taxation of entity related issues...taxation of entity related issues (private trusts, huf,aop,boi,...

Taxation of Entity Related Issues (Private Trusts, HUF,AOP,BOI, Succession,

Company and Firm)

8th January to 11th January, 2015

48th Residential Refresher Course

Bombay Chartered Accountants Society

Anantha Resort

Udaipur, Rajasthan

1Pradip N Kapasi

Chartered Accountant

Private Trusts

2Pradip N Kapasi


Validations- General

Indian Trusts Act, 1882 Concurrent list of Constitution of India Author, Trustees, Beneficiaries Fiduciary relationship Agreement between settlor and trustees Transfer of Property to trustees Trustees are Custodian of Property Not agents- Trustees Terms of settlement Settlement for an unborn person

Subject to rule against perpetuity

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Validations- Income Tax No special provisions for a Private Trust Charge, computation and Residential status

Special provisions Assessment, Representative assessee, recovery of tax

Determinate (Specific) & Indeterminate (Discretionary) Trust

Specific provisions S. 2(13A), 2(31), 4 to 6, 60 to 64, 160 to 167, 238

Assessment on Representative Assessee- Trustees

Option to assess beneficiaries with AO Once exercised- final

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Validations- Income Tax (Contd.)

Assessment in like manner and to the same extent

Status- personal and residential qua beneficiary

Computation- deductions and exemptions possible

Threshold- rate of taxation

Liability to compliance on trustees

Assessment in hands of trustees

Discretionary Trusts

Assessment on Trustees- Option on distribution

Status of beneficiary

Rate of tax- MMR without threshold exemption.

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Validations- Income Tax (Contd.)

Profits and Gains of Business at MMR

Specific or Discretionary

Subject to a few exceptions

Discretionary better placed

Rate of tax

Specific- Ordinary or MMR

Discretionary- MMR or Rate of AOP or ordinary

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Tax Exemptions for Capital Gains

Eligibility of a trust

Pre-conditions for a valid exemption Assessee being an ‘Individual’ or ‘HUF’

Assesses has …’purchased’…

Difficulties in claim in Trust situation Eligibility for exemption

Identifying ‘assessee’

Defining purchaser of new asset

Assessee Trust- not an assessee

Trustee- a ‘representative assessee’7

Pradip N Kapasi Chartered Accountant

Tax Exemptions for Capital Gains Beneficiary- an ‘assessee’

Like manner, to the same extent

Law applicable to beneficiary to be applied Deepak Family Trust, 211 ITR 575 (Guj.)

Venu Suresh Sanjay Trust, 221 ITR 649 (Mad.)

Arundhati Balkrishna, 177 ITR 275 (SC)

Amy F. Cama, 237 ITR 82 (Bom.)

Precautions- use of funds & Documents

Discretionary Trust- ‘like manner, same extent’-inapplicable Trustee a Representative assessee and not an assessee

‘Individual’- S.A.E. HO Monthly Paid Emp. Trust, 271 ITR 159 (Delhi)

Exercise of discretion for distribution of income- Beneficiary liable Kamilini Khatau, 209 ITR 101 (SC)

Moti Trust, 236 ITR 37 (SC)

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Would-be in-laws or Unborn child Discretionary or not?

Beneficiary to be ‘expressed’ and ‘identified’

Share to be ‘expressed’ and ‘ascertainable’

Legal to settle a property in such a trust

Rule against perpetuity observed

Beneficiaries are identified and shares ascertainable

Effective on happening of an event

Beneficial interest to be preceded by persons

who are identified in deed

whose share is ascertainable9


Would-be in-laws or Unborn child

Not invalid nor a discretionary trust

M.K.Kannan Marriage Benefit Trust, 240 ITR 785 (Mad.)

Brig. Kapil Mohan, 252 ITR 830 (Delhi)

T. Senthil Kumaran, 39 TTJ 177 (Mad.)

P. Sekar Trust, 321 ITR 305 (Mad.)

Contingent beneficiary- Discretionary Trust

Atreya Trust, 55 Taxman 489 (Cal.)


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Alternative Investment Funds CBDT’s view- Discretionary Trust Circular No. 13/2014 dt. 28.07.2014

Constituted as a Trust under Indian Trust Act, 1882 Business model- Medium of Investment Collection- Investment- Income- Distribution

Business practice- open ended fluctuating body of beneficiaries entry and exit possible

Judicial view India Advantage Fund, 50 taxmann.com 350 (Bang.) In Re, 224 ITR 473 (AAR) Raptakos Brett & Co. (P.) Ltd., 177 ITR 202 (Bom.)

