Taxation - Income TaxSubjectiveQuestion 6084 of 146
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Question 2 (a) State with reasons whether income chargeable to tax in India for the A.Y. 2025-26 in the hands of recipients in following independent situations: (i) Mr. Mahesh received dividend of ₹ 7 lakhs declared and paid by a foreign company outside India. Such dividend has been declared in respect of shares which derive their value substantially from assets situated in India. He is resident and not ordinarily resident in India.3 (ii) Mr. Shivansh is a non-resident in India and residing in China has deposited ₹ 16 lakhs with M/s ABC Ltd., an Indian company, on 01-09- 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) (b) Discuss the relevant provisions of Income-tax Act, 1961 with respect to tax deduction at source (TDS) and calculate amount of TDS also for the A.Y. 2025-26 in the following independent situations: (i) Marks Pictures Ltd. is a movie and short films production house having turnover of ₹ 15.22 crores during the previous year 2023-24. Solar Varanasi LLP also produces short films and clippings and it has already produced a short film namely 'Maha Kumbh'. On 16-10-2024, Marks Pictures Ltd. acquired television rights in consideration of ₹ 52 lakhs from Solar Varanasi LLP. (Both have valid PAN) (ii) Mr. Mayank, a salaried individual, paid rent for his residential house at Mumbai to the house owner Mr. Nikhil in the following manner: From April, 2024 to September, 2024: ₹ 75,000 per month; and From October, 2024 to March, 2025: ₹ 1,00,000 per month. (4 Marks)

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Detailed Solution & Explanation

(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.

Key Concepts to Understand

Consideration

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

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