The residential status of Raghav, born in Delhi and a citizen of India, who was staying in India during the period September, 2020 to March, 2021 for 125 days, for the A.Y. 2021-22 would be, if Raghav during the previous year 2020-21 was having income in India of ₹ 17,25,000 besides the income of ₹ 30 lacs from foreign sources which is not liable to tax in any other Country by reason of his domicile.

(A)Resident and ordinarily resident

(B)Resident but not ordinarily resident

(C)Non-resident

(D)Deemed resident

Dividend income from England company received in England in the year 2019, brought to India during the previous year 2020-21 is taxable in the A.Y. 2021-22 in case of :

(A)Resident and ordinarily resident only

(B)Both resident & ordinarily resident and resident not ordinarily resident

(C)Non-resident

(D)None of the above

As per section 6(3) of the Act, a company is said to be resident in India (resident company) in any previous year if :

(A)It is an Indian Company

(B)Its place of effective management (POEM), in that year, is in India

(C)Either it is an Indian company or the POEM is in India

(D)It is both an Indian company and the POEM is in India

The incidence of tax on income under the Act is linked with residential status of an assessee. Ram, an individual brought into India during the previous year 2019-20 past untaxed profits of ₹ 2,00,000 of the business in UK. State in which case amount of ₹ 2,00,000 brought into India be put to tax in A.Y. 2020-21 when Ram is (a) Resident and Ordinary resident (R&OR); (b) Resident and not Ordinary resident (R&NOR) and (c) Non-Resident (NR).

(A)Taxable in case of R&OR and R&NOR

(B)Taxable in case of R&OR and Non Resident

(C)Not taxable in all R∨ R&NOR and Non-Resident

(D)Taxable in all R∨ R&NOR and Non-Resident

Radhika during the previous year 01.04.2019 to 31.03.2020 received (1) Dividend from XYZ Ltd of UK, a Foreign Company of ₹ 12,00,000 (2) Agriculture income from land in Rajasthan of ₹ 50,000 (3) Short term capital gain on sale of shares of Indian company received in London of ₹ 60,000. Total Income of Radhika when she is a Resident and not Ordinarily Resident (R&NOR) for Assessment Year 2020-21 shall be :

(A)₹ 13,10,000

(B)₹ 60,000

(C)₹ 1,10,000

(D)₹ 12,00,000

Sita Raman born in U.K. is a foreign citizen. His father Radha Raman was born in Rajasthan in 1960 and mother Geeta was born in South Africa in 1965. His grandfather was also born in Rajasthan in 1935. Sita Raman for the first time to see historical places comes to India on 25th November, 2019 and remained till June, 2020 for 200 days. Residential status for assessment year 2020-21 of Sita Raman shall be :

(A)Resident and Ordinarily Resident

(B)Not Ordinarily Resident

(C)Non-Resident

(D)None of the above

Shane Warne, an Australian Cricketer coming to India regularly for plying different league matches since April, 2012 and was staying in India in each of the financial year for 100 days. His residential status for the previous year ended on 31.3.2020 relevant for A.Y. 2020-21 shall be :

(A)Non-resident

(B)Resident but not ordinary resident

(C)Resident

(D)Resident and ordinary resident

A company shall be said to be engaged in “active business outside India” (ABOI), if the passive income is not --------- of its total income and --------- of its total assets are situated in India.

(A)less than 50%; more than 50%

(B)more than 50%; less than 50%

(C)less than 50%; less than 50%

(D)more than 50%; more than 50%

Xavier, a resident and ordinary resident had the income computed under the salary of ₹ 1,20,000; agriculture income of ₹ 25,000 in Indonesia being invested there and income of a business in Burma controlled from India of ₹ 20,000 during the previous year ended on 31.3.2020. He has brought into India ₹ 45,000 in January, 2020 out of the past untaxed profits earned in UK. His total income for tax purpose for Asst. Year 2020-21 shall be :

(A)₹ 1,65,000

(B)₹ 2,10,000

(C)₹ 1,40,000

(D)₹ 1,85,000

Ms. Kapoor born in UK came to India for the first time on 10-5-2018 and remainedin India till 31-08-2018. Her maternal grandparents were born in Dhaka in the year 1940. Her residential status for the assessment year 2019-20 would be :

(A)Resident and ordinarily resident

(B)Non-resident

(C)Resident but not ordinarily resident

(D)None of the above

Which of the following income is not chargeable to tax in the case of Suresh who is resident but not ordinarily resident ?

(A)Income accruing outside India but received in India

(B)Income earned in India

(C)Past untaxed profit

(D)Income from business outside India but controlled from India

A person is deemed to be of Indian origin if he, or either of his parents or any of his grandparents, was born in ................. .