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Direct Assessment of Beneficiary In case of Discretionary Trust Beneficiary not identified or share not defined

Direct assessment not possible

Possible to assess beneficiary on distribution of income S.5 or s.166

Jyotendrasinhji, 201 ITR 611 (SC)

Moti Trust, 236 ITR 37 (SC)

Kamilini Khatau, 201 ITR 109 (SC)

Trustees only assessable- other view Alpana Kirloskar, 150 ITD 311 (Delhi)

Better view12


Determination of Tax Base

Tax base for Discretionary Trust

Seeking exemption under clause (i) of 1st Proviso

Income of Trust possible only where distributed

Other income only to be considered

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Rate of tax for Beneficiary

Where taxed in beneficiary’s hands - rate

R. Sreevidya, 84 ITD 222 (Cochin)

Case of a discretionary and specific trust, as well

S.161(1A) and S.164

MMR where taxed in the hands of trustees

Scope of s.166 restricted to option and not to taxes

Option once exercised to be taken to logical end

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Rate of Tax on Discretionary Trust

S.21 of Wealth Tax Act –maximum rate 3%

Assessment in status of ‘individual’

Wealth Tax at Ordinary Rates

Pradip D. Kothari Trust, 27 ITD 176 (Mad.)


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A Trust through Will Where more than one relative ‘Any’ relative- s.161(1A), s.164, cl.(ii) to 1st & 2nd Proviso

‘Exclusively’

Where independent income of a beneficiary Dependency for support and maintenance

Independent income not an imperdiment

Where income subsequent to settlement Compliance- on settlement or on claim of relief

Declaration under a Will Chunilal Raichand Trust, 189 ITR 631 (Bom.)

Gunvantlal Jivanlal Family Trust, 133 ITR 162 (Bom.)

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A Trust through Will Settlement of a Charitable Trust- in addition Trust is the ‘only’ trust ‘so declared’ by him.

V.M.R. Trust, 253 ITR 491 (Mad.)

Parents- residing with brother- Partly dependent Relative- s.2(41)- lineal ascendants- both parents Dependency independent of parenthood Stay of dependent not relevant Dependence for support and maintenance

Need not be ‘Exclusively’, ‘fully’

Settlement by sister, also Compliance of conditions qua Will of the deceased Impossibility of control For support and maintenance- more persons

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Minor Beneficiary Trust Is income taxable during minority

S.4 and 6- Arising, Accruing, Received

S. 160- Receives or entitled to receive

S.161(1)- Received by or accruing to

Beneficiary/ies of a specific trust

Not accrued or received by beneficiaries

Not to be clubbed u/s 64

Doshi M.R., 211 ITR 001 (SC) – Amendment of 1971

Mutammal (N.), 227 ITR 656 (Mad.) – Post amendment

Taxable on accrual – s. 161(1)

Ganesh Chababhai Vallabhbhai Patel, 258 ITR 193 (Guj.)18


Minor Beneficiary Trust Direction to accumulate- whether discretionary

Sheetal Sunder Trust, 96 ITD 128 (Bang.)(TM)

Anasuya Muthanna, 232 ITR 561 (Mad.)

Beneficiary/ies of a discretionary trust

Taxable in the hands of trustees at MMR

Accumulation under a Will - Executor

C.P.Venkatesh (Minor), 27 ITD 298 (Mad.)

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Creditor’s Trust

Determination of assessee

Taxation of Capital Gains on transfer of Trust Property

Creation of a Valid Trust by a Debtor

Creditors beneficiaries

Income in hands of trustees- Representative assessee

Taxable in the like manner and to the same extent

S.166- option to assess beneficiaries

S.162- recovery or retention of taxes

Advantage Debtor- Not liable to tax

Dutt’s Trust, 10 ITR 472 (Cal.)

K. Krishnamachari, 11 ITD 194 (Hyd.)

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Creditor’s Trust

Rate of tax- MMR or ordinary

Discretionary or specific

Beneficiaries identified

Shares not unknown

Smt. Ved Wati Munjal, 38 ITD 11 (Chd.)


