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Taxation query

Shridhi Jain (Company Secretary) (1678 Points)

23 February 2013

Dear members,

There is one partnership firm in dubai which consists of three partners, two are residents in india and other one is resident in dubai. The affairs and management of the firm are controlled from India by indian partners.

Will the income of that partnership firm be taxable in India? What are the provisions for that w.r.t Income Tax Act. Pls explain.

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5 Replies

CA Harish Negi (Never Say Die) (860 Points)
Replied 23 February 2013

There are 3 types of residents that we will explain here for your understanding.

Based on this, you will be able to determine your Residential Status.

Type-1: RESIDENT (ANY OF 1 OR 2)

1. If your stay in India is 182 days or more during previous year

2. If your stay in India is 60 days or more in Previous year and 365 days or more during 4 years preceding to previous year.

BUT IN CASE

where a person leaves for employment or
where a resident who leaves India as a member of Crew of Indian ship or
where an Indian Citizen who is abroad comes to India for a visit

The period of stay would be 182 days instead of 60 days in the previous year as per above point #(2)

Type-2: NON RESIDENT

If a person does not satisfy any of [ (1) and (2) with exceptions} conditions then he will be Non-Resident (NRI).

Type-3: RESIDENT BUT NOT ORDINARILY RESIDENT

1. If your stay in India is 182 days or more during previous year

2. If your stay in India is 60 days or more in Previous year and 365 days or more during 4 years preceding to previous year.

BUT IN CASE

where a person leaves for employment or
where a resident who leaves India as a member of Crew of Indian ship or
where an Indian Citizen who is abroad comes to India for a visit

The period of stay would be 182 days instead of 60 days as per point#(2)

AND

3. If you are a resident in India has been at least 2 out of 10 years preceding to previous year;

4. If your stay in India has been 730 days or more out of 7 years preceding to previous year.

Ø If you satisfy any one from (1) & (2) and satisfy both (3) & (4) then your status will be Resident and Ordinarily Resident (ROR);

Ø If you satisfy any one from (1) & (2) and satisfy one or none from (3) & (4) then your status will be Resident but Not Ordinarily Resident (RNOR).

S.NO	INCOMES	Resident and ordinary resident (ROR)	Resident but not ordinary resident (RNOR)	Non resident
1	Income received in India whether accrued in India or outside India.	Yes	Yes	Yes
2	Income deemed to be received India whether accrued in India or outside India.	Yes	Yes	Yes
3	Income accruing or arising in India whether received in India or outside India.	Yes	Yes	Yes
4	Income deemed to accrue or arise in India whether received in India or outside India.	Yes	Yes	Yes
5	Income received and accrued outside India from a business controlled in or a profession setup in India.	Yes	Yes	No
6	Income received and accrued outside India or a profession set up outside India from a business controlled from outside India or a profession set up outside India.	Yes	No	No
7	Income (not being from a business /profession) received and accrued outside India.	Yes	No	No
8	Income earned and received outside India in the year preceding to the relevant previous year and remitted to India in the relevant previous year.	No	No	No

I hope this article was useful to you!

Prashanth S K (Practice) (148 Points)
Replied 23 February 2013

Shridhi,

According to Sec 6 (2) of the Income Tax Act, a firm is a resident unless the control and management of the affairs is wholly situated outside India. Hence in your case the partnership firm in Dubai is very well a resident of India and global income of the resident is taxable in India and hence they are subject to income tax in India.

Prashanth.

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