Taxation - Income TaxQuestion 5613 of 146
All Questions

2024. He has received interest @ 12% per annum in China during the previous year 2024-25. (iii) Mr. Ramesh received royalty of ` 8,25,000 in consideration of providing patent rights to Mr. Sunil. Mr. Sunil has developed a new product in India by utilizing the patent rights. 30% of the royalty was received in India 3 Out of syllabus and 70% was received outside India. Mr. Ramesh and Sunil both have status of non-resident in India. (6 Marks)

Options

A(i) Dividend received by Mr. Mahesh from a foreign company outside India would not be deemed to accrue or arise in India even if shares of such company derive their value substantially from assets situated in India. Hence, such dividend of ` 7 lakhs would not be taxable in the hands of Mr. Mahesh. (ii) Interest on deposits with M/s ABC Ltd., an Indian Company, would be deemed to accrue or arise in India in the hands of Mr. Shivansh, being a non-resident since source of income is in India. Thus, interest income of ` 1,12,000 (` 16 lakhs x 12% x 7/12) would be taxable in his hands. (iii) Royalty received by Mr. Ramesh, a non-resident from Mr. Sunil, another non-resident would be deemed to accrue or arise in India, since such royalty is paid for patent rights used for a new product developed in India. TAXATION Thus, ` 8,25,000 would be taxable in the hands of Mr. Ramesh irrespective of the facts that only 30% such amount is received in India.
B(i) Acquisition of television rights Payment made by Marks Pictures Ltd. for acquisition of television rights of the content already produced by the Solar Varanasi LLP, a production house would not be liable for tax deduction at source under section 194C, since there is no contract for ‘’carrying out any work”, as required in section 194C. However, consideration for acquiring television right in respect of film would fall within the definition of royalty as defined in Explanation 2 to section 9(1)(vi). Accordingly, tax is required to be deducted u/s 194J @10% on ` 52 lakhs or ` 5,20,000. (ii) Rent paid by a Salaried individual Since Mr. Mayank pays rent exceeding ` 50,000 per month in the F.Y. 2024-25, he is liable to deduct tax at source under section 194-IB @5% till 30.09.2024 and thereafter @2%. The tax is to be deducted in the last month of the P.Y. 2024-25 i.e., March 2025 or in the last month of tenancy, if the property is vacated during the year. Since property is not vacated during the year, ` 21,000 {` 10,50,000 [(` 75,000 x 6) + (` 1,00,000 x 6)] x 2%} has to be deducted from rent payable for March 2025.
C
D
For any discrepancies in this question, email contact@cadada.in

Correct Answer

✅ Option A — (i) Dividend received by Mr. Mahesh from a foreign company outside India would not be deemed to accrue or arise in India even if shares of such company derive their value substantially from assets situated in India. Hence, such dividend of ` 7 lakhs would not be taxable in the hands of Mr. Mahesh. (ii) Interest on deposits with M/s ABC Ltd., an Indian Company, would be deemed to accrue or arise in India in the hands of Mr. Shivansh, being a non-resident since source of income is in India. Thus, interest income of ` 1,12,000 (` 16 lakhs x 12% x 7/12) would be taxable in his hands. (iii) Royalty received by Mr. Ramesh, a non-resident from Mr. Sunil, another non-resident would be deemed to accrue or arise in India, since such royalty is paid for patent rights used for a new product developed in India. TAXATION Thus, ` 8,25,000 would be taxable in the hands of Mr. Ramesh irrespective of the facts that only 30% such amount is received in India.

All Options:

  • A(i) Dividend received by Mr. Mahesh from a foreign company outside India would not be deemed to accrue or arise in India even if shares of such company derive their value substantially from assets situated in India. Hence, such dividend of ` 7 lakhs would not be taxable in the hands of Mr. Mahesh. (ii) Interest on deposits with M/s ABC Ltd., an Indian Company, would be deemed to accrue or arise in India in the hands of Mr. Shivansh, being a non-resident since source of income is in India. Thus, interest income of ` 1,12,000 (` 16 lakhs x 12% x 7/12) would be taxable in his hands. (iii) Royalty received by Mr. Ramesh, a non-resident from Mr. Sunil, another non-resident would be deemed to accrue or arise in India, since such royalty is paid for patent rights used for a new product developed in India. TAXATION Thus, ` 8,25,000 would be taxable in the hands of Mr. Ramesh irrespective of the facts that only 30% such amount is received in India. ✓
  • B(i) Acquisition of television rights Payment made by Marks Pictures Ltd. for acquisition of television rights of the content already produced by the Solar Varanasi LLP, a production house would not be liable for tax deduction at source under section 194C, since there is no contract for ‘’carrying out any work”, as required in section 194C. However, consideration for acquiring television right in respect of film would fall within the definition of royalty as defined in Explanation 2 to section 9(1)(vi). Accordingly, tax is required to be deducted u/s 194J @10% on ` 52 lakhs or ` 5,20,000. (ii) Rent paid by a Salaried individual Since Mr. Mayank pays rent exceeding ` 50,000 per month in the F.Y. 2024-25, he is liable to deduct tax at source under section 194-IB @5% till 30.09.2024 and thereafter @2%. The tax is to be deducted in the last month of the P.Y. 2024-25 i.e., March 2025 or in the last month of tenancy, if the property is vacated during the year. Since property is not vacated during the year, ` 21,000 {` 10,50,000 [(` 75,000 x 6) + (` 1,00,000 x 6)] x 2%} has to be deducted from rent payable for March 2025.
  • C
  • D