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Pets’ Trust Indian Trusts Act, 1882

Parties Author ▪Settlor ▪Trustees ▪Beneficiaries

Capable of holding property and earning income

Human beings- body corporate-BOI

Constitution of India

Bombay Public Trusts Act, 1950 Public cause

Welfare of animals in general

Without specific rights of prosecution

Income Tax Act S.2(15)- Charitable purpose

Object of general public utility

S.2(31)-’person’- artificial juridical person- deity- Shri Hanuman Mandir Trust, 84 ITD 83 (Pun)22Pradip N Kapasi


Foreign Trust Principles of taxation

S.4 to 6 of Income Tax Act or DTAA S.160 to 167 to apply In hands of Representative Assessee or Trustees Status qua beneficiary unless a discretionary trust Specific Trust

World income if resident Indian income if Non Resident or Resident but NOR

Discretionary Trust Indian income of Trust World income if sole beneficiary –Resident

Status of income On settlement-Accrual or receipt-Distribution

Return of income u/s 139(1)

Maharaja Vikramsinhji of Gondal, 363 ITR 679 (SC) Mohan Manoj Dhupelia, itatonline.org (Mum.)

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Business Trust Pass-through status for interest only

Specific provision for tax at MMR- Outside s.161 and s.164

Transaction, Capital Gains tax costs, DDT for transfer by SPV

Rental income and Capital Gains of SPV liable to DDT

Gains on transfer of shares of SPV liable to MAT

Taxable capital gains on transfer of units by sponsors

Denial of benefit of s.10(38) exemption

Difficulty in claiming expenditure and s.14A

Base period for indexation of units for sponsors

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Securitization Trusts

Non securitization income taxable

Disallowance of expenditure u/s 115TA(4)

No specific exemption for capital gains

on transfer of units of trust

in the hands of unit holders

Disallowance of expenditure on investment in units u/s 14A

Unit holders liability to MAT- DDT on distribution

DDT on subsequent distribution

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Hindu Undivided Family

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Status of a daughter Classical or Shastrik law- her status

Hindu Succession Act before amendment

Hindu Succession Act post amendment w.e.f. 9th September 2005

Snapshot of s.6 (Relevant part) 6.(1) On and from the commencement of the Hindu Succession (Amendment) Act, 2005, in a

Joint Hindu family governed by the Mitakshara law, the daughter of a coparcener shall,-

(a) by birth become a coparcener in her own right in the same manner as the son;

(b) have the same rights in the coparcenary property as she would have had if she had been a son;

(c) be subject to the same liabilities in respect of the said coparcenary property as that of a son,

and any reference to a Hindu Mitakshara coparcener shall be deemed to include a reference to a daughter of a coparcener:

Provided that nothing contained in this sub-section shall affect or invalidate any disposition or alienation including any partition or testamentary disposition of property which had taken place before the 20th day of December, 2004.

(2) Any property to which a female Hindu become entitled by virtue of sub-section (1) shall be held by her with the incidents of coparcenary ownership and shall be regarded, notwithstanding anything contained in this Act, or any other law for the time being in force, as property capable of being disposed of by her by her testamentary disposition.

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Status of a daughter

Synopsis of relevant part Co-parcener by birth

Same rights and liabilities as of a son

Right of disposition of her share

Right to demand partition

Incidence of co-parcenary Joint title and possession over HUF property

Devolution by survivorship and not by succession

Limited right of disposition


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Family of a father and a daughter

Ingredient of a taxable entity of HUF

Joint Hindu Family

Unity of title and possession

No individual rights of disposition

Need for more than one co-parcener satisfied

Case of two daughters without a male

Co-parcenary in existence

Relevance of a male member as a head or karta

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HUF with two female co-parceners only

Verappa Chettiar, 76 ITR 467 (SC)

Sandhya Rani Dutta, 248 ITR 201 (SC)

Yashodamma (T.), 146 ITR 445 (AP)

Relevance of a male member as Karta post HSA

Claim in appeal- prospective amendment

Not possible for A.Y. 2003-04

Possible for A.Y. 2006-07

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Daughter’s daughter and granddaughter

Provisions of S.6(1) and (2) of HSA, 1956.

No express or implied provision

Daughter’s interest an absolute property

Capable of disposition

Co-parcenary interest or membership for descendants of a daugher

Absence of legislative intent

Position under classical law- son of a co-parcener

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Female constituting her own HUF

Daughter’s HUF

Family of husband and children with her as Karta

Need for a co-parcenary

Need for a male Karta

No express or implied statutory provisions

Position under Classical law

Ingredients of an HUF

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Claim of heirs on daughter’s death

Death of daughter and her share in father’s HUF

Legal heirs claim as her legatees and heirs- s.6 and s.30

Devolution by succession and not by survivorship

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Character of inherited property

Whether HUF or Individual- 3 situations Provisions of s.8 and s.30 and s.6(3) of HSA, 1956 Chandersen’s decision, 161 ITR 370 (SC) Receipt on deemed partition u/s 6 and 30

Retains ancestral character qua son’s family

Receipt on succession to father’s absolute property Absolute receipt post HSA, 1956

Judicial view Girdharilal (decd.), 269 ITR 50 (All.) H.N.Mehrotra, 276 ITR 158 (All.) Vishwas Ranade, 266 ITR 713 (Bom.) Sarv Shakti Swarup, 144 Taxman 430 (All.)

