All India Bar Examination (AIBE) 3-III Previous Year Question Papers with Answers

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91.

A, a non-resident Indian, buys land in Chennai for Rupees Fifteen lakhs. However, A gets only Rupees Twelve lakhs from the buyer of the land. Which of the following statements Smost accurately applied the principle below?


Principle :

A non-resident is taxed only on income that is either received (or deemed to be received) or accrues (or is deemed to accrue) in India. An income is said to 'accrue' to a person when a debt is created in her favour.

A: A's income from the sale of the land is not taxable, as A is not resident in India.
B: A's total income from the sale of the land is taxable, as Rupees Fifteen lakhs has accrued to A at the time of the sale.
C: A can be taxed on Rupees Twelve lakhs received from sale of the land as it was received in India, but not on the Rupees Three lakhs as A is et to receive that amount.
D: A can be taxed on Rupees Twelve lakhs received from the sale of the land, as A has purchased land and is now a resident of India, but not on the Rupees Three lakhs as A is yet to receive that amount.
E: A's income from the sale of the land is not taxable, as no debt has been created in A's favour, and hence, no income has accrued to A

The answer is: B

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Explanation

The correct option is B: A's total income from the sale of the land is taxable, as Rupees Fifteen lakhs has accrued to A at the time of the sale.

Explanation:

According to the principle, a non-resident is taxed only on income that is either received (or deemed to be received) or accrues (or is deemed to accrue) in India. An income is said to 'accrue' to a person when a debt is created in her favour.

In this case, A is a non-resident Indian who buys land in Chennai for Rupees Fifteen lakhs. A sells the land to a buyer who agrees to pay Rupees Fifteen lakhs, but only pays Rupees Twelve lakhs. This means that A has a right to receive the remaining Rupees Three lakhs from the buyer. This creates a debt in A's favour, and hence, an income of Rupees Fifteen lakhs accrues to A at the time of the sale. This income is taxable in India, as it has accrued in India.

The other options are incorrect because they either ignore or contradict the principle. A's income from the sale of the land is not exempt from tax, as A is not resident in India. A's residence status does not affect the taxability of the income that has accrued in India. A can be taxed on the entire income from the sale of the land, not just on the amount received. The amount received is irrelevant for determining the accrual of income. A's income from the sale of the land is not nil, as a debt has been created in A's favour, and hence, an income has accrued to A.