SCOPE OF TOTAL INCOME Flashcards
SCOPE OF TOTAL INCOME
Section 5 of Income Tax Act, 1961 provides Scope of total Income in case of person who is a resident, in the case of a person not ordinarily resident in India and person who is a non-resident. Income can be from any source
which (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or (c) accrues or arises to him
outside India during such year .
Resident and Ordinarily Resident Assessee
According to Sub-section (1) of Section 5 of the Act the total income of a resident and ordinarily resident assessee would consist of :
(i) income received or deemed to be received in India during the accounting year by or on behalf of such person;
(ii) income which accrues or arises or is deemed to accrue or arise to him in India during the accounting year;
(iii) income which accrues or arises to him outside India during the accounting year.
It is important to note that under clause (iii) only income accruing or arising outside India is included.
Income deemed to accrue or arise outside India is not includible.
Resident but Not Ordinarily Resident In India
Proviso to section (1) of section 5 the total income in case of resident but not ordinarily resident in India
(i) income received or deemed to be received in India during the accounting year by or on behalf of such person;
(ii) income which accrues or arises or is deemed to accrue or arise to him in India during the accounting year;
(iii) income which accrues or arises to him outside India during the previous year if it is derived from a business controlled in or a profession set up in India.
Non-Resident
Sub-section (2) of Section 5 provides that the total income of a non-resident would comprise of :
(i) income received or deemed to be received in India in the accounting year by or on behalf of such person;
(ii) income which accrues or arises or is deemed to accrue or arise to him in India during the previous year.
CIT v Ogale Glass Works”
“CIT v Ogale Glass Works” is a landmark Indian legal case where the Supreme Court ruled that when a cheque is posted in one location and received by the payee in another, the income is considered to be received at the place where the cheque was posted, essentially establishing the post office as the agent of the payee for the purpose of receiving payment, thus determining the relevant tax jurisdiction based on the posting location.
CIT v. R. D. Aggarwal & Co
R Ltd, a company located in Amritsar, carried on business as importers and commission agents of non-resident exporters. R Ltd communicated orders canvassed by them from dealers in Amritsar to the non-residents for acceptance. If a contract resulted and price for goods purchased was paid by the Amritsar dealer to the non-resident exporters, the assessees became entitled to commission varying between 1.5% to 2.5% of the price.
R Ltd carried out its activities as sole agents of certain non-resident exporters and as
representatives for certain other non-resident exporters.
The issue was whether the relationship between R Ltd and the non-resident exporters could be regarded as a BC.
In this case it was held that none of the activities of the non-resident exporters, such as procuring raw materials, manufacturing, sale or delivery of goods took place in India.
R Ltd merely procured orders from merchants in Amritsar for purchase of goods from the
non-residents. R Ltd did not have the authority to even accept the offers on behalf of the
non-residents.
Some commercial activity was undoubtedly carried on by the assessees in
the matter of procuring orders, which resulted in contracts for sale by the non-residents of
goods to merchants at Amritsar. Hence, this could in no way result in a BC of R Ltd with
the non-residents within India