Receipt on succession to father’s inherited property Ancestral character or not qua son’s family

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Status of HUF post deemed partition u/s 6 or s.30 of the HSA, 1956

Total partition of HUF or partial Statutory effect limited to deceased’s share No deeming fiction for total partition

Income and wealth post partition Fiction creates a right in favour of legal heirs Right requires exercise Effective only on implementation and possession Taxable in HUF’s hands in intervening period Taxable in legal heir’s hands post implementation

Narayan Rao Shyam Rao Deshmukh, 163 ITR 31 (SC) Gurupad Khanappa Magdum,129 ITR 440 (SC) R.B.Tunki Sah Baidyanath Prasad, 212 ITR 632 (SC) Tatavarthi Rajah & Anr, 225 ITR 561 (SC)

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Nature of property on subsequent marriage of the male Hindu

Re-Characterisation of property ancestral on marriage Receipt when no family Immediate holding ‘absolute’ with rights of disposition Reversal of absolute character on marriage

Dr. Prakash B. Sultane, 280 ITR 593 (Bom.) Prem Kumar, 121 ITR 347 (All.) Parshottamdas K. Panchal, 257 ITR 096 (Guj.) Balkrishna Goyal, 218 ITR 671 (MP) Chander Sen, 161 ITR 370 (SC) Vishnukumar Bhaiya, 142 ITR 357 (MP) Shankar LalBudhia, 165 ITR 380 (Pat.)

36Pradip N Kapasi


AOP and BOI

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Status of an AOP Indira Balakrishna, 39 ITR 546 (SC) - CBR Cir. No. 30 of 1941 Conflicting Judicial views

Van Oord Dredging, 248 ITR 399 (AAR) Geo consultants, 304 ITR 283 (AAR) Linde AG, 349 ITR 172 (AAR) and 361 ITR 1 (Delhi) Alstom AG, 349 ITR 292 (AAR) CTCI Overseas Corp., 342 ITR 217 (AAR) and 366 ITR 33 (Delhi)

Essentials for AOP Joining together voluntarily of 2 or more persons Business- unity of purpose Joint actions and management and decisions Profit motive- but see Explanation to s.2(31) Sharing of profits and losses Degree of permanency- Real and substantial Agency- Binding powerJoint ownership and Infrastructure

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Status of an AOP Irrelevant factors

Joining together for contract or asset Common management Liability sharing

Factors relevant for Non-AOP Independent activities Independent profit centres Independent accountability Separate books of accounts Skills and funds Averments of not an AOP

Unintended consequences S. 2(47)-’transfer’ and stock valuations Multiple assessments and tax credits Denial of DTAA benefits Unlimited liability


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Taxation of BOI and its members Rate of tax Specific provisions u/s 167B for MMR

Provisions of s.164(1) for discretionary trust not to apply

Share of member in BOI’s income- taxability BOI a taxable entity- S.2(31)

Income taxable in the hands of BOI

No specific provisions for inclusion in member’s hands

No specific provision for exclusion u/s 10

Liability to MAT

‘Rate purposes’ inclusion – s.86 Scope restricted to members of AOP

Inapplicable to members of BOI

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Capital Gains and AOP/BOI

Eligibility for concessional rate of taxation u/s 111A or 112

Specific provisions for concession

overrides general provision for MMR

S.167B does not override other provisions of the Act.

Niranjan Narottam, 128 Taxman 25 (Ahd.)

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Taxation at MMR

MMR on part of income or entire income

S.164 taxes only a part of income at MMR

Specific provision of s.167B to apply MMR in all cases

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Higher Rate of Tax

Higher rate of tax for ‘specific’ AOP- s.167B

Income of relevant year- annual exercise

Specific exclusion for share in income of AOP

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Taxation of Wealth

Wealth tax on Discretionary AOP

No provision for taxing an AOP- not an assessee

Charge of wealth tax u/s 3(2)

Maximum rate inapplicable

Aparna Ashram, 205 Taxman 362 (Delhi)

George Club, 191 ITR 368 (AP)

Club of Mahabaleshwar, 44 ITD 520 (Pune)

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Rate of tax in hands of members

Rate when taxed in members’ hands

S.167B applicable to AOP/BOI

MMR Inapplicable to members- ordinary rates

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S. 167B and Clubs

No member with share in AOP

Provisions of s.167B only where shares are unknown

Secunderabad Club, 79 TTJ 610 (Hyd.)