(A)India

(B)India other than J & K

(C)Undivided India

(D)Greater India

Central Board of Direct Taxes (CBDT) vide Circular No. 8 of 2017 dated 23rd February, 2017 has clarified that the Place of Effective Management (POEM) provisions shall not apply to a company having turnover or gross receipts in a financial year of ............... .

(A)₹ 30 crore or less

(B)₹ 10 crore or less

(C)₹ 50 crore or less

(D)₹ 5 crore or less

Thomas, an Indian citizen is living in Kerala since birth in 1954 and left for UAE on 13th June, 2014 for a salaried employment contract for 4 years and came back on 7th July, 2018 to India and settled at Kerala.

His residential status for the Assessment Year 2019-20 shall be :

(A)Resident

(B)Non-Resident

(C)Resident & Not Ordinary Resident

(D)Resident & Ordinary Resident

In the case of an individual who is not an ordinarily resident in India, the income chargeable to tax in India out of the following shall be :

(A)Rental income in foreign country

(B)Interest income in foreign country

(C)Income from outside India from a business controlled in India

(D)All the three above in A, B & C

Agriculture income from agriculture land located in a foreign country is taxable case of :

(A)Non-resident

(B)Not ordinarily resident

(C)Resident

(D)In all cases stated in A, B & C

(c)When will you consider a foreign company as a resident company in India ?

Which out of the following criteria determines the Place of Effective Management (POEM) in order to treat a foreign company as resident in India (resident company) during the previous year as per guidelines issued by CBDT and the provisions contained under the Income Tax Act, 1961 ...............

(A)General Meeting held in India

(B)Research and Development work is done in India

(C)Board Meetings are held in India

(D)None of the above

(b)Mr. Bhanu, a citizen of India, stay 45 days in India during the financial year 2025-26, earlier to this year he always stayed in India. He provides the following income details during the year ended 31st March, 2026 :

(i)Salary received in India for 45 days – ₹ 1,80,000

(ii)Interest on saving bank deposit in HDFC Bank (India) – ₹ 20,000

(iii)Amount brought into India out of past untaxed profits earned in Japan – ₹ 70,000

(iv)Income from agriculture in Sri Lanka, retained there – ₹ 62,000

(v)Income from business in Nepal, controlled from India – ₹ 55,000

(vi)Dividend received in USA from a US company – ₹ 90,000, out of which ₹ 30,000 was remitted to India during the year.

Compute the Gross Total Income of Mr. Bhanu for the assessment year 2026-27. Assuming that he has followed default tax regime under section 115BAC of the Income Tax Act, 1961.

(c)Arvind, who is a resident but not ordinarily resident (NOR), received the following incomes during the previous year 2024-25 :

Compute the total income chargeable to tax in India for Arvind for the Assessment Year 2025-26 on the assumption that he has opted the default tax scheme u/s 115BAC.

(b)‘‘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’’. Examine the correctness or otherwise of the statement with reference to the provisions of Income-tax Act, 1961.

(e)Manish Garg a non-resident during AY 2018-19 came back to India on 16th July, 2018 for settling in India permanently. Now, for the Financial Year 2018-19 his status is resident and ordinary resident of India for tax purposes. He has reported his income from various sources as under the Financial Year 2018-19.

Calculate his gross taxable income for the assessment year 2019-20. Which disclosures he is required to give in out of above given information’s in the return form for A.Y. 2019-20.

Which of the following receipts/payments are capital in nature ?

(A)Advance receipt of Royalty for 3 years

(B)Lump sum payment received by a director of the company against his resignation from Directorship

(C)Foreign tour expenses of a company manager to study the new techniques of production for enhancing the profit

(D)Compensation received for loss of Capital Assets

(iii)Discuss with logical reasoning whether the following are capital or revenue receipts/ expenses :

(a)An amount of ₹ 1,60,000 was spent by a company for sending its production manager abroad to study new methods of production.

(b)B & Co. received ₹ 4,00,000 as compensation from C & Co. for premature termination of contract of agency.

(c)Payment of ₹ 60,000 as compensation for cancellation of a contract for the purchase of machinery with a view to avoid an unnecessary expenditure.

(d)R Company Ltd. instead of receiving royalty year by year, received it in advance in lump sum.

(e)An employee director of a company was paid ₹ 3,60,000 as a lump sum consideration for not resigning from the directorship.

AB & Co. received ₹ 21,00,000 as compensation from PQ & Co. for premature termination of contract of agency. Amount so received by AB & Co. is :

(A)Capital receipt and taxable

(B)Capital receipt and not taxable

(C)Revenue receipt and taxable

(D)Revenue receipt and not taxable

Shyam Ltd. paid ₹ 6,60,00,000 during the previous year 2020-21 for acquiring the telecommunication rights which is effective for 11 years. It commenced the business of operating the telecommunication service with effect from 10th April, 2021. Shyam Ltd. shall be entitled to a deduction of :

(A)₹ 60 Lakh p.a. w.e.f. previous year 2020-21

(B)₹ 60 Lakh p.a. w.e.f. previous year 2021-22

(C)₹ 66 Lakh p.a. w.e.f. previous year 2021-22

(D)Deduction is not allowed because this is a Capital expenditure

Which out of the following cases are capital receipt/expense ?

