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:…

CA Intermediate · Taxation · PYQS · May 2025
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 and 70% was received outside India. Mr. Ramesh and Sunil both have status of non-resident in India.

Suggested Answer and Working Notes:

(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 7lakhs 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 (16lakhs 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. 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.

Topics: Paper 3A: Income Tax Laws

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