The Assessment of income under the Income-tax Act, 1961/Wealth-tax Act, 1957 is always based on the Residential Status of a Person.
The Residential status of a person under the Income-tax Act, 1961 is determined according to Section 6 of the Income-tax Act, 1961. ‘The Income-tax Act, 1961 recognises three types of status in respect of any person and they are:-
3. Not Ordinarily resident
The Residential Status of HUF is governed by Section 6(2) and 6(6) of the Income-tax Act, 1961 which reads as follows: -
A Hindu Undivided family, firm or other association of persons is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India.
Thus, a HUF is deemed to be a resident of India unless the control and management of its affairs is situated wholly outside India. In relation to HUF, we have seen that the Control and management is vested with Karta and therefore if the Karta of the HUF stays outside India and controls and manages the affairs froxt outside India, the HUF would be (a) turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs. 40 lacs but does not exceed Rs. 50 Crores. Turnover for this purpose doesn’t include other income.
(b) Borrowings, including public deposits are in excess of Rs. 1 crore but not in excess of Rs. 10 crores at any time during the accounting period.
1. All the accounting standards as specified above
3. Special HUF (Also known as Level I enterprises for the purpose of Accounting Standards)
Further in respect of those HUFs whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs. 50 Crores or whose borrowings including public deposits is in excess of Rs. 10 Crores at any time during the accounting period, all the Accounting Standards are applicable. However, there are certain Accounting Standards which by their very nature are applicable only in case of Listed Companies and therefore, they are not applicable to HUFs falling under Level I enterprise.