(A)Sales-tax collected from the buyer of goods.

(B)A company instead of receiving royalty year by year, received it in advance in lump sum

(C)An employee director of a company was paid ₹ 1,50,000 as a lump sum consideration for not resigning from the directorship.

(D)Payment of ₹ 50,000 as compensation for cancellation of a contract for the purchase of machinery with a view to avoid an unnecessary expenditure.

Karnataka High Court in case of CIT vs. ITC Hotels Ltd. (2011) 334 ITR 109 has held that the expenditure incurred on the issue and collection of debentures including the convertible debentures (which had to be converted into shares at a later date) shall be treated as ------------

(A)Revenue Expenditure

(B)Deferred Revenue Expenditure

(C)Capital Expenditure

(D)Revenue expenditure to be amortized in five years

The Apex Court in the case of CIT-Gujarat Vs. Saurashtra Cements Ltd. (2010) 233 CTR 209 has held that liquidated damages received from the supplier on account of delay in the supply of plant and machinery shall be treated in the nature of :

(A)Capital Receipt

(B)Revenue Receipt

(C)Not a receipt but to be reduced from the cost of Plant & Machinery

(D)Compensation

XAB Ltd. has incurred amount of ₹ 4,00,000 towards capital expenditure and ₹ 1,50,000 towards bona fide revenue expenditure for the purpose of promoting family planning amongst its employees during the year 2018-19. Company can claim deduction of an amount of ₹ .................... for such expenses in the return to be filed for A.Y. 2019-20.

(A)50% of ₹ 5,50,000

(B)₹ 2,30,000

(C)Such expenses are not allowed

(D)20% of ₹ 5,50,000

The definition of person given in section 2(31) of the Income Tax Act, 1961 does include all of these except :

(A)AOP/BOI

(B)LOCAL AUTHORITY

(C)FIRMS

(D)ASSOCIATIONS OF FIRMS

A new business was established on 1-7-2023 but its operation will start from 01-09-2023, receives its 1st payment on 01-10-2023 the previous year would be the period :

(A)01-04-2023 to 31-03-2024

(B)01-07-2023 to 31-03-2024

(C)01-09-2023 to 31-03-2024

(D)01-10-2023 to 31-03-2024

A Local Authority means :

(A)Municipality

(B)Cantonment Board

(C)Panchayat

(D)All of the above

Section 2(24) of the Income Tax Act, 1961 defines income as it is :

(A)Exhaustive

(B)Exclusive

(C)Descriptive

(D)Inclusive

“Assessee” as per section 2(7) of the Income Tax Act, 1961, means a person by whom income tax or super tax or any other sum of money is payable under this Act and includes :

(A)every person who is deemed to be an assessee in default under any provision of this Act,

(B)every person in respect of whom any proceeding under this Act has been taken for assessment of his income or income of any other person in respect of which he is assessable,

(C)every person who is deemed to be an assessee under any provision of this Act.

(D)All of the above

Income tax as per section 4(1) of the Income Tax Act, 1961 shall be charged on the total income of the previous year of every person. The definition of person given in section 2(31) of the Act does not include in it :

(i)Association of person

(ii)Association of firms

(iii)Body of Individuals

(iv)Notified Entities

(A)(i) and (ii)

(B)(ii) and (iv)

(C)(iii) and (iv)

(D)(i) and (ii)

Determine the status of the following :-

(i)Mohan Lal Sukhadia University

(ii)Bhilwara Municipal Corporation.

(A)An association of persons, Artificial juridical person

(B)Artificial juridical person, A local authority

(C)A local authority, Artificial juridical person

(D)An association of persons, A local authority

(c)“Income of the previous year is assessable as the income of immediately following financial year.” State any five exceptions to this rule.

Which of the following person’s income would not be taxed in the previous year itself but would be taxed in the assessment year only ?

(A)Income of non-resident from shipping business in India

(B)Income of person leaving India temporarily for a short stay outside India

(C)Income of bodies formed for short duration

(D)Income of discontinued business

(b)“The income earned by an assessee in a previous year is assessable for tax in the assessment year. There is no exception to it”. Comment.

Incomes not actually received by the assessee during the relevant assessment year are also included in the total income as income deemed to have been received. Find which out of the following are the income deemed to have been received as per Income Tax Act, 1961 during the financial year :

(i)Amount of unrecorded investment

(ii)All sums deducted by way of tax at source

(iii)Any dividend declared by a company

(iv)Transferred balance in Recognised PF

(A)(ii) & (iii)

(B)(i), (ii) & (iii)

(C)(i) & (iv)

(D)(i), (ii), (iii) & (iv)