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Unit 2: Residential Status and Taxation

Solution: During the previous year 2012–13, Mr. D, an Indian citizen, was in India for 175 days (i.e. Notes
30+ 31+30+31+31+22 days). He does not satisfy the minimum criteria of 182 days. Also, since he
is an Indian citizen leaving India for the purposes of employment, the second condition under
section 6(1) is not applicable to him.
Therefore, Mr. D is a non-resident for the A.Y.2013–14.

2. Residential status of HUF: A HUF would be resident in India if the control and management
of its affairs is situated wholly or partly in India.
If the control and management of the affairs is situated wholly outside India it would
become a non-resident. The expression ‘control and management’ referred to under section
6 refers to the central control and management and not to the carrying on of day-to-day
business by servants, employees or agents. The business may be done from outside India
and yet its control and management may be wholly within India. Therefore, control and
management of a business is said to be situated at a place where the head and brain of the
adventure is situated. The place of control may be different from the usual place of running
the business and sometimes even the registered office of the assessee. This is because the
control and management of a business need not necessarily be done from the place of
business or from the registered office of the assessee. But control and management do
imply the functioning of the controlling and directing power at a particular place with
some degree of permanence.
If the HUF is resident, then the status of the Karta determines whether it is resident and
ordinarily resident or resident but not ordinarily resident. If the karta is resident and
ordinarily resident, then the HUF is resident and ordinarily resident and if the karta is
resident but not ordinarily resident, then HUF is resident but not ordinarily resident.

Example: The business of a HUF is transacted from Australia and all the policy decisions
are taken there. Mr. E, the karta of the HUF, who was born in Kolkata, visits India during the P.Y.
2012–13 after 15 years. He comes to India on 1.4.2012 and leaves for Australia on 1.12.2012.
Determine the residential status of Mr. E and the HUF for A.Y. 2013–14.
Solution: During the P.Y.2012–13, Mr. E has stayed in India for 245 days (i.e. 30+31+30+31+31+
30+31+30+1 days). Therefore, he is a resident. However, since he has come to India after 15 years,
he cannot satisfy any of the conditions for being ordinarily resident.

Therefore, the residential status of Mr. E for the P.Y.2012–13 is resident but not ordinarily
resident. Since the business of the HUF is transacted from Australia and nothing is
mentioned regarding its control and management, it is assumed that the control and
management is also wholly outside India. Therefore, the HUF is a non-resident for the
P.Y. 2012–13.
3. Residential status of firms and association of persons: A firm and an AOP would be
resident in India if the control and management of its affairs is situated wholly or partly
in India. Where the control and management of the affairs is situated wholly outside
India, the firm would become a non-resident.
4. Residential status of companies: A company is said to be resident in India if:

(i) It is an Indian company as defined under section 2(26), or
(ii) Its control and management is situated wholly in India during the accounting year.
Thus, every Indian company is resident in India irrespective of the fact whether the control
and management of its affairs is exercised from India or outside. But a company, other
than an Indian company, would become resident in India only if the entire control and
management of its affairs is in India.

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