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Treatment of losses Tax treatment of losses- AOP or members

AOP a person u/s 2(31)- a taxable entity

No specific provisions for share of member but for S.67A

Provisions applicable to taxation of income to apply

Ch. Atchaiah, 218 ITR 239 (SC)

Pradeep Agencies, 111 ITD 346 (Del.)(SB)

Lalita M. Bhatt, 234 ITR 319 (Bom.)

Birla Tyres, 88 TTJ 1 (Cal.)(TM)

Sutlej Industries, 31 SOT 261 (Del.)

Hindustan Times, 13 ITR (T) 406 (Del.)

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Treatment of losses Right to carry forward to next year

Losses of AOP to be c/f by AOP only

No provision for c/f by members

Distant possibility where AOP’s income below taxable limit

Members’ right to claim- a possibility S.86 applicable to income only- 1st and 2nd proviso

Mahindra Holdings & Finance Ltd., 117 TTJ 721 (Mum.)(TM)

Metro Exports (P.) Ltd., 3 SOT 566 (Mum.)

Significance of s.67A

Retirement of a member and quantum of loss S.78 for adjustment in losses applies to firm, only

No provisions similar to s.78 and 79 for losses of an AOP

Losses of AOP to remain intact

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Option to assess

Position under Act of 1922

No provision under Act of 1961

Ch. Atchaiah, 218 ITR 239 (SC)

Pradeep Agencies, 111 TTJ 346 (Del.)(SB)

Sutlej Industries, 31 SOT 261 (Delhi)

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MAT and AOP

Liability of a member to MAT

Share of a member company in profits of an AOP/BOI

Exclusion only for Chapter III share in profit

Specific exemptions for partners of firm

Liabilty to MAT

B. Seenaiah & Co. Projects Ltd., 150 ITD 189 (Hyd.)

RSDV Finance Co. (P.) Ltd, 66 ITD 378 (Mum.)

Where taxed at MMR -Ordinary rates -Not taxed

Rate of taxation of AOP not relevant for ‘Book profit’

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Members’ Taxation

Taxation of salary, etc. from AOP

Payment disallowable for AOP- s.40(ba)

Taxed in the hands of AOP

Share to be computed as per s.67A

Tax not payable on share u/s 86

Share includible in total income for rate purposes-s.110

Not liable for rate purpose when AOP taxed at MMR

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Members’ Taxation S.86 and share in loss of AOP/BOI S.86 applies to a member and not to an AOP

S.86 applicability limited to share in income

2nd proviso excludes application where No income tax chargeable on AOP

Share chargeable in the hands of member

Set-off of share of loss by a member Share of loss to be computed u/s 67A

Mahindra Holdings, 117 TTJ 71 (Mum.)(TM)

Metro Exports, 3 SOT 566 (Mum.)

Hindustan Times, 13 ITR (T) 406 (Delhi)

Sutlej Industries, 31 SOT 26 (Delhi)

Insignificance of s.67A for claim of set-off Pradip N Kapasi

Chartered Accountant52

Members’ Taxation Adjustment of share of loss for rate purposes

Possible only where s.86 and s.110 apply

Share of loss to be ignored for rate

Share in exempt income of AOP

2nd proviso- charge of tax where AOP not taxable

Character of income retained vide s.67A(2)

No specific exemption similar to s.10(2A)

Alternatively- may be liable for rate purposes


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Firm

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Firm and Deemed Dividend Investment in shares by firm held through partner Taxable in hands of a shareholder only- consensus

Shareholder to be registered and beneficial shareholder

Partner in the case, not a beneficial shareholder

Failure of s.2(22)(e) in a given case

National Travel Services, 347 ITR 305 (Del.) Taxable in the hands of firm-beneficial owner

Purposive interpretation by ignoring case law

No investment in shares by firm Bharti Overseas Trading Co., 349 ITR 52 (Delhi)

Taxable in the hands of firm

Applied National Travel Services

Overlooked Judicial view Taxable in the hands of shareholders

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Succession


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Income of a discontinued profession

Taxability of receipt post discontinuance- S.176(4)

Whose hands, which provisions S.159- not possible ▪S.168-not possible ▪Recipient- yes S. 176(4)

Late K.S.Engineer, 70 TTJ 161 (Mum.)