Ad

Detailed Solution & Explanation

Correct Answer: Option **A** **Explanation:** Let us analyze the taxability of each situation for the Assessment Year (A.Y.) 2025-26:
1. **Dividend received by Mr. Mahesh (RNOR):** - Mr. Mahesh is a Resident but Not Ordinarily Resident (RNOR) in India. - He received a dividend of ₹ 7 lakhs declared and paid by a foreign company outside India. - Although the shares of the foreign company derive their value substantially from assets situated in India, Explanation 5 to Section 9(1)(i) of the Income-tax Act, 1961 clarifies that dividends declared/paid by a foreign company outside India shall not be deemed to accrue or arise in India. - Since the income accrues and is received outside India, it is not taxable in the hands of an RNOR. - Thus, the dividend of ₹ 7 lakhs is not taxable in India.
2. **Interest received by Mr. Shivansh (Non-Resident):** - Mr. Shivansh is a non-resident in India. He deposited ₹ 16 lakhs with M/s ABC Ltd. (an Indian company) on 01-09-2024. - Under Section 9(1)(v), interest payable by an Indian company (a resident) is deemed to accrue or arise in India in the hands of the non-resident recipient. - The interest is calculated for the period of 7 months (from 01-09-2024 to 31-03-2025): Interest Income=₹16,00,000×12%×712=₹1,12,000\text{Interest Income} = ₹ 16,00,000 \times 12\% \times \frac{7}{12} = ₹ 1,12,000 - Thus, the interest income of ₹ 1,12,000 is deemed to accrue or arise in India and is taxable in his hands.
3. **Royalty received by Mr. Ramesh (Non-Resident) from Mr. Sunil (Non-Resident):** - Both Ramesh and Sunil are non-residents. Sunil paid royalty of ₹ 8,25,000 for patent rights utilized to develop a new product in India. - Under Section 9(1)(vi)(c), royalty paid by a non-resident is deemed to accrue or arise in India if it is paid in respect of any right, property, or information used for the purpose of a business carried on in India or for earning any income from any source in India. - Since the patent rights were utilized for developing a product in India, the entire royalty of ₹ 8,25,000 is deemed to accrue or arise in India and is taxable in Ramesh's hands, regardless of the fact that only 30%\displaystyle 30\% was received in India. Hence, **Option A** is the correct answer.

Key Concepts to Understand

Consideration

Something of value exchanged for a promise. 'Quid Pro Quo' (Something for something).

More Questions from Taxation - Income Tax

On solving the inequalities 5x+y≤100\displaystyle 5x + y \le 100, x+y≤60\displaystyle x + y \le 60, x≥0\displaystyle x \ge 0, y≥0\displaystyle y \ge 0, we get the following solution:

An employer recruits experienced (x)\displaystyle (x) and fresh workmen (y)\displaystyle (y) for his under the condition that he cannot employ more than 11\displaystyle 11 people x\displaystyle x and y\displaystyle y can be related by the inequality.

The solution set of the equations x+2>0\displaystyle x + 2 > 0 and 2x−6>0\displaystyle 2x - 6 > 0 is

On solving the inequalities; we get 6x+y≥18\displaystyle 6x + y \ge 18, x+4y≥12\displaystyle x + 4y \ge 12, 2x+y≥10\displaystyle 2x + y \ge 10

Solve for x\displaystyle x of the inequalities 2≤3x−25≤4\displaystyle 2 \le \frac{3x - 2}{5} \le 4 where x∈N\displaystyle x \in N

The common region in the graph of the inequalities x+y≤4\displaystyle x + y \le 4, x−y≤4\displaystyle x - y \le 4, x≥2\displaystyle x \ge 2 is

Ready to Master Taxation - Income Tax?

Practice all 146 questions with instant feedback, earn XP, track your streaks, and ace your CA Foundation exam.

Start Practicing — It's Free