Residential Status of Group of Persons - Taxation | Income Tax for assessment (Inter Level) PDF Download

Section 6(2), 6(6). residential status of hindu undivided family
Basic Condition
Control & Management of the affairs of the business of HUF is situated
• Wholly in India - Resident in India.
• Partially in India - Resident in India.
• Wholly outside India - Non-Resident in India.

Additional Condition
If the Karta or manager (including successive Karta) also satisfies both the additional conditions (as given for
Individual i.e. 2 out of 10 and 730 days in last 7 years) then residential status of HUF is R-OR otherwise R-NOR.
P1: Tata Sons HUF, whose affairs of the business are wholly controlled from India. Determine the residential
status of HUF and its Karta in each of the following cases:

P2 : Short questions and answers.
1. Whether HUF is resident or non-resident depends upon the residential status of Karta. (True or False)
2. Whether HUF is R-OR or R-NOR depends upon the residential status of Karta. (True or False)
3. Residential status of an assessee once fixed is fixed for ever. (True or False)
4. “In order to determine whether a Hindu Undivided Family is resident or non-resident residential status of the Karta of the family during the previous year is not relevant.” True or False.

Solution
1. False, since basic condition of HUF and Karta are different.
2. True, since additional conditions of HUF and Karta are same.
3. False. Residential status is determined for each PY therefore residential status can change from year to year.
4. True.

P3 : Taxcrazy & Sons is controlled by Mr. Taxcrazy, a foreign citizen, who was in India on a visit for 150 days
in the PY 2016-17. Determine the residential status of HUF and Taxcrazy for the AY 2017-18.
Ans: R-NOR; NR.

P4: G.D. Birla and Sons is a HUF. Its business is controlled by its Karta from Pilani and by one of his sons
Mr. K.M. Birla from USA. Determine Residential Status of HUF for the AY 2017-18 on the assumption that
Case 1 : Residential Status of Karta is R-OR.
Case 2 : Residential Status of Karta is R-NOR.
Case 3 : Residential Status of Karta is NR in India.

Ans: (1) R-OR; (2) R-NOR; (3) it can be R-OR or R-NOR how? Shall be discussed in the class.

P5 : State with reason, whether the following statements are True or False : Mr. X, Katra of HUF claims the HUF is non-resident as the business of HUF is transacted from UK and all the policy decisions are taken there.
 

Ans. True. A Hindu undivided family is said to be resident in India if control and management of its affairs is situated wholly or partly situated in India. A Hindu undivided family is non resident in India if control and management of its affairs is wholly situated outside India. Note : In order to determine whether a HUF is resident or non resident, the residential status of the “Karta” of the family during the previous year is not relevant. Residential status of the Karta during the preceding years is considered for determining whether a resident family is “ordinarily resident”.

Section 6(2). residential status of FIRM, LLP, AOP & BOI.
Control & Management of the affairs of the business is situated
• Wholly in India : Resident in India.
• Partially in India : Resident in India.
• Wholly outside India : Non-Resident in India.

P1: Determine the residential status of firm XT and Co. in following three cases:

1. The partners of XT and Co. keeps their dwelling place in China. The business is wholly controlled by  Mr. X. Mr T being a sleeping partner.
2. The partners of XT and Co. keeps their dwelling place in China. The business is controlled by Mr. B, the manager of the firm who lives in India. The partners however keep tab of Mr. B’s decision.
3. The partners of XT and Co. keeps their dwelling place in India. The business is controlled by both the partners. However both the partners were in Norway for 360 days in the relevant PY.

Ans: Non-Resident in India; Resident in India; Resident in India. (Same answer for LLP)
 

Section 6(3). Residential Status of Company
Indian Company: The company which is registered in India is an Indian company. Indian Company is always
treated as Resident in India whether control & management is in India or outside India. Control & Management of the affairs of the business is situated

• Wholly in India : Resident in India.
• Partially in India : Resident in India.
• Wholly outside India : Resident in India.

Foreign Company: The company which is incorporated outside India is a Foreign company. Residential status of foreign company shall depend upon place of effective management. Place of effective management to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made. It simply means the place where board meetings are held or that person to whom board of directors have delegated the entire policy decision of company. E.g. Managing Director, Manager who has control and management.

Control & Management of the affairs of the business is situated

• Wholly in India : Resident in India.
• Partially in India : Resident in India.
• Wholly outside India : Non - Resident in India.

P2: Determine the residential status in following cases.

1. Rising Ltd. is registered in India. Its entire share capital is held by a Brazilian citizen and board meetings  are generally held in Brazil. Its factory is located outside India. Determine its Residential Status.
2. What would be your answer if the company is registered in New Zealand and all board meetings are held in Brazil.
3. What would be your answer if the company is registered in New Zealand and all the board meetings of the relevant previous year were held in India except one which was held in Australia.
4. What would be your answer if the company is registered in Australia and all the board meetings of the relevant previous year were held in India.
5. A Non-Indian company is treated as resident, only if the place of effective management is situated wholly in India for whole previous year. (True or False) [CA N06]
6.  X Ltd. and Y Ltd. companies are registered in Nepal and India respectively. All meetings of Board of Directors of X Ltd. were held in India, whereas all Board meetings of Y Ltd. were held in Nepal during the PY 2016-17. Determine their residential status for the AY 2017-18.

Ans: (1)Resident in India; (2) Non-resident in India; (3) Resident in India; (4) Resident in India.(5) False, In fact
place of effective management is wholly or partially located in India for whole or part of previous year then RS
of foreign company is Resident in India (6) Resident in India in both the cases.

P3: Short questions and answers.
1. When a company treated as a non-resident.
2. When a company treated as resident in India.
3. Under what circumstances the residential status of an Indian company be treated as Non-resident.
4. Can a residential status of a company be R-OR or R-NOR.

Solution

1. Two conditions should be satisfied. First it should be a foreign company and place of effective management should be located wholly outside India for whole previous year.
2. If it is an Indian Company then always resident or if it is a foreign company then place of effective management should be located either wholly or partly in India.
3. Under no circumstances.
4. No, the residential status of a company can be either resident or non-resident.

Section 6(4). Residential Status of Local Authority & Artificial Juridical Person
Control & Management of the affairs of the business is situated
• Wholly in India : Resident in India.
• Partially in India : Resident in India.
• Wholly outside India : Non-Resident in India.

P1: Find out the residential status of Karta, HUF and foreign company from the following information for the
AY 2014-15 to 2016-17.