Estate of Late A.V. Vishwanatha Sastry, 121 ITR 270 (Mad.)

Head of income- not specified Roma Bose, 95 ITR 299 (Cal.)

Justice R.M. Dutta, 180 ITR 86 (Cal.)

Justice Dilip Kumar Seth, 98 ITD 241 (Kol)

Justice Kuldip Singh, 46 ITD 251 (Chd.)

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Income of a discontinued profession

Relevance of method of accounting

Only where cash system

Accrual would have been taxed

Deduction of expenses- no express provisions-real income

Need for discontinuance

S.176(4) not applicable only on succession

Justice Rajeev Shadher, 147 ITD 575 (Delhi)

Credit for TDS

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Tax on income of a discontinued business Tax on receipt post discontinuance- S.176(3A)

Taxability of receipts post discontinuance

Head of income- not specified

Whose hands which provision- s.189,s.170,s0168,s.176(3A) Partners ▪Successors ▪Recipient ▪Executor

Relevance of method of accounting

Deduction for expenses Van Oord Dredging and Marine Cont. BV, 160 TTJ 889 (Mum.)

Need for discontinuance- succession Jalamsingh D. Barad, 130 TTJ 573 (Ahd)

Paily Pillai & Co., 243 ITR 557 (Kerala)

H.T.V Engineering, 93 TTJ 16 (Pune)(TM )

Kachradas Patel Specific Family Trust, 88 ITD 228 (Ahd)

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Company

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Taxation of an OPC Status of company- whether individual

‘company’- s.2(31), 2(17) and s.2(26)

‘Individual’- whether includes an OPC Management and control in one person

100% beneficial ownership

Unfettered disposition rights A.I.A. Engineering Co., 18 taxmann.com 307 (Ahd.)

ABC, In Re, 223 ITR 462 (AAR)

Allowance of interest and remuneration

Conversion of OPC to a Private company and vice versa Possible under Companies Act, 2013

Capital Gains on conversion possible

No specific exemption u/s 47 for ‘company’ to ‘company’

Turnover > Rs. 2 crore, paid up capital > Rs. 50 lakhs Conversion by operation of law and ‘transfer’ 61


Losses and Residential Status

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Residential status and losses

Option to not set-off Indian loss- Resident S.70 and s.71 permit set-off of losses

Mandatory or optional- ‘Entitled to’ British Insulated Co., 202 ITR 354 (Bom.)

Where income taxable in foreign country only as per DTAA Set-off not against income exempt in India

Possible application of s.90(2) Claim for beneficial application of DTAA

Refund of foreign tax not possible

Reverse ‘Double Dip’ Foreign tax paid- Indian loss absorbed

Set-off mandatory63


Residential status and losses

Denial of set-off of foreign losses- Resident

Right of set-off u/s 70 and 71

Independent of right to c/f under foreign laws

Patni Computer Systems Ltd., 114 ITD 159 (Pune)

Van Oord Dredging, 105 ITD 97 (Mum.)

Case of Double Dip

Opt out of DTAA

Set-off to be allowed

Set-off of foreign losses absorbed against foreign income- Resident


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Residential status and losses Non-Resident- Set-off of Ind. losses ag. foreign income

Foreign income not taxable in India- Exempt

Indian losses to be c/f - remain unabsorbed

Non-Resident and DTAA in above situation

Possible to claim ‘Resident’ country taxation

Advisable to avoid Treaty shelter

Prudential Assurance Co. Ltd., 18 ITR 186 (Mum.)(T)

Flagship Indian Investment Co. Ltd., 133 TTJ 792 (Mum.)


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Change in residential status and brought forward losses

R to NR- c/f foreign losses and Indian income Right to c/f foreign losses established when ‘resident’ and set-off

Withdrawal not possible of an ‘invested right’

Change of status not relevant

A.R.Alagappan, 14 ITD 224 (Mad.), 244 ITR 284 (Mad.)

P.M.Muthuraman Chettiar, 44 ITR 710 (SC)

A.A.L. Alagappa Chettiar, 30 TTJ 126 (Mad.)


66

Change in residential status and brought forward losses

NR to R- c/f foreign losses and Ind and foreign income

Foreign loss not eligible for set-off when a non-resident

No right to set-off against Indian income

Net foreign income after set-off taxable


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Pradip N KapasiChartered Accountant

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